The Automatic Customer by John Warrilow discusses 9 subscription-based business models that you can apply to your business and earn recurring revenue every month without actively being involved in it.
Who should read the Automatic Customer Summary, and why?
This book is for entrepreneurs who want to build a subscription business that gives you recurring revenue every month.
So if you're someone who owns a business, you may find smart strategies to implement a subscription model in your business.
Even if you're starting a startup, this book might be valuable to you as it teaches you how to scale your business and make it work on automation, meaning less effort and more returns.
"Is this book for me if I'm not an entrepreneur?"
Well, almost no.
In this book, John has shared 9 business models, so if you're not in the field of business or interested in business, find some other book.
But if you're interested, you can read it.
"Is this summary for you?"
If you love exploring new stuff, this summary might be for you.
(Anyway, I haven't used technical jargon. So ... read on!)
The Automatic Customer Summary (PDF)
Here is how I'll break things down.
First, you'll learn what a subscription model is and why John has put so much emphasis on using them in your business.
Next, I'll give you an overview of 9 subscription models that John has discussed (in-depth) in this book.
Excited? I guess you are.
Let's get started!
What Are Subscription Models?
My bet is, if you're reading this summary, you already have an idea of subscriptions.
These days, you see them everywhere.
Let me guess.
Where do you watch all your TV shows and movies?
Most people prefer Netflix.
I know there are other streaming services as well. But Netflix is the most popular.
Just for the sake of this summary, here is the informal definition of subscription business:
You pay me a monthly or yearly recurring fee and get unlimited access to what I've got.
This definition may vary at times, but the core idea behind any subscription business model is the same.
If you look closely, a subscription business has 3 components:
- Service/Product Provider
- A customer base or subscribers
For a subscription model to exist, somebody has to build it.
And to sustain it, the provider needs something to provide to the customer.
The most crucial part? There needs to be a loyal customer base who pays for the services it uses.
Makes sense, right?
Put it simply:
To survive, Netflix needs an ever-growing library of movies and serials. And the subscribers happily pay for it as they get access to that enormous virtual library of content.
Subscription models are everywhere.
How can we forget Amazon Prime?
You pay for it yearly or monthly and get amazing deals and shipping discounts.
Another example: Medium.
Writers publish their quality articles on it, and subscribers get to read all of them by paying $5 every month.
There are lots of other subscription-based businesses.
But learning their names isn't our goal.
Let's discuss why you should implement a subscription model in your business.
Why subscription business?
I'll explain from the perspective of both: companies and subscribers.
Why companies love the subscription business model?
Compared to other traditional business models, where a company sells products to its consumers, the subscription businesses are more profitable.
What's the problem with that model?
The problem is:
The company has to sell their products again and again to the customers. It generates profits only when the products are sold.
Such models aren't bad. In fact, they are amazing.
But when you put both business models side by side, you'll find out that subscription models make more money in the long-term. (Don't worry, you'll learn why in the latter part of this summary.)
More consumer data
The author talks about Amazon Prime in this book.
On the surface, it looks like a simple subscription with its perks.
But experts claim that it's actually a trojan horse.
The whole point of putting up Amazon Prime subscription is to make customers more loyal, collect their data, and analyze their buying behaviors.
Take another example: Netflix monitors all your activities on their platform. They try to understand your preferences.
How do they achieve all that? By collecting your data.
Data could be anything like which genre movies you like most.
They then optimize their algorithms according to your preferences.
So subscription business models allow you to gather more customer data and use it improvise on your strategies.
No need to sell again
Most subscription-based businesses ask you to add your credit/debit card at the time of the purchase.
Once the interval is over, they deduct a fixed amount of money from your bank account.
Or in simple words: a subscriber becomes an automatic customer.
They only have to sell once. But unless you cancel the subscription, you remain their customer.
This is also one of the reasons why subscription businesses are more profitable over traditional business models.
It makes customers more loyal
The author says that when you buy an Amazon Prime membership, you become more loyal to Amazon.
Why? Simple, because you paid your money, and now you want to squeeze its worth.
So when you get any chance, you choose Amazon over your local sellers.
Remember, Amazon Prime is not to benefit you. It's a trojan horse. It's a sneaky tactic used by Amazon to make you more loyal to them.
It doesn't require much active involvement of the owner
Do you think Jeff Bezos manages his website or delivers the products himself? Only in the dreams.
Or do you know who owns Netflix?
Who cares? All we care about is something to binge-watch. Maybe I'm wrong.
The point is:
A subscription business is a passive income source. Once you build it and scale it to a level, it runs on auto-pilot.
Increases the worth of a business
Imagine you've two choices to buy a business:
Choice #1: A business that requires you to work for 18 hours a day and hardly generates any revenue.
Choice #2: A business that works on auto-pilot and generates thousands of dollars every month while you are partying with your friends and traveling the world. (Sounds like a dream, right?)
Which one would you choose?
If you are anything like me, you will choose the 2nd one.
The reason is simple:
It hardly requires any effort and generates excellent revenue.
Such businesses, naturally, are more valuable. And if you sell them, you make crazy money.
Subscription models are pretty much like this.
They are easy to scale and are highly profitable once set up.
Increases the lifetime value of a customer
Through subscription business, you get a better hold of your customer's wallet.
And as the customer becomes more loyal, it's lifetime value also increases.
That means more profit in the long-term.
It can be applied to almost any business
No matter what business you are in, you can implement the subscription model.
It's not like they only apply to digital/online stuff.
But as we see that digital websites use this model often, it gives us the impression that subscription models only apply to the internet world.
The author says that subscription models are very old. People used this model to sell maps, magazines, and newspapers. By paying a fixed amount every month, you could get access to all the updated and latest content.
So don't shy away from applying this model if you run an offline business.
Gives you peace-of-mind
This is probably the best thing about subscription models. It gives you peace-of-mind.
What's better than money rolling in your bank account every month without much effort?
Well, there are things more important than that. But one can't deny the satisfaction once you've set up such business.
Why customers love the subscription business?
Gives instant access to quality content
Such businesses allow you to access quality content behind a paywall. The entire process is hassle-free. Just pay for it and use it.
No tension of paying again and again.
In fact, most people forget about payments at all when they enjoy the subscription.
But imagine if every month, you had to do all the payment procedure. It'd be an extra pain in the behind, wouldn't it? Thanks to subscription models, you don't have to bother about that at all.
It's good for both the company and the customers.
It's cheaper and convenient
Imagine if you had to buy the CDs of every movie you watch on Netflix or every song you listen to on Spotify or Gaana.
That would cost you a lot of money.
But when you use a subscription service, you pay a monthly fee. That's it—no other additional cost.
That's cool, isn't it?
Purchasing a subscription is much cheaper than buying individual pieces of content.
And it's much convenient too as it saves you a lot of time and trouble.
Okay, so now you know the advantages of subscription business from the perspective of both the company owners and the customers.
Let's take a brief overview of 9 business models that the author has discussed in this book.
Types of Subscription Models ( 9 Models)
Model #1: The Membership Website Model
As the name itself says, such websites charge you a fixed monthly recurring fee and give you access to their content.
For example: Medium.
Medium charges you $5 each month.
And what you get in return? You get to read best-curated articles by various authors.
Such websites hide their premium content behind a paywall.
So if you are an expert in something, you can also start a membership website and hide your expertise behind a paywall.
But you need to make sure that what you're providing behind a paywall is worth the money. Otherwise, you'll see a decline in your subscriber growth.
Most of such sites try to sell their high-ticket products by keeping the entry fee low.
And that's where they make most of their money.
For example, they may sell their live event tickets to their subscribers. And since subscribers become more loyal, they usually buy those tickets.
Model #2: The All-You-Can-Eat Model
The best example of this model is: Netflix.
Netflix gives you an endless amount of streaming content.
It's almost impossible to consume all of their content.
So they give you all you can eat. Got the idea?
It works best for companies as customers never complain about the variety. Result? They happily keep using their subscription.
As I told earlier, the more the customers continue using the service, the more data they collect.
One might think, "how do those companies maintain the fresh supply of content?"
If you look closely, most of the content provided is evergreen, and only around 20% of the content is fresh.
Even Netflix's new movies contain old evergreen movies. They just present them as new. Sneaky, isn't it? I have seen it with my own eyes over and over again.
If you have enough evergreen content, you don't have to bother much about the supply of new content. It doesn't mean that a company can get away without producing new content.
You have to make a balance there.
The advantage of this model is that the perceived value of what a company provides increases dramatically in the customer's eyes.
Got the reason why the majority of Netflix customers are happy?
Let's move on to another model.
Model #3: The Private Club Model
This model is for those businesses whose target audience is wealthy.
If you have truly rare information regarding a field, you may consider this model.
That's what the word 'Private' means, right?
And since it's private, a customer has to pay a lot more.
In other words: it's expensive.
And since it's expensive, only a few people would buy such subscriptions.
This usually works if you want to network with high-level people and access highly classified or rare information.
Model #4: The Front-Of-The-Line Model
If you are an average person like me, you know how tiring and painful it is to stand and wait in the long lines at the stations or airport just to buy a ticket.
Those who don't want to wait and are willing to pay extra money to reach the front of the line go for this type of subscription.
Now let's think: where can we apply this model?
Simple, all the places where there is more supply of customers, this model can be applied.
And those who want to get their job done fast without going through the standard line will happily pay for it.
Those who pay an additional fee get priority access and better treatment than those who pay the standard price.
Heard of a "Gold Pass"?
A person with an "Elite" of "Gold" pass gets priority over standard customers. They get faster and better customer support.
It doesn't mean that your regular customer service should suck. Still, you need a reliable system to manage other customers as well.
So don't get greedy with this model and forget about your loyal in-line customers.
This model is about serving premium clients better than the standard clients by charging an additional recurring fee.
Model #5: The Consumables Model
This model is best used in E-commerce.
For example: if your business sells mundane products like diapers, shaving blades, etc., you can sell such items on subscription.
Customers would then be able to use such everyday products whenever they want by paying a monthly or weekly fee.
In short: In this model, a customer doesn't have to worry about an item's shortage.
For businesses to succeed with this model, the author says that they have to provide a branded experience.
This means that the customer shouldn't feel like he has been sold some cheap items. He should be happy and feel at home while using it.
I won't go deep into how you can provide a branded experience.
There are many ways to do so. (For another time ...)
The question here is:
Why is branding so important?
It's important because we already have giant E-commerce stores like Amazon and Flipkart that already sell such mundane products.
And people are loyal to them.
So if you are selling those same products and not providing a unique experience, your business will lose in competition with the giant E-commerce companies.
That's why providing a unique brand experience is essential.
My tip is if you are going to choose this model, sell unique products that aren't readily available on Amazon or other such giants.
That way, you'll have to face less competition.
You'll need to dig deeper to understand this model in a better way.
Just remember this:
If you aren't providing a fantastic experience to your customer, you won't be able to survive for long in the E-commerce industry as it's highly competitive.
Model #6: The Simplifier Model
This model is different than the above.
The above model is best for E-commerce stores. In comparison, this one is best for local service providers.
Let me explain.
What if someone could fix all your electrical problems in your home without you worrying about it?
What if you are a busy mom who doesn't have time to tutor her kid?
What if you are a busy employee who doesn't have time to groom his pet?
This model helps a business serve people who are busy and can't handle a particular problem on a regular basis.
One has to groom his pet after a specific interval of time.
One has to tutor his kids every day or two.
All those services that can be provided on a regular schedule and tick off the items on your To-do list come under this business model.
To put it simply:
This business model helps a business to simplify the life of his customer.
The best part:
As a service provider, you can upsell and cross-sell other products to improve your customer's life and make even more money by earning a commission.
This is the part where such businesses make most of their profits.
Pretty cool, right?
For example: If you provide a pet-grooming service, you can cross-sell other products that help the customer keep his pet groomed for a long time.
I don't have a pet. But I guess you understood my point.
Now lets' talk about another exciting subscription model.
Model #7: The Network Model
The thumb rule in this subscription model is:
The bigger your network, the higher the profit.
For this model to work, your product must be so fantastic that your users or customer would share or spread the word for it with their friends.
That's how your network grows.
For example: Whatsapp.
It's so convenient that people started referring to their friends.
As a result, it got tremendous growth over the years.
The same happened with the Zoom video calling app.
It made the life of people easy. Soon, everyone from college professors to business people started using it.
But as this model depends on an extensive network of people. It can be a liability.
For example, if people start ditching your product/service for some reason, you'll see a sharp decline in your revenue.
Model #8: The Peace Of Mind Model
Life can bring unexpected events sometimes.
One must be prepared for such times.
But that uncertainty can take away your peace of mind.
For example, your kitchen stove gas may leak and create problems.
Your car may get stolen by thieves.
In those cases, you need insurance. That insurance gives you a sense of safety and peace of mind.
The challenge lies for the company because they have to be ready for unexpected events. Otherwise, it'd result in a bad reputation.
One single mistake could destroy all their previous efforts.
The reason being, people only subscribe to such services when they have something that they genuinely care about.
For instance, people love their dogs and therefore subscribe to dog-grooming service. Imagine if something terrible happens to that dog. In that case, the dog-owner would never trust that company again.
Companies that adopt this model have to be extra cautious about unfortunate events.
The author says that this subscription model also works for B2B companies.
As business owners get caught up in their game, they need someone to manage non-priority tasks. At the same time, they have to maintain their peace of mind.
Various companies provide tools on a monthly subscription, which allows the entrepreneurs to put their work on an automation and never worry about certain tasks.
For instance, some web hosting companies provide security services to the website owners and keep their websites safe from malware and threats. This allows the website owner to focus on essential tasks.
Model #9: The Surprise Box Model
This also works for E-commerce companies.
Such companies give a suprise gift collection at the end of the every month by charging a monthly recurring fee to the customer.
This way, the customer gets surprising collection and doesn't worry about selection. It's one of the best way to keep customer happy.
People who subscribe to such services are those who love to explore new things.
It also sometimes becomes a challenge for the company to make unique combinations and delight the customer every time he opens the box.
In this summary, you've learned:
Want to learn more about Entrepreneurship?
The Automatic Customer Review
This book is an absolute must-read for an entrepreneur.
The author has shared almost everything you need to know about the subscription-based business.
With every model, the author has explained:
- Key insights
- Who is it for?
- Case studies
The author's writing style is fairly simple and makes you focus on learning about business.
I didn't find much fluff, unlike most self-help books.
I'd suggest you read the Built to Sell by the same author. That way, you'll be able to build a business from scratch and sell it to achieve financial independence or atleast get closer to it.
Your Action Plan
If you're an entrepreneur, you'd want to find out areas where you can fit one of the above subscription models.
If none of the above models fit your business, the author says that you may mix them. This would allow you enough room for creativity.
And ultimately, you'll be able to develop a plan best suited for your business.
Best of luck!
If you enjoyed reading The Automatic Customer Summary, don't forget to share this on social media. It'd help me a lot. Thanks!
Also, let me know which subscription model you are looking forward to applying to your business.
Write in the comments. I reply to all.