More and more ecommerce customers are seeking and expecting new and improved buying experiences. Online customers are looking for greater value of convenience, options and smart purchases based on their preferences. Leading ecommerce merchants are keen to align with customer lifestyle, product and pricing options. In response, leading ecommerce merchants are offering products and services as a subscription designed to meet the customer demand. It’s a welcome trend as online merchants build more valued business models based on recurring billing payments with optional setup fees, free trials and expiration times. But, this new type of business model needs a new way of looking and measuring the success of the business. Enter: Subscription Metrics. This guide will cover the top subscription metrics you should be measuring to track the health of your ecommerce business.
Subscription Metrics You Need to Track
With subscription metrics, the goal is to track the set of metrics that will help you develop long-term relationships with customers that will build a stream of predictable revenue. While there are numerous metrics that are worth tracking, the most critical for subscription businesses are:
Monthly Recurring Revenue
Monthly recurring revenue (MRR) gives you the predictable revenue you can expect monthly. MRR includes all invoiced charges, credits, and refunds from your active subscriptions. It usually doesn’t include one-time charges, variable fees, and taxes. MRR is arguably the most important metric when reviewing your subscription performance. This metric will help you understand whether your business is growing, flattening out, or decreasing. You may be continuing to add new customer subscriptions, which looks great, but losing high-value subscribers, therefore lowering your MRR.
MRR = Sum of all recurring revenue for each month
Glew provides you with the most important KPI’s to run your subscription business including a dropdown of trending metrics including MRR, retention rate, churn rate, Subscriber Lifetime Value. Glew displays the data in an easy to read format that can be filtered by subscription status, plan, or payment status.
Average Revenue per Subscription
The average revenue per subscriber (ARPS) metric tells you how much revenue, on average, you have received from each customer. With the ARPS, you can get a quick glimpse into what your current customers are worth in terms of revenue.
ARPS = MRR / the number of subscribers contributing to that revenue
When you track the ARPS, you are better able to take action if you see that it is starting to decrease. It may prompt you to work on customer engagement or special marketing strategies to keep current customers from churning.
Subscriber Lifetime Value
The most important measurement for any subscription business is Lifetime Value (LTV). Or the total profit you can expect to receive from a new customer over the course of their lifetime. By estimating the the profit you make from a subscriber over the period that they remain a subscriber – you can then see the expected LTV you will receive from a customer each month.
Subscriber LTV = (ARPS X Gross margin percentage) / Subscriber churn rate
LTV is an essential metric to track because when you understand what your average subscriber is worth to your bottom line, you will be able to determine how much you should spend to acquire new subscribers. It will also help with key decisions regarding sales, marketing, product development, and answer questions like: Who are my most valuable customers and my least valuable customers? How much money should I spend to acquire new customers and still maintain profitability? How much money should I spend to support and retain a customer?
Subscriber Retention Rate
The subscriber retention rate is simple and often overlooked: it’s the percentage of subscribers who continue their subscriptions month over month. Subscriber retention rate gives you a glimpse of how customers are feeling about you in a given period. This metric, along with subscriber churn, is very important for subscription businesses. Your retention rate says a lot about how much value you create for your subscribers. When your retention rate dips, you know that you need to take immediate action to re-engage your current subscribers.
Glew provides your subscription retention and churn rates using a cohort display. This allows users to see the long-term value of their customers.
Subscriber Churn Rate
Your subscriber churn rate is simply the percentage of subscribers whose subscriptions have expired over a specific period of time. Sometimes this metric is broken down into to two categories: voluntary or involuntary churn. It can answer questions such as:
- How many subscribers voluntarily cancelled their subscriptions?
- How many subscribers were lost due to failed payments?
- Given the different causes for these two types of churn, where do I need to focus my customer retention efforts?
It is imperative to see many active subscribers you have currently. It’s a simple but important metric that helps you understand the growth of your business. It is also a useful metric for determining trends in subscriber behavior. When are you acquiring the most new subscribers? Is there a specific time of year that you need to increase marketing efforts or adjust subscription prices? These questions and more can be answered (at least in part) by looking at your subscriber numbers.
Subscription Metrics Are Your Foundation for Success
It’s important to understand the above metrics to have a true picture of your subscription business’ performance. When you track and analyze these metrics you will be able to make solid business decisions that will increase your subscriber base, improve your marketing strategies, and increase your profits – all contributors to your over success and business growth.