There may not be an acronym in the credit card processing world that is sweeter to businesses than ARB. It stands for “automatic recurring billing” and it helps guarantee companies a predictable cash flow from month to month.
One of the strategies to building a revenue stream on a solid ARB foundation is to create a “club.” Anyone who has joined a health club or country club knows that membership fees are automatically charged each month. The key word here is “join.” Whenever you can convince a customer to join your organization, the concept of an automatic recurring bill is virtually assumed.
Netflix provides a great example of ARB in action. Each of the company’s 62 million subscribers pays a monthly fee in order to have access to Netflix’s extensive cache of TV shows and movies.
But more than just an on-demand online streaming service, Netflix has created an exclusive club. It offers members content that can’t be found anywhere else – popular shows such as House of Cards and Orange is the New Black, among many others. Netflix’s “members” are able to enjoy their viewing experience anytime and anywhere. Regardless of how often customers stream content, the subscription-based model ensures Netflix’s monthly revenue will remain consistent.
Compare Netflix’s model with that of Redbox. For the latter, customers visit a Redbox location and select the movie or video game they’d like to rent, and are charged until they return it. It’s a series of one-off transactions, meaning the customer has no idea when his or her next touchpoint with Redbox will be. However, Redbox does offer their own form of “membership” which a customer can access just by providing his or her email address. Members are given special promo coupons and free rentals, but the model is still dependent on customers making the conscious effort to spend money and rent a movie.
The financial results for each business model are telling. In 2014, Redbox reported $1.89 billion in revenue. Netflix, on the other hand, nearly tripled that total in the same time span, earning $5.50 billion in revenue.
Another way to jump on the ARB bandwagon is through online buying clubs. And many brick-and-mortar retailers can create one as an adjunct to their established businesses. However, you need to create an experience that makes your “members” sense the special stature that comes with membership. Remember the American Express slogan: “Membership has its privileges”?
If you’ll let me toot the horn of a club that I think is doing a great job at this right now, I’d like to single out The Dollar Shave Club, where I’m a customer – make that a member. First I’d like to give them an “A” for innovation and risk taking. Let’s be totally honest here: Would either you or I have considered building a “club” around the humdrum chore of shaving? It’s not much more glamorous than a “One Dollar Ditch Digging Club,” when you think about it.
We should all take comfort in this fact. If a successful club that pulls in a steady stream of ARB dollars can be founded around the grooming chore of shaving (and to men, no less!) then there’s probably hope for all of our businesses! Further, this is a club that appeals to a wide variety of ages. People from every generation – Baby Boomers to Millennials, and others in between – are joining this club.
You might wonder how a purveyor of razors can establish the special relationship required to get people to feel good about having a recurring payment on their credit card statement every month. First, shaving is an intimate and constant experience for men. Understanding that experience and enhancing it with a solid product, respect and a dash of humor is something men will value. Few of us can afford to hire a personal valet or join an exclusive men’s club, but the regular Dollar Shave Club deliveries give us a taste of that kind of personalized attention and service.
There are also many other successful clubs relating to countless interests – wine clubs, shoe clubs, and others. Further, some online groups you join don’t call themselves clubs, although the experience they provide people delivers at a high level. I would include Amazon Prime in this group. Amazon clearly urges you to “join” and they do a great job of listing the “membership benefits.” It’s interesting that groups you join offer “benefits” rather than “features” – aren’t we always urged to sell the benefits over features?
In the case of Amazon Prime, I’ve noticed that they keep adding benefits. That’s one way to really help assure your members will continue to let their ARBs ride. It also helps create the “velvet rope effect” of exclusivity. Members think, Fantastic! I get this new added benefit regular people aren’t getting! I’m special!
Is a club or membership group in your future? It can be a great way to boost your bottom line and eliminate a lot of sales hassles. However, you need to be sure that the experience you provide is “membership worthy.”
This article was written by Shep Hyken from Forbes and was legally licensed through the NewsCred publisher network.