BUSINESS FINANCIAL
BUSINESS
BUILD A PROFITABLE SUBSCRIPTION BUSINESS – HOW THE NUMBERS ADD UP! By Jim Rayner
Every month I pay Apple 79p. It goes out of my bank account automatically and has done for the last 8 years. Several friends I’ve talked to do the same and none of us are entirely sure what we are getting for our money. I could set aside some time to investigate, weigh up the value, and take an informed decision, but I have a dark suspicion that cancelling would involve a lot of hassle and maybe risk the loss of phone data backups, photos of my granddaughter and perhaps some Leonard Cohen songs. Much better to leave well alone: after all, 79p a month is insignificant. It’s not going to alter my holiday plans.
By the way, did you happen to notice that in early January Apple became the first company to hit a stock market valuation of $3tn? Of course iCloud subscriptions only make up a small part of Apple’s income but if, say, 10 million of us in the UK are paying 66p plus VAT, and allowing for transaction fees we’re contributing at least £75M to Apple’s coffers each year.
• Maintenance contracts – British Gas Homecare
Apple is just one example of a company using a subscription business model. You probably have subscriptions for some of these:
• Membership clubs – golf, gym, wine tasting
• Entertainment – Sky, Netflix • Mobile phone – calls and data
STAY ON TOP OF THE NUMBERS PROTECT YOUR BUSINESS SAVE LIVELIHOODS BUSINESS NUMBER EXPERTS WWW.JAMES-RAYNER.CO.UK
• Software – Office 365, QuickBooks, Xero • Magazines – but not, of course, The Conduit which is FREE! • Meal boxes – Gousto, Mindful Chef, Hello Fresh • Consumables – printer ink, razor blades
We can even pay subscriptions to get regular deliveries of gin, chocolate, pornography (so I’ve heard) or socks. In fact almost any business you can think of has scope to create a subscription income stream. Get it right and it can be extremely profitable because it gives you guaranteed repeat customers and regular monthly income which makes planning so much easier. Instead of having to sell each month you can focus on the much easier task of keeping your existing customers delighted so they have no reason to cancel.
Do that really well and you could achieve viral growth – where existing customers recommend and bring in new customers, creating a snowball effect. If you’re thinking about creating a subscription business you will need to look at a completely different set of numbers to those you’re probably used to monitoring. The key ones are: • Churn – the rate at which subscribers cancel • Lifetime value – how much is a customer worth over the period they stay with you • Customer acquisition cost • Margin – how much profit do you make on each subscription If you would like to explore building subscriptions into your business and experiment with the numbers, you’ll find more information including an interactive illustration on my website www.james-rayner.co.uk.
MAKING INFORMED CHOICES By Mark Salter, Fort Financial Planning
In most endeavours, there are things you can control and things you can't. That's true in life. That's true in business. That's true with investing. The good news about investing is that markets have rewarded investors over the long term. But over the short term markets go up and markets go down. Here are some observations about the investment business and what it takes to have a good experience. Things You Can’t Control: Few things have been studied as extensively as the performance of professionally managed funds. While the results indicate that some managers have good track records, there are far fewer of them than you would expect by chance. For investors, even after analysing all the data, you can’t separate skilled money managers from lucky ones. And if you can’t identify superior managers after the fact, how can you identify them in advance? 16
Based on the overwhelming evidence, there is no magic to investing. Throughout their lives, people must continually deal with uncertainty and make choices — what school to attend, what career to pursue, where to live, and so forth. You look at all the possibilities, and then you decide. Much of the financial services industry is geared toward making people think they can eliminate uncertainty in investing. However, the future is unknowable. The best approach to dealing with uncertainty is to make informed choices, adjust as needs and objectives change, and be comfortable with the range of possible outcomes. Things You Can Control: When you’ve got a compass, it doesn’t take drastic directional changes to find your way. Small adjustments are all you need to stay on course.
In 2009, the US stock market was down more than 50%, a lot of people were stressed out by the uncertainty, so they cashed out. That locked in their losses. The market, as it turned out, rebounded and people who got out of the market may have to wait decades to get back to where they were. It’s unfortunate they didn’t stick it out so that they could have better weathered the storm. Trust involves many different parts. To trust markets, you must understand how they work, which means having a source of reliable knowledge. The best source is scientific research, not opinions and hunches. Most people lack the knowledge to manage their own investment portfolio. A trusted financial planner can help you figure out your goals, present different ways of forming portfolios, and ensure you understand the possible distribution of outcomes. Then you can make informed choices about
how to invest. Your planner keeps watch over what’s happening, and together you revise your investment plan if needed. Investing is a dynamic process and a lifelong journey. It’s having a philosophy you can stick with, considering the range of possibilities, and adjusting along the way. These are the keys to a better investment experience. Stay disciplined, control what you can control, and keep a long-term view on your destination so you can focus on what really matters and enjoy your life.
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