The subscription model is thriving everywhere else besides the arts—to the tune of 20% of all consumer credit card transactions now go to subscriptions and memberships. So why then, are subscriptions and donations on the decline in the arts?

It turns out, there are three big things these successful brands are doing differently than arts organizations. This episode breaks it down, as well as offers ways to implement these ideas.

Get your free resource for this episode: 3 Reasons Your Subscriptions are Declining & 11 Ways to Combat It. 

00:00 Introduction to Season Three of The Offstage Mike

00:34 The Theme of Season Three: Running it Like a Business

01:43 The Importance of Subscriptions in the Cultural Sector

02:03 The Current State of the Subscription Economy

02:58 The Decline of Subscriptions in the Arts

03:05 The Discrepancy Between the Arts and Other Industries

06:58 The Three Big Differences in Subscription Models

07:50 The Importance of First Year Subscription Renewals

14:00 The Impact of Price Increases on Subscription Renewals

20:26 The Three Steps to Combat the First Year Cliff

29:13 Conclusion and Final Thoughts

This season, season three, is all about Running it like a business, and how do we use strategies borrowed from, inspired by, the business world to combat the challenges in the cultural sector? That's the name of my book that's just published, Run It Like a Business, and think of this as your listening companion.

We'll be expanding on topics in the book, going deeper, and or sharing more insight than I was able to in the writing itself. So, today's topic is about a topic that I am asked about. Maybe the most these days. It's hard to say if that's 100 percent true because there are a few big questions right up there, and we'll get to all of them throughout the season, but this one for sure is definitely not at the top towards the top is what I'm trying to say.

This topic is the subscription economy. Some people call it the membership economy. If you offer subscriptions or memberships at your organization, chances are Your subscription and membership trends over the last few years have been declining, but it doesn't have to be that way. I am here to tell you.

In fact, the subscription economy membership economy as a whole is booming. It is bigger than it has ever been to the tune of over 8 trillion globally every year now. That is 20 percent of all global credit card transactions. Let me say that again, about 20 percent of all credit card transactions globally now go toward our subscription purchases.

That comes from the Subscription Trade Association. They measure all of these kinds of things. And we know this as consumers ourselves, Amazon, Netflix, but not just those. We get just about everything delivered to our door or services online for the monthly fee or the annual fee. So, there you go, 20 percent of all credit card transactions yet in the arts.

And it turns out there are some big differences between what those other thriving subscription membership brands are doing and what most arts organizations do. So we are going to talk it through in this episode. And as we get going, I have a free cheat sheet for you on this topic. Go to my website at aubreybergauer.com/22. That's the episode number 22. And you can get your free download. It's called three reasons your subscriptions are declining and 11 ways to combat it. It covers more than we're even able to get to in this episode. Like I said, we're going to talk it through here as well. Welcome everybody to season three of the Offstage Mike.

Let's do it. I'm

Aubrey Bergauer and welcome to my podcast. I'm known in the arts world for being customer centric,

data obsessed, and for growing revenue.

The arts are my vehicle to make the change I want to see

in this world, like creating places of belonging,

pursuing gender and racial equality.

Developing high performing teams and leaders

managing millions of dollars in revenue at major institutions

and as chief executive of an

orchestra where

we doubled the size of the audience and nearly quadrupled the donor base.

And now I'm here to help you achieve that. Same kind of success in this podcast. We are sorting through the data inside and outside the arts, applying those findings to our work, leading out with our values and bringing in some expert voices along the way. All to build the vibrant future we know is possible for our institutions and for ourselves as.

Stage administrators and leaders. This podcast is about optimizing the business around the art, not sacrificing it. You're listening to the Offstage Mic.

Have you read Core Storm's, new State-of-the-Art Report, yet it's a data-driven resource for all things arts education in the past year. This one is for all the executive directors of nonprofit arts organizations, teaching artists and other leaders in the arts and culture community. Imagine tapping into more than 10 years of exclusive class registration data to uncover invaluable insights for your organization.

Yes, you heard that right. Thriving. I love that the State of the Arts report shares exclusive data from the top class registration software company, CourseStorm. I got to see trends discovered from CourseStorm's analysis of more than one million class registrations, and you'll want to see them too. So, if you're ready to elevate your education program, don't miss out on the State of the Arts report.

Visit CourseStorm. com slash SOAR. That's slash S O A R, like the acronym for State of the Arts, and download the free report today.

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They provide across the board audio solutions from recording repair to audio editing to original music and sound design and beyond. Well, what are we waiting for? Today on Top Tunes, the music production Now that's better.

Alright, so three big ways we as arts organizations differ in terms of our subscription model, membership models, than the broader membership economy, than these other subscription and membership brands that are really thriving, growing to the tune of those trillions of dollars I mentioned at the top.

And the third way we're different is that we're kind of bad at behavioral repetition. Let's unpack some of this at least. What is the first year cliff? The first year cliff is that nationwide, this is true definitely for orchestras as well as museums, the statistic I'm about to share. And nationwide, the first year renewal rate for subscribers or members is about 50%.

Half of our first year new subscribers do not renew that subscription. For donors across all of non profit, only 19 percent of new donors, first year donors, renew their gift. Definitely donation revenue is part of the membership economy. The idea is that we want all of this to be recurring revenue. So when 50 percent of new subscribers or new members do not renew the gift, 19 percent of new donors renew.

I encourage you to do that. Break out first year subscription renewals separately in some of your tracking and metrics, just so you can see what is that number. for your organization. Participants in my Run It Like a Business Academy get a template spreadsheet that does all the math for you for both your donors and your subscribers, but you can do it yourself if you want.

So start there, because in any subscription model for any industry, the greatest turnover is always that first year. So that's true. No matter if you're inside the arts or outside the arts, that first, whatever the first period is, whether it's a monthly giving or monthly service or whatever, or in this case, annual subscription, annual donation, the first period is always the highest turnover.

However, our goal, your goal, my goal is to minimize that turnover as much as possible. 50 percent not great, right? 81 percent definitely not great. So what's the number for you? We're going to come back to that in a moment, but first, let me just briefly define the other two big differences so you, you at least have that in your pocket.

Backwards renewals. The subscription economy is all about recurring revenue, automatic recurring revenue. And what we do generally in the arts is not that. This is the difference between an opt out model and an opt in model. And what we do is basically opt out everybody for them. We ask them to opt in again and again, every year.

That's the opt out model. Okay, so we do backwards renewals. If you are wanting more on this, how do I move to an opt out model, for example? What do we do with the long timers? How do we? help them migrate or not migrate to this new model. If that's you, the book goes way more into detail on this, including five things you can do to make sure you're getting this right.

My Run It Like a Business Academy walks you through a work plan that can be rolled out over a few seasons to gradually move patrons if you don't want to You know, rip the bandaid off approach. So there's more info for you in all of those places. But for now to define the third big way that arts organizations are doing subscriptions memberships different than other sectors is this idea of behavioral repetition.

So here's what this means. Behavioral repetition is asking patrons to repeat the same behavior until a habit is formed before introducing anything new. For other brands, it's customers. Ask customers to repeat the same behavior until a habit is formed before introducing anything new. So, orchestras, opera companies, theaters, ballet and dance companies, whoever you are, choral groups, jazz, even museums and zoos, other visitor based, exhibit based organizations, hear me say this.

So, why does the first year cliff even matter? Let's do some math. And I'll say this is here for the podcast. This math is not, I don't think I have it anywhere else on website or blogs or book or anything. So, okay. The data show. that second year subscribers, so once they get past that first year hurdle and they have Renew, second year subscribers Renew at much higher rates.

This is great news for us. So let's say for this exercise we're going to do here, that's 70%. A lot of times for second year subscribers it's higher than 70 percent even, but let's say for the sake of the exercise, it's about 70 percent for now. By the time somebody is a third year subscriber or longer, Those renewal rates are more like 90%, especially for the people who've been subscribing for four years, five years, even longer for sure, but more often than not, by the time they're a second year subscriber, they're pretty much sticking with us.

This is fantastic. So when we think about, put a pin in this, when you think about what are our long timers going to think or do for any, insert any question, change something you want to roll out your organization, they're so, so loyal. It's not the concern you think. Okay, good, good news. So given all of those statistics, given all of that, let's do some math.

Let's say you have, to keep this simple, let's say you have 100 new subscribers. The average packet price varies a lot between organizations. So, again, just to try to have some easy math here, let's just say for the sake of this exercise, the average package price for a new subscriber is 250. So, 100 new subscribers times 250, 25, 000.

Okay, that would be the revenue from these first year subscribers. At a 50 percent renewal rate, the kind of base rate, first year cliff number for a lot of organizations, that means of those hundred new subscriber households, 50 of them renew. Let's keep the price the same. That makes 12, 500 the revenue for the second year, went from 25, 000 to 12, 500.

Okay? Now, we know those second year renewal rates are higher. So let's say if only 70 percent of those people renew the following year, that's 35 households. At this higher 275 price, that's 9, 625, so just under 10 grand. Even after raising the price, that is only a difference of 875 more than if the price had just stayed the same.

So just file that away too. We think about all these raising prices and kind of nickeling and diming and dialing it up a little bit, at least in this exercise, you know, it's not that much more money. Okay, so can we please agree, no matter what your numbers are and how many subscribers you have, that Raising prices alone is not going to solve the challenges with declining subscriptions.

What does that look like? Well, a hundred households renewing at 60% means 60 households renew. Keep the price the same, that's 250, times 60 households, that's 15, 000. Okay, so to review the numbers, previous example, the price increase example, that revenue total is 13, 750 from fewer people. And year two, let's say 70 percent of those second year subs renew, 70 percent of 60 households, that's 42 households at 250 each, keeping the price the same again, that's 10, 500 compared to the price increase example, which was under 10, 000.

Like, I feel like I need a Price is Right wheel sound effect here or something. But that total is 50, 500. Okay, if you want to redo this math yourself, go for it. If you want to recreate it, but okay, to summarize, 50 grand is the way where we increase retention. That total over the same three years, the price increase way is 48, 300.

So I know somebody here listening is probably thinking, okay, Aubrey, you just talked us through all of those numbers. And in the end, you're telling us 50, 000 versus 48, 000 basically. What's the big deal? It is only 2, 100 different. First of all. This example is only a hundred households and subscriptions at 250.

So maybe that resonates for your organization. Maybe that sounds about right. But if you're at an organization that does anything more than that, the scale's bigger and then the difference isn't too grand. Also, I want to say, would you rather, okay, this is a fun game. Would you rather Have more money from more people without ever raising prices, or at least not raising them for three years, as was the case in this example I gave.

So, what would the fundraising folks rather have? Would they rather have A bigger pool of highly qualified prospects or a smaller prospect pool. So hopefully by now you see the value. I don't know if you think I'm being pedantic or not, but just laying it out like this. Hopefully by now you see the value in increasing first year subscriber renewal rates.

If you don't, fine, just keep doing what you're doing and raise prices and see how that plays out for you. But if you are thinking. That was a lot of math, especially to hear verbally, but I do understand the concept. If that's you, then keep listening. The rest of this episode is for you. Okay, so the first year cliff.

What do we do to combat this so that we can have those higher renewal rates? So that we do get from 50 to 60 percent renewal rates for our first year subscribers or higher? The answer is there's a three step process, and I'm going to lay it out for you. This is what the other brands do, the other successful subscription and membership brands.

So this is simple because when somebody has a good onboarding experience for any product, they are more likely to enjoy using that product. So think of the last Like app you downloaded on your phone or something like that. If the onboarding is good, what happens? It teaches you how to use the app, where the different buttons are, the features are located.

Maybe they send you a welcome message or give you a little tutorial. At an arts organization, what could that similar onboarding experience look like? How can we remind new first year subscribers of their benefits, remind them or show them How to take advantage of their benefits. How do you use the friends and family discount?

How do you exchange your tickets for free? Do you have to call the box office to do that? Could you do it online? I know the answers to those questions may seem obvious to you and maybe to them too, I don't know. Part of good onboarding is making sure it's obvious, making sure the subscriber knows how to take advantage of the product or service they just purchased.

So same thing applies to donors. Like I said, what's your onboarding? Is it an acknowledgement letter, basically the tax receipt? That is not the shining beacon of onboarding success, right? So think about that. I think about this a lot in my own community, actually. I ask myself this too, and especially, uh, a couple months ago, I just hit one year of having my own membership community.

And just to paint the picture, peel back the curtain a little, this is not exactly the same as subscriptions or memberships for an arts organization, but hopefully it will help to draw some parallels. When somebody joins my community, they immediately get a welcome DM from Alana in the community. This is automated, but it's actually her words that she wrote.

And the user or member or subscriber, they get their confirmation email directing them to this onboarding sequence that's been unlocked for them. It walks them through the different areas of the community, gives them a video tour. gives a prompt for them to introduce themselves. The more they engage, the more likely they are to renew.

It shows them the video library to immediately access all of our past professional development events into the event calendar to see the upcoming events and it shows them where and how to download the app if they want to access all of this on the go, which a lot of my members take advantage of. They then, 24 hours later, get a welcome DM from me as well, telling them I'm so excited they're there.

And I just have to say before we leave this particular topic of onboarding, as I was writing my talking points for this very episode, like literally talking about onboarding in my own community, the platform we use sent out their annual benchmark report, which focused on what separated thriving communities, what they call platinum communities, separated those communities from other membership communities that weren't as active or weren't as growing as much or bringing in much revenue or whatever, to my surprise, honestly, um, Something like half of this 80 page report was dedicated to onboarding.

Not surprising. It was a topic and differentiator among the most thriving membership communities. But what surprised me is that it was so much so that they dedicated pages and pages in this report. So the big point, the big takeaway from all of this is that Onboarding is so, so critical to the retention and growth we want to see later.

They get all kinds of perks. Remind them, everything that we use to sell, Originally, now flip that. Use it again to remind them they made the smart decision. They get free exchanges. They get friends and family discount that, you know, all those things. They got the best prices and the best seats. If it's a donor communication, how do you remind them?

This is our mission driven work. This is how we make an impact in our community. Do not. Take their money and then make them wait two months or however long in silence before they get their tickets or confirmation or whatever. Come up with a plan to remind them that they are so brilliant and they did a good thing when we spend money.

This is true for all of us as consumers. When we spend money, we want to feel good about it. And that is exactly what we are trying to deliver here. Reinforce the wisdom of the decision. That comes straight from Robbie Kilman Baxter. She is the expert on this topic. I actually had her as a guest on the podcast last season, so definitely look up that episode if you want to hear more from her.

The final thing in this category of addressing the first year cliff, step number three here, is to make sure they maximize the value of the subscription. This example is in the book, also comes from Robbie Kelman Baxter, and she says what happens when somebody misses a performance? How can we help them maximize the value of the subscription?

So what if the box office could call them and say, you know, we know you missed this performance and because free exchanges are a benefit, you have it for being a subscriber. We're going to go ahead and move you into our next performance or performance of their choice or however you want to handle it with our compliments because that's part of your subscription benefits.

And I know maybe you were thinking, well, my box office does not do outbound calls. Well, then why not? Because it's customer service and this customer service is in service to a higher renewal rate and it's work that really, really matters to get that retention higher. And another one, I'm sure some people are thinking is, Oh my gosh, my venue handles the box office and they would never ever do this.

I know I've been there, but have you asked? Could they give you the list and your staff calls and does it? And then you tell them, okay, move these patrons into this performance or comp them tickets for this upcoming performance. It's just not that many people is the thing. But wow, what a difference it makes in their renewal.

Okay, everyone, remember I have a free download to help you with this and to give you even more info.

It has the recap of what we covered in this episode, plus it includes the other two big ways that thriving subscription brands are doing subscriptions and memberships differently than we are in the arts. It's called Three Reasons Subscriptions are on the Decline in the Arts and 11 Ways You Can Combat It.

Go to aubreybergauer.com/22. That's number two two. That's the episode number to download it now so that you too can start growing your subscriber base. Membership base donor base aubreybergauer.com/22.

That's all for today, folks. Thanks so much for listening. And if you like what you heard here, hit that button to follow or subscribe to this podcast.

If you're new, welcome. I am so glad you made it. And if you've been listening for a while, I love so much that you are getting value from this. So if that's you, please take just two seconds to leave a quick one tap rating. Full on review isn't even required if you're short on time.

To all of you, once more, thanks again, I'll see you next time right here on The Offstage Mic.