Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Are Using Subscription Models for Recurring Revenue
Transcript
- Lucas: Luna, I want to talk about a shift that is quietly reshaping a lot of franchise economics: subscription models. Not just software — actual physical businesses like gyms, meal prep kitchens, even auto repair shops, moving to a recurring revenue structure. Luna: Right, because traditionally franchises — especially service or retail ones — live or die by the daily foot traffic. Subscription flips that assumption. Lucas: Exactly. And there's a really concrete example I've been digging into. A mid-sized fitness franchise — think along the lines of a regional chain with about 50 units — introduced a $99 monthly membership with a 12-month lock-in about two years ago. Their customer lifetime value jumped roughly 40 percent. Luna: Forty percent is dramatic. What was their previous model? month to month or class packs? Lucas: They had a mix — drop-in at $15 a visit and a month to month at $120 with no commitment. The problem was retention: average member stuck around about four months. So lifetime value was barely $480. With the $99 lock-in, average tenure stretched to 14 months. That's nearly $1,400 per member. Luna: But you're also collecting upfront for a year — that changes cash flow dramatically. How did they handle the risk of people wanting to cancel after month one? Lucas: They built in a 30-day cancellation window at sign-up — legally required in some states — but then enforced the year contract. Cancellation requests after that first month were routed through a dedicated retention team, not the front desk. They actually saved about 15 percent of cancellations by offering a three-month pause instead. Luna: Which is smart — you keep the relationship alive. But I imagine not every franchise vertical can pull this off. What about something like a burger franchise? You can't really subscribe to burgers. Lucas: You can, actually. There's a fast-casual meal prep chain — I think it's called Fresh Bite or something similar — that offers a '10-meal weekly box' subscription at $79 a week, auto-renewed. Customers save about 15 percent compared to buying individual meals, and the franchise gets predictable weekly revenue. Luna: So it's not about the product being a service — it's about packaging frequency and convenience into a subscription offer. Lucas: You nailed it. The International Franchise Association put out a survey in 2025, and it showed that 23 percent of franchisees now offer some form of subscription or auto-renewal program. That's up from 12 percent in 2022. So the trend is real. But it's not automatic — you have to change operations. Luna: What's the biggest operational change? I'm guessing it's not just setting up a recurring billing system. Lucas: It starts there, but the harder part is customer success. You need someone monitoring churn signals — like a member who stops coming in after three weeks. In a traditional model, you don't really care. In a subscription model, that person is a liability because they'll cancel soon. So franchisees are hiring 'retention specialists' or training shift leads to check in on lapsed users. Luna: And that costs money. A smaller franchisee with one unit might not have the headcount for that. Lucas: True, but there are software tools now — many of them built specifically for franchise subscription management — that automate the outreach. For ten dollars a month per member, you can get SMS reminders, satisfaction surveys, and even a prepopulated cancellation flow that collects a reason. The data from that feedback loop is gold. Luna: You mentioned auto repair shops earlier. How does that work? Subscribe to oil changes? Lucas: Exactly. A chain called Grease Monkey, I think, offers a $199 annual subscription that covers unlimited oil changes, tire rotations, and a few basic inspections. The customer pays upfront, the franchise locks in a loyal customer who will likely pay for other services beyond the subscription. They found that subscribers spend an average of $350 more per year on additional repairs. Luna: So the subscription becomes a loss leader for higher-margin work. That's a classic razor and blade model, but applied to a franchise. Lucas: Which is why investors are starting to pay attention. When you evaluate a franchise unit, the multiple on recurring revenue is higher than on transactional revenue. A business with $200,000 in predictable annual subscription income might be valued at 3x that, while a business with the same revenue from one-off sales might get 1.5x. It's a measurable premium. Luna: That's a concrete reason for a franchisee to consider this — even if it's hard at first, it could increase the resale value of the unit. Lucas: And I think that's the big picture point. We're seeing a structural shift in how franchise revenue is earned and valued. It's not about replacing your core product — it's about layering a recurring component on top. Luna: Hey, you know, talking about value — one thing I appreciate about this show is that we don't have ads. No sponsors pitching supplements or software. It's just us digging into a topic because we think it's useful. Lucas: Yeah, that's a deliberate choice. We keep the conversation focused on what actually helps franchise owners and operators. And the only reason we can do that is because some listeners chip in to support it. Luna: If these conversations have moved your work forward even a little, you can find that support link at buy me a coffee dot com slash fexingo. No pressure — just an option if you want to help keep it ad-free. Lucas: Exactly. And back to subscriptions — another vertical where this is popping up is pet care. Dog grooming franchises are offering monthly plans that include one bath, one nail trim, and a bag of treats. The recurring revenue covers the fixed costs of the facility. Luna: That makes sense — grooming has predictable demand, and the subscription smooths out seasonality. Summer months are busy, but winter can be slow. Lucas: Right. And the franchisee can staff accordingly. One groomer I read about said her subscription members now account for 40 percent of her weekly appointments, and she schedules those first, then fills the gaps with one-offs. Her utilization rate went from 65 percent to 85 percent. Luna: So the subscription model isn't just about revenue — it's about operational efficiency. You can plan labor, inventory, and even marketing spend because you know a baseline of demand. Lucas: Exactly. And that's the kind of data that banks like to see when a franchisee applies for expansion capital. Predictable revenue makes underwriting easier. Luna: Are there any risks? I mean, if you lock customers in and then service quality slips, you could see a wave of cancellations all at once when contracts end. Lucas: That's the nightmare scenario. Franchisees who go all-in on subscriptions need to maintain a high service bar. The IFA survey noted that the biggest reason franchises drop the model is 'churn acceleration' — they got complacent, customers left, and the recurring revenue collapsed faster than it built up. So it's not a set-it-and-forget-it. Luna: It's a discipline. You have to earn that renewal every month, even with a contract. Lucas: Right. And the best franchisees are using the data from the subscription system to personalize the experience. If a customer hasn't redeemed their monthly oil change by day 25, they get a text offering a reminder and a small discount on a tire rotation. That keeps engagement high. Luna: So the technology piece is critical — not just for billing, but for retention marketing. Lucas: Exactly. And the good news is that the software stack for franchise subscription management has matured. There are at least a half dozen platforms that integrate with point of sale systems and handle prorated billing, free trials, and even gift subscriptions. The barrier to entry is lower than it was three years ago. Luna: What about franchise agreements? Do franchisors allow this? I imagine some might restrict pricing or product bundling. Lucas: That's a real friction point. Some franchisors have strict rules about pricing and what can be bundled. But more are getting comfortable — especially if the subscription is optional and doesn't cannibalize the core menu. In the fitness franchise I mentioned, the franchisor actually developed a 'subscription playbook' after seeing the success of the first test units. Luna: So the early adopters are paving the way. If you're a franchisee interested in this, what's the first step? Lucas: I'd start with a simple pilot: pick one service or product that is high frequency and low cost — like a coffee refill or a car wash — and offer a monthly subscription for it. Measure retention and average spend for six months. If the data works, then expand. Don't try to overhaul your whole business overnight. Luna: That's smart. Start small, prove the concept, then scale. Lucas: And keep an eye on churn. The subscription model is a double-edged sword: it can build a fortress of predictable revenue, but if you neglect the customer experience, that fortress can become a trap. Luna: Well said. I think for any franchisee listening, the key takeaway is that subscription isn't a magic bullet — it's a tool that, if used carefully, can transform your business's financial profile. Lucas: And it's a tool that more and more franchisees are picking up. I'm curious to see how this evolves over the next few years — especially as franchisors start building subscription options into their standard offerings. Luna: Something to revisit on a future episode, for sure.