The Secret to Generating Recurring Revenue with Bjork Ostrom

Ann Morrissey: Hey there. Thanks for tuning in to the Food Blogger Pro podcast. My name is Ann. This is episode number two of our miniseries with Memberful, hosted by our very own Bjork Ostrom once again. In this episode, Bjork talks about how recurring revenue creates predictability, which then translates into stability for your business. One of the best ways to generate recurring revenue is through a membership site. By focusing on quality over quantity and building strong relationships with your audience, you can create a sustainable income stream that allows you to thrive. He also breaks down some key business metrics that can help you track your progress and make smart decisions about your membership site. If you enjoy this episode, we would really appreciate it if you leave a review anywhere you listen to podcasts or share the episode with your community. Be sure to tune in for the third episode of our miniseries coming soon, in which Bjork chats with Jen Matichuk from Memberful about the success that creators have had with their own membership sites. And now without further ado, I’ll let Bjork take it away.

Bjork Ostrom: Hey everybody. Bjork here. We are doing today what is called a solo episode for this miniseries that we’re doing with Memberful. Now, Memberful is a platform that allows you to easily create membership sites. And as we are having conversations with Memberful about coming on and partnering with them as a sponsor for the podcast, one of the things we said was I think there’s an opportunity here for us to just take a step back and explain why it’s so important to consider having some type of recurring revenue within your business. And if you’ve been following along with this miniseries, the first one that we did really talked about this problem that a lot of food bloggers and creators face, which is relying on a single revenue stream like ad income, which can be risky. For some of you, it might not be ad income, it might be sponsored content, but the idea is it’s directly tied up in one single thing, like a source of traffic from Google maybe it’s Pinterest, where an algorithm change could really cause a dip in traffic overnight. That also exists if you have a really big Instagram following and you get an algorithm change and suddenly you’re not able to reach people or maybe you have three pieces of viral content and then the next 10 aren’t as viral and brands aren’t as interested in working with you, which is why it’s important that we’re having this conversation about diversification. In the first episode, I talked about some of the different revenue sources that you can have like selling physical products, you can do events where you host people in real life or maybe digitally you’re doing a digital event, affiliate marketing sponsor content like we talked about. And we also touched on this idea that you don’t need millions of fans or millions of visitors or millions of followers or even hundreds of thousands of followers to build a sustainable income. Sometimes all that it takes is those 1,000 or even 100 true fans, and that can be enough to help you diversify. Now, if you only have hundreds of people coming to your website and you’re monetizing the ads, that’s probably not going to be enough. But if you have a hundred people who are willing to sign up and become a part of your community to learn from you, to engage with other people who are on a similar journey, then there’s really something there. And that’s what we want to explore in this miniseries because what we’ve seen over the last year is that algorithms can change, and there’s a lot of risk inherent in this business, especially if you are relying on a single source or the majority of your traffic is coming from a single source. In that last episode, we touched on this idea of all of those options, singular products, physical products, events, affiliate marketing. The one that really stands out as a great opportunity for a lot of creators and a lot of publishers, not everybody, but a lot of publishers, a lot of creators is a membership site. And now some of you might think of what we’re doing with Pinch of Yum and say, “Well, you guys haven’t done a membership site.” But it was actually the second or maybe third kind of business model that we launched. We just didn’t do it off of Pinch of Yum. We created one for food creators. And the reason we did that is because Lindsay was creating content for Pinch of Yum. She had a great rhythm for that. She really knew what she was doing with that. And I was like, “Hey, what will it be for me? How can I start the process of building an online business along with what we were already doing at Pinch of Yum?” And the model that we chose was a membership model. So we had with Pinch of Yum, it was probably early, a little bit of affiliate. We had ad revenue, some product revenue, and then the really significant next thing was a membership site in Food Blogger Pro. In the first episode of this series, we talked about the reason why. Why is it important to think about this kind of from a problem solution standpoint? The problem is a lot of people have a single point of failure around traffic and traffic monetized via ads. That is awesome if you have it. It requires a lot in terms of numbers and it also has some risk with it in that as we’ve seen, Google algorithms can change. What should we do? We propose the potential of thinking about building a community, building a membership site, something with recurring revenue as a part of the main ethos of the way that the business works. And there are a few benefits that I want to talk about when it comes to membership sites and why it’s a game changer for creators. We’re going to walk through all of those today and I’ll explain some of the important concepts you need to understand if you’re thinking about creating one. First, we’re going to talk about the business metrics with it, and then we’re going to talk about some of the marketing considerations with it. Let’s go ahead and jump in. First, let’s talk about recurring revenue. Really recurring revenue is almost this kind of holy grail of business. If you’re not familiar with the term, recurring revenue is essentially money that comes in on a regular basis. It’s revenue that is recurring. Now, most often you think about that within the context of maybe monthly, quarterly, annually. A lot of services that we sign up for, think about Netflix, that’s monthly. And Netflix was such a incredible new business that is now worth billions of dollars because it took an old model, which was, you go to the video rental store, all of us who are old enough to remember going, walking the aisles, maybe you’re looking at VHS or a little bit later on DVD videos or movies. You go look at those, you rent one, you bring it back. That was the model. It was a one-time interaction, a customer who pays for a product. And it took that and it said, “Hey, how about we think about what people want, which is like people want to watch movies, but what if we turned that into recurring revenue.” And it created a billion-dollar business off of something that already existed, which was people want to watch movies, but they shifted the model behind it. And Blockbuster didn’t. Blockbuster no longer exists, Netflix does. For those of you who remember, for a long time it was not even streaming, it was just mailing you the DVD. So it was still like you’re renting a DVD. It was just a recurring model where they would ship it and then eventually they went into streaming. Think about it with this. With something like ads or one-time product sales, you’re constantly having to really chase down the next opportunity. For those of you who do sponsor content, you know what this feels like. You might have a brand that you work with on an annual basis, but a lot of times it’s maybe a deal that you have a certain amount of deliverables, but if you don’t sell the next deal, you’re not going to have that revenue. You’re relying on external factors like maybe the market conditions, and if somebody wants to work with you, or in the case of ads to your site, you’re having to deal with traffic and algorithms. But with recurring revenue, you know with a certain level of predictability, the income that will be coming in every month from your subscribers, it creates a sense of stability and it allows to plan for the future. And what’s important about this, and we’re going to talk about this in a little bit as well, is we all need to be thinking about our businesses as assets. These aren’t just things that earn us money. That’s true, that’s definitely true. But one of the things I want to do on this podcast is I want to help people think about the fact that they are building a business. And a business is a valuable thing inherently because it has the ability to produce cashflow. Now, the cashflow diversity and stability is part of what makes a business valuable. So we’re going to talk about that in a little bit. But first, let’s talk about the difference between a customer and a subscriber. Now, you could kind of use these interchangeably, but I like to separate them out and think of a customer as somebody who makes a one-time purchase. Maybe it’s somebody who buys an ebook or attends an event or maybe signs up for a cooking class. All of those are wonderful products, but what happens is once that transaction is complete, your relationship with that customer kind of ends. Like you might continue to have them on an email list and be able to reach out to them and sell another product, but you’re not going to get any exchange from that customer in the future unless they actively decide to come back and buy again. But with a subscriber, it’s more of a long-term relationship. They’re paying on a regular basis. We could use monthly as an example, but it could be yearly as well, because they find ongoing value in what you’re offering. They want to stay a part of what you’re doing. It’s a one-time decision they’re making. They join your membership or community or whatever it might be, and then they’re a part of it until a point where they decide they no longer need it. Now that inevitably will happen. But one of the cool things is, which we’re going to talk about in just a little bit, is you can then start to understand how long somebody is a member, and really the value that comes from that membership based on how much you’re charging, how long somebody’s a part of your membership. And over time you can use those metrics to make some really cool business decisions. Let’s talk about those metrics. These are kind of all in the world of SaaS, but it also applies to membership. Now for those who aren’t familiar SaaS, it’s usually a capital S, lowercase a, lowercase a, capital S. Stands for software as a service. And the term comes from this idea. Software actually used to be similar to going to Blockbuster and getting a movie. Software used to be a physical thing that you would buy. You’d go to Best Buy and you would purchase Microsoft Word and you’d come and you’d install it on your computer, or you would purchase Adobe Photoshop on CDs or multiple CDs for a thousand dollars and you’d put it on your computer and then you would have Photoshop. Now, over the last five, 10 years, companies have switched to having that software be what they call a service. So you sign up and you get access as opposed to having the right to it forever after you purchase it. And membership sites kind of work in a similar way where the metrics that you’d be thinking about as a business owner are very similar. Let’s talk about those. The first one is MRR. Now MRR stands for monthly recurring revenue. And what I love about MRR is the predictability with it. MRR is the total revenue you are generating each month from your subscribers. It’s really one of the key components for any SaaS business or in this case, we’ll just talk about it as a membership business. Here’s an example. Let’s say you have 20,000 followers on Instagram and you want to start a membership site and you think that you could sign up 100 people. You have a dedicated following, and people who are really engaged, they find value in what you’re doing. And you create a membership site and you think of those 20,000 people that a hundred of those would sign up for your membership site. Let’s say that they are paying $29 each. I want to give you a moment to think about what is the recurring revenue from that group of 100 people paying you $29. My dramatic pause. It is $2,900. And if you multiply that by 12, suddenly you have almost $35,000. You can start to see the power of a membership site or recurring revenue when you look at it from the multiple of a small group of people paying a larger, and by larger I mean $29 or even $10, $49, whatever it is, amount. And you can start to see how you can play the numbers game with that a little bit. Now, $35,000 for a lot of people, that might be a entry-level salary or a part-time salary. It’s certainly an incredible side hustle salary. So maybe you have a full-time job and you want to earn some additional income on top of what you’re already earning. That’s a great part-time job, if you are earning $35,000 by serving 100 people within your community. Now you start to play the numbers game and you can multiply that by man, what if there was instead of a hundred people? What if I signed up a thousand people out of all of my following? And you can start to play the numbers game a little bit and see how that plays out. Now those people aren’t going to stay with you forever, and that’s why there’s the important kind of opposite end variable to consider within the world of membership sites, which is this idea called churn rate. Now, churn rate is just the percentage of subscribers who cancel or don’t renew during a given period. And we can use it as a monthly basis to make it easier. The basic idea with churn rate is the lower your churn the better, because that means you’re retaining these subscribers. And one of the great things about having a subscriber versus a customer is you just need to convince them to stay a subscriber as opposed to convincing somebody to continually buy a new thing, which in my opinion is a lot harder. With churn rate, let’s say that you have a hundred people who sign up and in that same month, a hundred people cancel. Now, I would really doubt that would happen if you had a subscription, but just for the sake of demonstration, you’d have a hundred percent churn rate and you’d essentially be interacting with customers. It’s a one-time transaction, everybody’s canceling. Now, if you have a membership site, that churn rate’s actually going to be a lot lower. It might be 5%. Maybe on the higher end it might be 10%. So if you have a hundred people sign up or a hundred people who start within your membership at the beginning of the month and at the end of the month you have 90 people, that means you’d have 10% of your subscribers churning. Now, in that scenario, you’d be earning less in the first month than you would in the second month. However, you might be adding 20 new subscribers in that month. At the end, you’d actually be earning more because 10 canceled, but 20 joined. You can start to see over time how you can kind of understand the numbers game with this, and you can start to create really predictable revenue. And it doesn’t have to be millions of people that you’re reaching. It’s a small group of people that you are serving really well. And that’s what I love about this model. Let’s continue talking about some of the other important metrics. There’s customer lifetime value. Now, we just had this conversation in an email exchange with a friend of mine, Tony Rulli. He’s been on the podcast before. He’s a Facebook expert. And for Clariti, some of you, if you listen to podcasts, you’ve heard us talk about Clariti before, but we’re starting to think about, hey, are there opportunities for us to do paid advertising on platforms like Facebook or Instagram? And one of the ways that we are analyzing is we are looking at it and we are saying, what is the customer lifetime value? Right now, if somebody signs up for Clariti, the customer lifetime value for us might be a thousand dollars. I don’t remember the exact number, but it’s kind of somewhere in that range. Which means that if somebody signs up for a product, let’s say it was an ebook and we were selling an ebook for $49 on growth strategies for a blog, the customer lifetime value would be $49. But because in the case of Clariti, we have recurring revenue, we have this predictable, we have predictable metrics, we know that when somebody signs up for Clariti, that’s actually equivalent over time to, in this case, the example I’m using, I don’t know the exact number, but it’s a thousand dollars. And in the world of product, you can imagine what it would be like to try and sell a thousand dollar product. Oh my gosh, that would be really difficult. But in the world of subscription, to have a customer lifetime value, that’s a thousand, 2,000, $3,000 isn’t out of question. If you are creating something that is ongoing valuable for somebody. And so in this world, you start to think about, okay, a signup isn’t worth a $29 ebook or a $50 cookbook that I’m selling, it’s actually worth a thousand dollars. Wow, that’s a really incredible thing for a small business owner, a solopreneur to have the ability to do, which is to build something that is worth to somebody thousands of dollars. Cumulatively over time, they end up spending that much. How about the other side of that? Now, in the example of Clariti, we said we had to make some decisions and say, if we know that we have this certain customer lifetime value on average, what does the revenue look like from a customer? Then we can start to make decisions around how much we are spending. Now in your world, you might not actually spend money on ads. You could. It’s a really great thing if you’re able to figure it out because if you can spend one penny and make two pennies, you can continue to do that on and on and on. And it’s a really scalable business model that is a nice kind of diversion from organic, which can sometimes be unpredictable. But I think most people I’m talking to have access to customers. You have an email list, you have social following, you have a blog, you have the ability to speak to customers. But if you don’t and you want it to start experimenting with paying, you could look at the customer acquisition costs. CAC. And this is how much you’re spending to acquire each new subscriber. Now, if you are only doing organic content, you could maybe look at it like, hey, I’m spending the equivalent of $500 to make an Instagram reel. And from that, I hope to get two signups to my membership site. And if you know that you are spending $500 on that between your time, maybe a video editor, social media manager, and you get two signups, and those signups have a lifetime value of $2,000, suddenly that’s a really good exchange. You’re spending 500 in order to, over a long period of time, make 2,000. That’s great. The customer acquisition cost is this variable that helps you understand how much you’re willing to pay or work for getting that customer. Not as common in the world when you are just producing organic content, and that’s the thing that drives signups. But it’s important to mention within the context of all those other metrics. And the reason is because it’ll help you kind of think of the equation of how you’d want to grow or build or scale your membership site. The last thing I wanted to talk about with this is the reason why recurring revenue is important. And I alluded to this in the beginning, but this will also make your business more valuable. We’ve had conversations with lots of different people on the podcast who have maybe sold a business, maybe it’s a broker. We’ve talked to a couple of different brokers from Quiet Light. We can link to those episodes in the show notes. And if you follow along with any of these brokerages, you can see that there are businesses in our space, food sites, recipe sites, social media followings, that are being sold and they’re not being sold for tens of dollars. They’re not being sold for thousands of dollars, or some of them might be hundreds of thousands of dollars. There’s a lot of these that are being sold for millions of dollars. It’s life-changing amount of money. And one of the things that… If your approach is to be strategic from a business perspective, you can think about the value of your business. Now, this is a little bit of a rabbit trail, but I think it’s also important to point out. One of the reasons why we think it’s important to think about the value of your business is because when you look at everything that you have going on within your own personal financial situation, one of the things can be looking at like, hey, what is the equity in my business? And if you have a business that’s worth a million dollars, maybe you come up to a season of life where it makes sense for you to say, maybe the business is causing a lot of stress, or you have a life event and you want to spend more time with your kids or a parent who’s unhealthy. For some of us, we’ll go in the way of automating a business and it doesn’t require a lot of us, but for others, we might want to look at selling that. And it’s important for us to understand the value of our business so we can always have a pulse on what that looks like and make decisions based on that to be well-informed. We’re not going to dive deep into how to go about valuations and whatnot, but I did want to mention this idea that recurring revenue is one of the most attractive factors to any potential buyer or an investor. And the reason is because it creates predictability, and predictability creates stability, and people want to own and operate stable businesses. If you can show consistent income from a loyal base of subscribers, you’re minimizing the risk for a buyer or an investor, and they know that when they acquire your business, they’re not starting from scratch and having to sell things or do one-time sales, they’re stepping into a business that already has proven and predictable revenue. Think about it like this. If you have a one-time product-based business, your revenue kind of resets to zero every month. Now, you probably have systems, you probably have some predictability even with that, but for the most part, you kind of have to keep selling and finding new customers. But with a membership model, your revenue, it carries over each month. And as long as you’re retaining those members, you can build on top of that foundation, it kind of creates this snowball effect. And because of that predictability, businesses with recurring revenue often sell for a higher valuation or a higher multiple. Now, go back and listen to the episode I did long ago with Mark Douse, the founder of Quiet Light, where he talks about the importance of all these different variables within the valuation of a business. But the basic idea is investors or purchasers are willing to pay more for a company that’s consistently generating income versus one that relies on more volatile revenue streams, like one-off product sales or ad-based revenue. And especially in a season where there’s been a lot of fluctuations, like with Google algorithm updates, you can imagine the world of content sites, they were hit pretty bad. And I think anybody who’s familiar with the industry will probably come with a cautious approach when they think about potentially purchasing this as a business. Now, even if you’re not planning to sell your business, recurring revenue, it still strengthens your position as a business owner because a great business to sell is a great business to own. And if somebody really wants to buy a business, it’s probably because it’s stable, it’s predictable, it’s a solid business, and that’s the type of business you want to own. And so with that idea of stability, more control, and ultimately more value, let’s talk about how to actually go through the process of building that initial subscriber base. And I think for a lot of us, this is something that we understand, but it requires a little bit of a shift in terms of how we are approaching the content that we are producing. And I’m going to talk about it within the context of social media primarily. You are probably already using social media to drive traffic to your blog or your website, but I think that there’s a more effective way to use social media as a funnel, and that is a funnel to signing up to your membership. Here’s a basic idea of how it works. Platforms like Instagram, YouTube, Facebook, these are all platforms where your audience is already spending time in engaging with you. They’re scrolling through content, engaging with the posts that you wrote, and rather than just pointing them to your website or saying like, “Hey, go check this thing out here on my site, search for this and find it here.” You can actually direct them to your membership site and it’s not something that you’d want to be doing all the time. And I’d actually recommend pointing them not directly to a membership site, but directing them to the next step of something that is valuable. I’ll give you an example within the context of Food Blogger Pro, our membership site. One of the things that we do is we have top of funnel content. You are listening to it right now. Now, this is a podcast series we’re doing in partnership with Memberful, so we’re also touching on this idea of working with a brand or a sponsor. But for 10 years we’ve been doing this podcast of which I would say nine years we have been doing it without any connection to any brand. And we were doing it because number one, I like it’s great to connect with influential smart people, so I benefit from it. But also it’s lead generation into our membership site. It’s our top of funnel content, and we also push content to social media. We’re not as active there. It’s really the podcast is the main hub for us, but we also have social media following, and within all of that, an email list as well. And within all of that, the goal is to get in front of people. It’s attention from there. The most effective marketing funnels that we’ve had haven’t been when we point people directly to Food Blogger Pro, the membership site, to sign up, it’s been when we point them to kind of a next step valuable thing that they can join and become a part of. An example would be we do a series or we would do a webinar or a training session on how to grow your Instagram following. It’d be a free webinar. People could sign up, they could attend. We want to offer a ton of value, really helpful. And then at the end of that, we would say, “Hey, if you want to sign up for Food Blogger Pro, here’s the reason to do it. Maybe in the next month we’d be doing an Instagram growth strategy session where we’re all focusing on growing and scaling your Instagram account. So hey, sign up for Food Blogger Pro.” Maybe there’s a discount or some type of package that people get if they sign up. That is the process that works well for us. What I would say to you, if you have a following on Instagram, on TikTok, you have an email list, you have a blog, and you want to start thinking about how you can be a marketer. And instead of just trying to get traffic, you are trying to get people to join your community, to become a subscriber, you’re changing your strategy a little bit. What you want to do is think about what are the steps that people take and how do you make that incremental? So instead of just pointing somebody to say, “Hey, you should buy this really expensive thing,” and the only time that they’ve ever interacted with you is consuming free content on Instagram, there’s probably something in the middle that allows you to gain a little bit more trust and has a little bit more of an appropriate kind of stairstep approach where maybe they’re putting their email in and that’s the next level of kind of trust exchange that happens. And with them putting their email in, what needs to happen is you need to deliver them really valuable content, if that’s what you’re saying that you’re going to do. “Hey, sign up. We’re going to all learn to together how to consume less sugar within our diet, and we’re going to do 60 days, not like we’re going to cut it out completely.” Done that before in the past, which is a great experiment if you want to try and do it. Harder than you think, or at least as harder than I think. But that as an example, maybe you want to do that. You want to do maybe eating more veggies and you’re going to go through this process or real food. Maybe you have a certain diet that you eat, or maybe it’s just you want to help people cook really good, healthy food at home instead of ordering out, and you’re going to create content around that. You could do a free training, you could do a webinar, and then within that you might have an offer. The funnel really has to do with how many people you are talking to. And at each step along the way, you’re going to get a little bit more specific, and the value cost is going to go a little bit higher. If it’s on Instagram, there really is no cost. Somebody’s just signing up and they follow along or they consume your content. The next step might be they give you their email and the exchange there is they’re going to learn something. You’re going to help them. You’re going to really deliver value. After that, the step might be, “Hey, if you want to join the community, here’s what it would look like. It costs this much. Here’s how you’re going to learn even more. Here’s how we’re going to offer more value.” But that’s how you can think about a funnel, and it’s a shift from thinking about social media, email lists or blogs as just traffic, traffic, traffic. How do we get more followers, more people to come to the site? And it’s shifting that and starting to think about how do we get more targeted people who are going to be interested in the thing that I’m offering, and then how do I refine those steps along the way? Once somebody becomes a paying member, let’s say after that webinar, they do decide to join, they become a part of it. They’re invested in your content and you’re supporting them long-term, and they’re supporting you long-term. And as we talked about, that’s how you can create this really valuable, predictable, sustainable business. Now, I get it, building and managing a website, super daunting. It’s overwhelming, but the good news is that it doesn’t have to be. When we first built Food Blogger Pro 10, 11 years ago, it was custom. We built it from the ground up, all these different plugins, all these different parts and pieces, worked with a developer over the years, literally tens of thousands, hundreds of thousands of dollars to do it. But it’s 2024, and there’s some great resources out there like Memberful. And Memberful has been kind enough to sponsor this miniseries. And the reason that we did it is because we think it’s a great solution. It’s not just for membership sites, it’s also content courses. You can do gated podcasts. And the last part of the series is actually going to be a conversation that we are going to have with Jen from Memberful, where she’s going to be talking about the different examples and models that they’ve seen that have worked well, and we’re going to talk about some ways that you can think about it more specifically, and I think it’ll be really valuable. These episodes have been really fun to do. Thanks so much for tuning in, for following along. If you haven’t yet, make sure that you subscribe, follow along with the other episodes that are coming out. We have some great interviews this fall, and the rest of 2024 is really going to be great. Subscribe, follow along episode three coming out in a little bit. Until then, stay tuned and make it a great day. Thanks everybody.

Emily Walker: Hello, Emily here from the Food Blogger Pro team. I wanted to pop in today and thank you for tuning into this episode of the Food Blogger Pro podcast. We are so grateful for you for listening. Before we sign off, I wanted to talk a little bit about the Food Blogger Pro Forum, in case you didn’t know how it works. If you are a Food Blogger Pro member, you get access to our amazing forum. It’s one of my favorite places on Food Blogger Pro. I spend a lot of time there myself. And on the forum, we have tons of different topics for you to explore. We have a building traffic section, a photography section. We have an essential tool section. We chat about generating income and essential plugins. All sorts of areas for you to ask questions and chat with your fellow Food Blogger Pro members. It’s a great place to connect with fellow members, troubleshoot any issues you’re having, and brainstorm together. Our industry experts are always popping into the forum to help with their questions. Casey Marquis and Andrew Wilder are always popping in, and so is Danielle Liss our legal expert. It’s a really great place to get access to these experts and have them help you with your concerns. The forum is also just a fantastic place to find a community in this food blogging space as you’re working to grow your site and your business. If you’re ready to join Food Blogger Pro and get access to our wonderful forum, head to FoodBloggerPro.com slash join to learn more about our membership. We really hope you enjoy this episode and can’t wait to see you next week for another great episode. Have an amazing week.