Seems like every business is chasing continuity income (CI) these days.
On the surface, CI is a great model. It smooths out cash flow and gives you consistency. When you’ve got 1000 people paying you $100/month on autopilot, you tend to sleep a little better. What’s not so apparent is that it can end up smoothing cash flow, but also generating less total revenue and fueling complacency that, in the long run, can kill your business. I’ve already covered that topic, though.
This post is about another potential CI trap, one that’s more hidden. It’s easy to fix if you know about it before you begin. But much harder to wrangle if you discover your mistake along the way. I know this through personal experience.
So, let’s break it down…
First, what exactly is CI?
CI is where someone signs up one time, then pays on a recurring basis moving forward. Sometimes payment starts after a free or reduced-price trial, other times it starts right away. Often the payments are charged monthly, they happen automatically and continue either for a fixed window or until they’re cancelled.
Offline examples include health club memberships, health insurance, wine or book of the month clubs and even rent. Examples from the online world include all varieties of membership sites, educational programs, gaming and music services.
CI can work well as a business model, helping you sleep better at night knowing a reliable income is coming your way every month.
But when it’s based on content or education, it can also become a bit of an unplanned content beast (which is the most common reason for membership sites shutting down). And here’s where is gets really tricky, it can also cause serious grumbling when the value delivery cycle doesn’t match the billing cycle.
What does that mean?
Let’s break it down…
The value delivery cycle is about how and when you deliver the value that people are paying for. The billing cycle is about how often people are paying. And here’s where things get dicey.
When the value delivery cycle matches the billing cycle, clients can easily make a price/value comparison and figure out whether they’re “getting what they paid for.” When they don’t line up well, though, people have to work way harder to figure out if they’re getting what they’re paying for. And memories tend to be short, billing cycle short, which can lead to some real issues.
So, let’s say you sign up for a wine of the month club and every month your credit card is billed $15 and you get a bottle of wine. You can easily line up the value of that bottle with the $15 you just paid. If you feel like each bottle is worth at least $15 and you like getting surprised with new bottles of wine every month, you’ll likely keep paying. It’s an easy comparison, you don’t have to work to know it’s worth the cost.
When the value cycle does not match the billing cycle, though, that’s when the opportunity for things to fall apart arises.
So, let’s say you pay health insurance. Every month, money goes out, but you don’t get sick or injured for 4 months. Then you sprain your ankle and get charged $175 for a doctor visit that’s not even covered because you haven’t hit your deductible.
You get annoyed at the fact that you’re paying $350 a month for something you don’t even use most months, and when you do, it doesn’t even cover what you’ve paid out. You also conveniently forget that time two years ago when you needed to be rushed to the emergency room for surgery and your insurance covered what would have been a $45,000 bill. All you really focus on is “what has my insurance company done for me LATELY?” And by lately, what you really mean is “in the last billing cycle. The last month or maybe two.
Let’s take it into the world of online products and trainings…
If you signed up for an online training program, paid monthly and the content was delivered in equal installments on a regular monthly basis, you’d have an easier time matching the value cycle with the billing cycle and, in doing so, be able to easily determine if the value was worth the spend.
But what if the exact same level and quality of content and interaction was delivered on a more sporadic basis?
What if you got a ton of it one month, then very little or nothing for two months? What if the content was delivered in short intense bursts every 3 months, with lull months in between but you were paying equal amounts every month?
The value would be the same, BUT because the value delivery cycle didn’t match the billing cycle, when you ask “what has this solution provider done for me lately?” you tend to focus on the last billing cycle or month. And, if that was a “lull” month, you’re far more likely to come up with a “false negative value.” You forget the fuller value that’s been delivered over a longer window of time. It’s impact fades, that’s just how our brains work.
And you end up bailing on the experience, not because of a genuine lack of value, but because you had to work too hard to match the value you were getting over time with your recent investment. We are notoriously bad at recalling the real impact of past value, often underestimating or flat out forgetting. Especially if we’re looking for a reason to walk away (and spend the money on something else). We are incredible rationalizing beasts!
And, by the way, we also happen to be horrible at affective forecasting or forecasting the anticipated value of a future experience.
So, what’s the solution?
When you’re thinking about your next venture or product launch, if you’re considering a continuity pricing model or even a financing/pay-over-time model, make sure to also deliver the value in increments that are spread fairly evenly across the billing cycle.
That’ll make it far easier for clients, customers and members to say “this month I paid $10 and I got at least $10 worth of service or stuff in return.” Rather than, “this month I paid $10 and got $6 of service and stuff, but two months ago, when I paid my $10, I got $50 worth of service and stuff, so it’s all good and then some.”
Eliminate the value lulls. People, including smart people like you and me, have trouble doing the math.
Which brings up one of the biggest mistakes entrepreneurs make in the online world—launching a product or venture, then creating the content/experience on the fly (raising my hand here, lol). You create a sales process as a way to test an idea, but you don’t create the product or solution because you don’t want to do the work until you know there’ll be enough demand to make it worth the effort.
Then, the launch goes gangbusters and you are gifted with the opportunity to deliver on your promises.
The good news is – you didn’t have to spend a ton of time, energy and money on something before knowing whether it was time or money well spent. But, now that you’ve got people lined up to pay you, you need to deliver on your promise and create the content, the experience, the level of engagement and benefits…all in in real time.
It’s possible, BUT it also increases the likelihood that all sorts of short term challenges will screw with your best intentions to create and deliver the content and experience on a schedule that makes it easy to match value with the money being paid. And, even though, on the whole, you believe you’re more than delivering what was promised, the disconnect between the value cycle and billing cycle wreaks havoc on “perceived” value/price associations.
So, even though it means doing more work before a launch, whenever possible, try to create a solid chunk of the solution, product or experience BEFORE you launch. Enough to give you the buffer needed to deliver the value on a schedule that matches the billing cycle and makes everyone feel happy and satisfied that they’re getting what they’re paying for each and every month.
This’ll also let you sleep better at night, knowing you’re always ahead of the value delivery curve.
So, do have a CI based business, product or service? What’s YOUR experience been with it?
Share away in the comments…
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