Creating Tiered Paid Products to Maximize Revenue

Many publications view their subscription businesses as a few tiers on a marketing funnel, with the bottom comprising the paid subscription. Once the user is there, the first job is done, and the second—retaining those readers—can begin.

By and large, this has been the big focus for publishers over the past few years as they made the pivot from free to paid. And while I think it’s been a necessary focus, there’s an argument to be made that they have left a lot of money on the table.

The right way to look at a marketing funnel is as a bunch of small funnels within a major one rather than one to rule them all. So, if the first funnel is to get people from free -> newsletter -> paid subscription, the next should start with paid subscription at the top.

But let’s take a step back and better understand what this means. Earlier this week, I had a call with a smart operator who has worked with companies on their subscriptions for years (I won’t blow his spot up; he can share who he is in Slack). And he introduced me to a company called MarketWise. The nice thing about this company is that it is public, so it shares much more about its strategy with investors.

I looked at its Q2 investor presentation, and pages 13 & 15 are worth spending some time with (I won’t embed it because it’ll look better in your browser).

First, on page 13, it talks about four categories of its audience, the products, how much it charges, and how many people it has in that bucket:

• Free: 15 million people
• Paid: 522k people paying <$600
• High value: 240k people paying $600-$5,000
• Ultra-high value: 136k people paying >$5,000

Most publications stop at those first two bullets. And if you look at page 15, it’s evident that the transition from free to paid is the biggest mountain to overcome for the business. Yet, fewer than 4% of people make that transition.

But something fascinating happens once someone is in the paid category. First, 42% of them convert from a paid product to a high-value product. And then 36% of high-value members convert into an ultra-high-value product.

There are two things I glean from this.

The first is that, for MarketWise, 96% of its potential customers do not pay for anything. And this is likely the case for many publishers, which is why I do not believe in subscription-only media companies. You have many prospective readers that will never get off zero, but they can be monetized with advertising and other revenue streams.

The second is that once someone commits to spending a dollar with you, getting a second dollar out of them is significantly easier. And that’s the real secret to what MarketWise is doing. It has figured out that creating additional products and monetizing its current paying subscriber base is more lucrative than just focusing on improving the first conversion from 4-5%.

And this is where I think a lot of publishers could play. We should be trying to figure out how to get people to pay for our content, but I think stopping there is missing a significant opportunity to increase revenue. And if publishers change how they think, there are a lot of exciting possibilities.

I’ll give an example.

Let’s assume that you are running a b2b publication about the advertising world. And the goal is to get people to pay $400/year for in-depth reporting. Of course, there are many publications like this, so this shouldn’t be hard to imagine.

Once you’ve reached the critical mass of subscribers—maybe it’s 1,000 or 10,000—you should start asking yourself what you can create next. For example, one option could be a fantastic community for only your paying subscribers. But rather than giving it to them for free, you charge them to gain access. And rather than charging $400/year, maybe you charge $1,000 a year.

Let’s see what that looks like using MarketWise’s conversion metrics. You’ve got 1,000 people paying the $400/year, which is $400,000 in revenue per year. If you get a 42% conversion from a paid subscription to the community, that would be 420 people. That’s another $420,000 in revenue. With the same 1,000 people, you are now making $820,000 in revenue—you’re making, on average, $820 per user (before factoring in renewals, which extends the LTV).

But what if we take it one step further? You decide to create an ultra-exclusive event for the community where you charge $2,500 for a ticket. Using MarketWise’s numbers, you get a 36% conversion on the 420 people. That’s ~150 people, which is $375,000 in additional revenue. You’re now at $1,195,000 in revenue off of 1,000 people.

This math is elementary, and it’s not a 1:1 comparison since a lot of what MarketWise sells is financial products and tools versus b2b offerings. But it illustrates the potential to monetize your user base multiple times, mainly because they are more likely to buy from you again.

This is why so many e-commerce sites want you to save your shipping and credit card information in their databases. Making it easier for customers to be repeat buyers makes them more likely to purchase from you.

Another ample opportunity here is with the local media companies, especially many of the more recent ones that have led with their membership offerings. As part of these, they promise tickets to “member-only events.” I would encourage these companies to not give the tickets for free, but rather to treat them like member-only, but still charge for them. You’ll find that a decent percentage of your paying members will also pay for this.

I’ve long believed this is how creators should think about monetizing their businesses. When all these newsletters were launching subscriptions only, I tweeted this simple image about how creators should think about monetizing. The number of people you’d interact with every level down would shrink, but the amount of money you made from each person would increase.

The 1,000 True Fans model said you only needed 1,000 people to give you $100 to do whatever you wanted. And it’s right, but it’s the first step. Once you have 1,000 people willing to pay for something, you’ve likely got hundreds within that community willing to pay even more for something better. Our job is to figure out what that is.

Thanks for reading today’s AMO. If you have thoughts, hit reply or join the AMO Slack to talk more about this. Have a great weekend!