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SUBSCRIPTION DICTIONARY: GET TO KNOW THE SUBSCRIPTION BUSINESS FROM A TO Z

Le 23 Nov 2016

The 5 metrics that matter in a Subscription Business

It is necessary to look at specific key performance indicators to measure the growth of a subscription business. These KPI allow you to determine the quality and success of your subscription offer. Their accurate and regular analysis makes it possible for you to put in place a process of continuous improvement and to maximize your business performance. Remind yourself of this quote from Harvard Business School: “You are what you measure”.

KPI no. 1: The monthly recurring revenues (MRR)

The monthly recurring revenues is the most important metric in a subscription business. It is the amount of revenues generated by your company from recurring revenues in a given month.

KPI no. 2: The churn

The churn means the loss of customers or subscriber. It is one of the most important performance indicators of your subscription offer, since a high churn rate indicates a lack of satisfaction or your customers. Note that your churn rate must be less than your customer acquisition rate so that your business can develop.

How can you control your churn rate?

To best control your churn rate and try to reduce it to a minimum, you need to be aware of what affects the growth of your subscriptions.

Customer knowledge is thus your best ally. Below are a few questions that you might ask yourself:

  • Where are these unsubscribers coming from? Did they use a discount?
  • What is the feeling of your subscribers when they receive their product or service?
  • Does the service quality meet the required standards?
  • Have you implemented marketing automation scenarios to maintain the relationship with your subscribers?

KPI no. 3: The cost of customer acquisition (COCA)

The cost of customer acquisition is the amount that you spend per new customer. The best way of determining your global COCA is by determining your overall budget allocated to marketing and communication expenditure (AdWords campaigns, display, media relations and influencers). Divide this by the number of new customers acquired over a given period. It is not unusual when you start your activity for your COCA to be more than your customer revenue.

But remember that you pay to acquire your customers only once: you must indeed see the income that you will earn a subscriber over time. It is here that the CLTV comes into play!

KPI no. 4: The average revenue per user (ARPU)

The average revenue per user is equal to the average amount that each customer brings you. To calculate it, just divide the total revenue of all customers by the number of customers.

For example, if you have revenue of €5,000 (for all customers) and 200 customers, the average revenue per customer will be €25.

This allows you to anticipate the total amount of revenue that you will have each month. A useful function for planning cash flow and forecasting your future investments.

Increasing your ARPU is about cross-selling and up-selling without disturbing subscribers or increasing the churn.

KPI no. 5: The customer lifetime value (CLTV)

The customer lifetime value is the amount of expected generated profit on average over the lifetime of a typical customer.

It may be difficult to determine for new businesses, because it is complicated to know how long on average your customer will stay subscribed.

Once you start to analyse your monthly performance, you will be able to make reliable assumptions on the average lifetime of your subscribers.

The lifetime value is particularly important. It can help you to determine a sustainable COCA. The higher your CLTV, the more you can justify higher expenditure on customer acquisition.

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