TECHNOLOGY

Here’s The Key To Netflix’s $70B Valuation

Netflix has become one of the largest entertainment companies in the world. Here’s what you can learn from its revenue model.

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BY Logan Chierotti - 11 Aug 2017

PHOTO CREDIT: Getty Images

Netflix is now one of the highest valued subscription services in the world. In May 2017, the company announced a valuation of over $70 billion.

And remember how it all started - by providing a simple mail order service for DVD.

The company has undoubtedly grown. Today, Netflix has more subscribers than cable TV. But how has Netflix achieved such massive growth?

A significant portion of their success is due to their recurring revenue model backed by a continually evolving product matrix.

The Netflix Trifecta

Three key ideas have contributed to Netflix's company growth and their high dollar valuations:

• Recurring Revenue Model - the monthly subscription fee providing subscribers access to all their content.

• Acquired Content - purchasing the rights to movies and TV shows their customers love.

• Original Content -Netflix has increased customer acquisition and product offerings by producing original content.

At the center of the Netflix Trifecta, is the 'super smart' analytics engine, which personalizes subscriber's movies and shows.

How can you apply this to your own business?

Netflix has used and evolved their recurring revenue model very efficiently. Some other large companies, such as HBO, Dollar Shave Club, and Birchbox, have done the same.

But Netflix hasn't provided their subscribers the same product offering year after year. Instead, they have continuously innovated and evolved. And by curating new and different products, you have the ability to keep customer engagement high.

Netflix also creates unique original content, which has significantly increased their membership base. And this strategy can also apply to smaller businesses. The lesson here is to always look for ways to differentiate your product offering. Figure out what your customer wants more of, and find a way to provide it.

Once you've found the differentiator for your company, use it to build up awareness and curiosity. Allow your customers to "preview" new products, services, and experiences. Sharing a marketing preview with potential customers can ignite an interest to join. It also keeps existing customer's excited to stay on board.

As with Netflix, the center of this model, and the game changer for subscription companies is personalization. In almost any business, you have the ability to proactively create new monthly or weekly experiences based on previous customer behavior.

You can apply this personalization technique in simple ways. Ask yourself what information you can collect upon signup? How can you use it to create a personal experience? With a little creativity, you can develop methods to make your customers feel special.

A Real World Example

A friend of mine owns a company called Fit Snack, a subscription box business that provides snacks to live a healthy life. For an insider's perspective, I asked Fit Snack CEO, Rose Muniz, to share some insight on building a subscription business.

"When creating a subscription service, it's critical to package a high-value experience," say's Rose.

For Fit Snack, Rose does this by curating products from some of the best brands in the health and wellness space.

Similar to Netflix original content, she also creates high value added experiences that her company owns.

The Model Is What Matters

Whether you are running a larger company like Netflix, or a smaller company like Fit Snack, getting your subscription service and recurring revenue model right is critical.

After all, even our president is joining the recurring revenue bandwagon.

Whether you want to be Netflix, Trump, or a brand like Fit Snack, there is one main takeaway.

Create a personalized experience that can evolve with your customer and offer products or services that differentiate your brand. If you can do this, your customers will be begging to pay your monthly fee.