Subscription Metrics

What are subscription metrics?

Subscription metrics are the numbers that show how well a company’s subscription business plan is doing. Depending on how much money a business makes from subscriptions, subscription metrics may only show a small part of its success or the whole picture.

More than one subscription indicator can be used to measure at least one of the following:

• Efforts to get new customers
• Plans to keep customers coming back
• How much does a specific type of customer spend
• How long can you expect the customer to stay with the business?
• Short- and long-term ways to make money and increase sales

Companies benefit from subscription data by turning vague ideas (like “How are customers responding to our new product?”) into actual numbers. This helps businesses keep track of their contract growth plans and make changes as needed.

Synonyms

• KPIs for subscription businesses
• Revenue metrics for subscription companies
• Subscription business model metrics

Why Keep Track of Subscription Metrics

Help with price plans

Companies that use price models based on subscriptions should monitor subscription metrics because they give them essential information about how well their pricing strategies work.

Most of the time, subscription services are the most reliable way to make money, but they can be susceptible to changes in price. Companies can try different tactics and find the best prices and ways to make the most money over time by keeping track of subscription metrics.

Make exact estimates of your income.

Revenue forecasting helps leaders, executives, and investors decide whether to invest in team growth, regional expansion, and new product development.

Forecasting is a lot easier when people have measurable data from the past to help them make choices. Companies can make better choices with more information about their future revenue potential through subscription metrics.

Make things better for customers

Companies can find ways to improve the user experience (UX) by keeping track of subscription numbers and customer feedback data. Their users’ actions with their product or service can help them determine if any UX problems need to be fixed.

Companies can also use subscription data to keep an eye on their pricing and marketing plans and see which ones work best to keep customers coming back and getting them involved. They get better customer experiences when focusing more on the best ones.

Lead the creation of products and features

Even if a company only works with one developer and artist to add a new feature, which doesn’t happen very often, it will still cost them up to $300,000 for that feature.

They can use subscription metrics to determine which of their goods or features bring in the most money and which don’t.

When combined with customer feedback about what they’d like to see in the product, this data helps companies decide what features to keep and which ones to eliminate.

Make marketing efforts better.

Businesses have to learn a lot about their subscribers to sell subscription products. They must determine which customers respond well to specific messages or use the product well.

KPIs for subscriptions help businesses improve their ideal customer profile (ICP) by showing them which channels get the most conversions and which users can bring in the most money.

Their marketing will be more effective and valuable if they focus on groups that bring in the most money per member or have the highest lifetime value.

Make a plan for long-term growth

It’s easy for subscription businesses to get caught up in selling to too many types of people. The truth is that businesses have a much better chance of long-term growth when they focus on a specific target market and grow their subscriber base from there.

Key performance indicators help them look at this problem as a whole. This way, sales, marketing, and customer success teams can meet subscribers where they are, and product developers can make sure that high-value subscribers are happy by adding the right features and changes.

Get in touch with investors

Venture capital is only raised by about 0.05% of businesses, but many subscription-based businesses need outside investment to grow.

No matter where the funding comes from, subscription metrics make it much easier to talk to the people who are behind it.

• Looking at past data makes it easier to guess how many sales will happen.
• Subscriber ROI data helps investors determine how much money a new market entry or product development project could make.
• A company that can be invested in has a low churn rate and a high repeat rate.

Subscription measures make it easier for businesses to pitch new investors or keep in touch with old ones.

Here are 12 essential metrics for your subscription business and why they’re essential.

Recurring monthly income (MRR)

A subscription business’s most crucial ongoing metric is monthly recurring income (MRR). It has two perks, even though it doesn’t show the whole picture of a company’s financial health.

• MRR helps businesses make short-term plans. A business can check MRR monthly to see how new marketing and sales efforts have affected its bottom line.
• They can plan for long-term growth with MRR. By looking at MRR from the past, businesses can prepare for times when revenue growth will be slower, make more accurate sales predictions, and use good strategies for growing.

Annual Recurring Income (ARR)

Annual financial records give a primary picture of how well a business is doing. However, annual recurring revenue (ARR) analysis gives more detailed information about business trends and customer behavior.

Monthly revenue is more critical to businesses than one-time sales, but ARR ensures yearly revenue. When businesses zoom out, they can see retention rates more clearly since MRR doesn’t show a high customer loss rate as clearly.

How much money do you make per user (ARPU) or account (ARPA)?

To determine how profitable a business is, knowing how much money the average customer brings in is essential.

Companies can learn two essential things from average revenue per user (ARPU):

• How long it will take to get the money back from selling a subscription
• How much money they can make in the long run from each client

Regarding business finances, this is an essential part of the overall plan for making money.

Let’s say a SaaS membership company sells software packages that start at $500 per month. When you add up the costs of marketing, customer service, and setting up the sales machinery, selling each subscription costs $1,500.

For the above case, the business would need to keep its subscribers for three months and have an ARPU of $1,500 to break even. It would need more than that to make a profit. Suppose an organization’s leaders see that one group of customers is either not making money or losing money. In that case, they can cut their losses and focus on customers who will bring them more money.

Many costs come with running a business. Still, the above example shows how a company could use ARPU to determine if a sales channel, marketing channel, or group of customers is worth following in the long term.

The value of a customer over their lifetime

Customer lifetime value, or CLV, is the sum of all the money a customer will spend with a business throughout their lifetime.

It helps businesses make better marketing choices, figure out how to reach specific groups of customers, and find new product development ideas. It also gives businesses a more in-depth look at recurring income, which only shows a snapshot of how well the business is doing.

To find CLV, multiply the average income per user (ARPU) by the time the customer is expected to stay with the business. For example, a SaaS company’s CLV would be $1,000 if its average recurring revenue per user (ARPU) is $500 and buyers renew their subscriptions every two years.

Understanding CLV is essential because getting a new user costs five to seven times as much as keeping an old one.

Cost to Get a New Customer (CAC)

Businesses know that adding more active subscribers doesn’t always mean more income, so they analyze their CAC.

Customer acquisition cost (CAC) tells businesses which sales and marketing efforts are worth the money and which are wasting their time and money.

The best customer isn’t always the one with the lowest acquisition cost. To find their total ROI, businesses need to divide the lifetime value of a subscriber by their CAC.

This shows how profitable a business is and helps them determine how to get new customers better over time. It’s called the CAC: LTV ratio.

Rate of Churn

When businesses track subscription churn, they can see how many people leave their services and why. For that, divide the number of lost customers over a specific period by the total number of active subscribers at the beginning.

Businesses can learn three things from subscription churn:

• How many clients are leaving?
• What kinds of subscription services have the most people leaving?
• What types of customers are canceling their plans the most?

A loss rate of 10% to 14% is typical for successful subscription businesses in the SaaS industry. A churn rate of 6% to 8% is typical for subscription services in general.

Growth and Efficiency

To find out how much it costs a membership business to make $1 in net ARR, the Growth Efficiency Index (GEI) is used. A value less than 1.0 means optimizing your income, while a value above 1.0 means improving how you get new customers.

To find the growth efficiency, split this year’s marketing and sales costs by the net new annual revenue.

Companies can use the GEI to determine how much they need to spend to bring in $X in new ARR over the next year. It includes all the costs of sales, marketing, and customer service, from getting new customers to training them.

Companies can use this metric to compare their performance to the averages in their business, look at different pricing models, and find ways to improve their subscription process.

Speed of the lead (LVR)

Lead velocity measures how quickly customers move through the sales process. In real-time, the lead velocity rate (LVR) shows how many new leads are coming each month.

LVR is one of the most critical measures for subscription businesses to keep an eye on because it shows how healthy sales are and how customer acquisition strategies work.

A business can get new customers faster if the lead flow rate is high. To find LVR, first take the current month’s lead count and remove the lead count from the previous month. Then, divide that number by the leads from the previous month to get the percentage point change.

Return on Investment for Subscribers

At its core, subscriber ROI is a simple equation: divide the amount of money you made from a member by the amount you spent.

The metric counts how profitable it is to get a new customer and how well a business’s marketing gets new subscribers.

Subscriber ROI can also be used to compare different customer groups or sales platforms, which helps companies figure out the best and most affordable ways to get new subscribers.

Rate of Trial Conversion

Most membership services let customers try them out before deciding to buy.

There are a few things that a low trial conversion rate could mean, including:

• The customer wasn’t happy with the result.
• There isn’t enough communication about the goods.
• The possible buyer wasn’t a good fit for the item
• The way the price is set doesn’t make sense for the value

The trial conversion rate tells businesses how well these trials bring in sales and lets them see their progress over time.

The number is found by dividing the number of people who signed up for a free trial by the total number of people who signed up for a free trial during that time.

Rate of Renewal

The renewal rate is the rate at which buyers renew their subscription to a service or product. In addition to showing how well a business keeps its customers, it also shows which services and goods are most popular with those customers.

When the renewal rate is high, loyal customers think the service is valuable. It also means the business can stay open for a long time and make money.

Businesses that don’t get many renewals should look more closely at their targeting, price, customer service, and products to ensure they’re meeting their customers’ needs.

Loss of Revenue

With revenue churn, you don’t just look at the number of people who leave but also at how much money you lost. If the customers who spend the most money aren’t going, a high subscription churn rate might not be as important.

If a business is based on subscriptions and has multiple pricing plans, revenue churn is a better indicator of its financial health than subscription churn.

Tips to Make Your Subscriptions Work Better

Companies can improve their subscription data in an endless number of ways. Some parts of the whole set of plans are specific to the business and depend on why problems are happening.

These are some general business methods that work for most:

• Get people to use your product by getting them started and interested.
• Give customers reasons to renew their subscriptions or move up to better deals.
• Come up with better ways to cross-sell and up-sell.
• To learn about price flexibility, test different pricing models in small steps.
• Put money into programs that keep customers returning, like prizes for loyalty or referral incentives.
• Look again at the process of getting leads to make sure they are skilled and of good quality.
• Get feedback from customers at all stages of the customer journey and after all types of churn to find any problems with the subscription process.

Tools to Keep an Eye on How Well Businesses That Make Regular Sales Are Doing

CRM

Customer relationship management (CRM) software keeps track of leads as they move through the sales process and saves notes and updates. It lets companies see their customer information and figure out why customers leave so they can take steps to keep those customers longer and make them worth more in the long run.

Throughout the customer journey, CRM lets businesses automate tasks and keep track of customer contact, from welcome emails to renewal notices.

When customer success teams are done fixing a customer’s problem, they put the conversation data into the CRM. This can help highlight important pain points.

Set up, price, and quote (CPQ)

CPQ software speeds up the sales process by making it easier for sales reps to make quotes and adjust proposals. It can be used to set prices for different groups of customers and create discounts and product packages.

With CPQ, sales reps can quickly sort through customer information to find the best answer for each prospect. This makes it easier for people who have tried a free sample to sign up for a paid plan, which helps businesses get more leads.

Getting paid

Companies that sell some or all of their goods through subscriptions use billing software to manage the whole customer life cycle, from signing up to renewing their subscription. It has features like automated billing and payment processing that make the subscription process more accessible for customers.

A subscription billing tool lets companies offer pricing plans tailored to specific groups or channels. This way, they can find out the retention rates for each group and improve their marketing.

Information about revenue

CRM, billing, and contract management gather customer information but don’t show how well the business is doing.

Revenue intelligence lets companies gather and look at sales information from various sources in a single location. They can keep an eye on essential numbers like repeat, trial conversion, and churn rates to see how things are going.

Taking care of subscriptions

Software for managing subscriptions keeps track of current customers, their payment information, and when they are billed. It can also be used to track what customers like, which helps companies make deals that will get customers to renew their subscriptions and bring in more money.

By automating these tasks, you can be sure that payments will be made on time, customers will be involved, and there will be fewer requests for customer service. This will also make the customer success team’s job easier.

Software for Subscription Analytics

Sometimes analytics are built into subscription management platforms, but you can also get analytics platforms as separate pieces of software. These tools allow companies to see their data visually, which helps them spot trends and make intelligent choices about pricing and products.

Software for subscription analytics gives you information about how your customers act, like which services they use and which ones they don’t. It can also help people decide where to put their money and time in the future.