Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Subscription Models for Recurring Revenue
Transcript
- Lucas: So I was talking to a franchisee in Dallas last week who runs a commercial cleaning business. She told me that as of this year, about sixty percent of her revenue comes from monthly subscription plans — not one-off cleanings. Luna: That's a big shift. Most cleaning franchises I know are still built on per-job pricing. How did she pull that off? Lucas: She basically segmented her clients. Offices that need weekly cleaning got moved to a flat monthly fee that includes two standard visits plus one deep clean. The renewal rate is over ninety percent. Luna: Huh. And if this conversation has moved your work forward in some small way, you know what's actually worth more than any ad? Just knowing that listeners find it useful. If today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Lucas: Absolutely. No pressure, ever. But we keep the show ad-free because of that kind of support. So back to the subscription model — she's not alone. I've seen this popping up in laundry services, pet care, even some quick-serve restaurants trying monthly meal bundles. Luna: Right, I've heard of a few sandwich chains testing a 'ten lunches for ninety bucks' subscription. But is this just a gimmick or does it actually change the unit economics? Lucas: It changes them significantly. The Dallas cleaning franchisee told me her average customer lifetime value tripled after moving to subscriptions. Because once someone is on auto-pay, they churn far less. And she can predict her labor needs two months out instead of two days. Luna: But there's a flip side. If you lock in a price for twelve months, and your costs go up — say, labor or supplies — you're stuck. How do franchisees handle that? Lucas: Some include an annual escalator clause. Others keep the subscription for the base service and charge extra for add-ons. The key is that the franchise agreement itself has to allow this kind of pricing flexibility. Not all franchisors are on board. Luna: That's the critical piece. I talked to a franchise consultant who said many franchisors still mandate per-transaction pricing to keep the brand image consistent. So if you're a franchisee, you might need to negotiate a waiver or run a pilot. Lucas: Exactly. And some franchisors are actually starting to see the benefit. A national cleaning brand I looked at recently amended its operations manual to allow subscription models as long as the minimum service frequency is maintained. They realized it smooths out revenue for both sides. Luna: What about the logistics? If you have a subscription, you have to guarantee capacity. You can't just say 'we'll get to you when we can'. Lucas: Right, that's the operational challenge. The Dallas franchisee told me she had to add two part-time staff just to handle the predictable weekly volume. But that also meant she could offer them set schedules, which improved retention. So the trade-off worked. Luna: So it's not just a pricing change — it's a whole business model shift. What about the customer acquisition side? Is it harder to sell a subscription than a one-time service? Lucas: She said the initial conversion is harder. People are wary of committing. But she offers a money-back guarantee after the first month, and that drops the barrier. Once they're in, they stay. Her customer acquisition cost is about the same, but the payback period shortened from six months to three. Luna: That's a powerful number. I'm curious whether this works better for service-based franchises versus retail. A sandwich subscription seems straightforward, but what about a tutoring franchise or a fitness franchise? Lucas: Fitness franchises have been doing memberships forever. But tutoring is interesting. I saw a math tutoring franchise in Atlanta that moved from per-session pricing to a monthly subscription for unlimited group sessions. They went from sixty percent utilization to eighty-five percent because parents felt they were getting a deal. Luna: And the franchisee gets predictable cash flow. That's huge for managing royalties and loan payments. But doesn't the franchisor lose out if the per-unit revenue drops because subscribers use more services? Lucas: That's the tension. Most franchise royalties are based on gross revenue, so if the subscription price is lower than what a heavy user would have paid a la carte, the franchisor's royalty check shrinks. But the trade-off is lower churn and higher volume. Some franchisors are experimenting with a two-tier royalty: a lower percentage on subscription revenue and a higher one on add-ons. Luna: So the model is still evolving. What about the technology piece? You need a system to manage recurring billing, automated reminders, and service scheduling. That's an additional cost. Lucas: The Dallas franchisee uses a third-party subscription management platform that costs her about one percent of revenue. She says it's worth it because it cuts down on admin time. She used to spend ten hours a week on invoicing and collections; now it's down to two. Luna: That's a big efficiency gain. But I imagine not all franchisees have the tech savvy to set that up. Is the franchisor providing tools or are franchisees on their own? Lucas: It varies. Some large franchise brands are now offering their own subscription billing modules integrated with the POS. But smaller franchises are mostly on their own. The consultant I spoke with said that franchisees should ask about tech support for recurring billing during the discovery process if they're considering this model. Luna: Good advice. So what's the bottom line? Is the subscription model a sustainable trend or a fad? Lucas: I think it's here to stay for service-based franchises, especially those with high repeat purchase frequency. The data from the Dallas franchisee shows a thirty percent increase in net profit margin over two years. And with consumer preference shifting to subscriptions in everything from software to groceries, it makes sense for franchisees to test it. Luna: But it requires a different mindset. You're not selling a job anymore; you're selling a relationship. And that means you have to deliver consistently every month. Lucas: Exactly. It's a commitment. But for the franchisees who get it right, the reward is a more stable, scalable business. And in an environment where labor and supply costs are volatile, that stability is worth a lot. Luna: I'd love to see some data on whether subscription franchisees have lower default rates on their loans. That could be a game changer for franchise financing. Lucas: I've actually heard anecdotally that banks look more favorably on subscription-based businesses because the revenue is predictable. There's a franchise lender I know who said they're more likely to approve a loan for a franchisee with recurring revenue. So that's another angle. Luna: Alright, so if I'm a franchisee listening, what's the first step? Should I just pick one service and try a subscription? Lucas: Start small. Pick your most popular, most repeatable service. Offer a three-month subscription to your existing customers at a slight discount. Track churn, utilization, and customer feedback. If it works after six months, expand. That's what the Dallas franchisee did — she started with just office cleaning subscriptions and later added restroom sanitization as an add-on. Luna: Smart. And check your franchise agreement. Make sure you're not violating any pricing or service terms. If you are, talk to your franchisor about a pilot. Lucas: Exactly. The ones who are innovating are the ones who are having those conversations early. The ones who wait for permission might miss the window.