EMMANUEL PASQUET
Approx. reading : about 8 min
As many leading companies know, managing customer subscriptions is not a “do it once” concept.
It is important for companies to continuously analyze the health of their subscription model to ensure that it really works for their customers and that it delivers results including profitability.
In fact, numerous studies have shown that if a business whose primary model is subscription does not grow at a minimum rate of 20% per year, there is a 92% chance that the business will cease to exist in a few years (source ZionMarket research).
So if you want to ensure that your subscription business is firmly on the right track, you need to be prepared to put in place and maintain a suitable and regularly updated analytical framework.
Businesses of all types, from startups to long-established global brands, have successfully used subscriptions to facilitate an unlimited, predictable revenue stream and give customers the services they want without locking them into rigid contracts.
However, throughout the customer lifecycle, your subscription billing platform should be ready to collect and consolidate data from across your business, not only to properly bill your customers, but also to better understand. how they use your services.
Data like price responsiveness, churn, conversion rates, and recurring revenue should be right at your fingertips. With this information, your business can better:
You must learn to objectively measure your subscription activity.
Several key components must be in place before implementing measurement indicators. The goal should be to monitor the performance and growth of your subscription business.
To do this, you need an underwriting management platform that integrates data modeling, analysis, and forecasting capabilities. This solution must be able to collect, consolidate, present and track all data coming from across your business and translate it into relevant metrics.
In addition, you must identify the indicators that are the most important for your business and make sure you understand the origin of the data.
Finally, the selected metrics should be compared to industry best practices, your peers and, where applicable, past organizational performance.
Don’t reinvent the wheel!
You don’t have to reinvent the wheel when it comes to identifying metrics to monitor your business performance. However, it is important to choose the vouchers that reflect the unique nature of a subscription business.
Whether you already have a basis of analysis to assess your subscription business or are just starting out, here are some of the best practices and key metrics that will help you get started with your analytics work.
Monthly recurring revenue (MRR) is the revenue that a company offering the subscription is expected to receive based on current and future subscriptions.
MRR is often cited as the key metric to watch for a subscription-based business as it can capture growth or change month to month based on the ratio of winning / losing customers.
However, your business must be prepared to take the MRR analysis further, especially when usage-based billing is an important part of your operations.
First, the MRR can be skewed by changes in revenue due to temporary upgrades or downgrades of clients as well as promotional discounts. In these cases, the MRR must be broken down by type of customer and / or type of event.
Your vigilance in analyzing the MRR must be increased, in particular when customer consumption is highly variable.
Indeed, the origin of the consumption should be analyzed as well as the external factors that could cause an increase or a decrease in your MRR.
The goal for you is to have a starting point with the MRR that should inspire you to go further to understand the details of its constitution and evolution.’
Average Revenue Per User (ARPU) calculates the total revenue collected per month divided by the total number of active subscribers contributing to that revenue over the same period.
This metric can give a business insight into the “breadth / depth” of services that are used / consumed by each customer. ARPU tracking helps demonstrate both the growth in customer usage and the extent of the services they use.
While a small number of deeply loyal and active customers can skew the ARPU figure, tracking ARPU trends can help identify churn rate before it occurs so that adjustments can be made. made to prices, product portfolios or services.
In addition to the MRR, the churn rate is a key metric for subscription-based businesses, showing the total number of subscribers who have allowed their subscriptions to expire over a certain period of time.
The unsubscribe rate can be calculated by dividing the total number of subscribers at the start of a period – usually a month – by the number of subscribers who left during that same period.
The churn rate can be further decomposed to show the voluntary and unintentional churn rate.
A high voluntary CHURN is a bad signal for your business. This means that your offers are no longer attractive. Your sales teams must be informed to find the solution.
The unintentional churn rate could indicate the need for increased proactive communication with your customers or the need to implement a follow-up or information feature.
It would also be interesting to analyze if a significant part of your involuntary CHURN could come from technical problems (payment failure, expired card… ..) that you could solve by setting up a planned routine for relaunching the payment. in case of failure or even proactive information to your customers whose expiry date is approaching.
Another way for your business to validate that your growth is healthy is to use the Trial Conversion Rate (TCR). This figure captures the number of customers who ultimately become paid subscribers after a free trial period.
To determine the TCR, divide the number of new customers who switched from free trials to paid members in a given period by the total number of trials initiated in the same period.
This will allow TCR to show you the effectiveness (or lack thereof) of offering a free trial as a method of attracting new customers. Often, this method is less expensive to recruit new subscribers than commercial or advertising campaigns.
You should take the time to compare the total cost of offering a free trial to customers with your other acquisition methods to determine the best strategy for your business.
Lifetime Value (LTV) calculates the average profit made by each customer over a specific period of time, usually from the date of registration.
This number provides a good perspective on the health of your subscription offering. To calculate the LTV, multiply the average revenue per customer by your gross profit percentage and divide that number by the current customer churn rate.
LTV can be analyzed across your entire client portfolio or at the individual client level. You can use it for example:
Customer acquisition cost (CAC) is common in many industries. However, this metric is especially important for companies offering subscriptions because, when paired with LTV, it shows the strength of your business model.
CAC is calculated by dividing the total marketing and sales budget spent by the number of new customers added during a given period.
This value, which is equivalent to an amount in euros, can indicate how much your business is spending to acquire each new customer. You can assess your CAC to assess the growth capacity of your solution offering and therefore the growth trajectory of your business over time.
The Net Promoter Score is a management tool used to measure customer satisfaction and has been shown to correlate with revenue growth compared to competitors.
The Net Promoter Score (NPS) is the percentage of customers who rate their probability of recommending a business, product or service to a friend or colleague at 9 or 10 (“promoters”) minus the percentage who rate their probability at 6 or less (“detractors”) on a scale of 0 to 10. Respondents who give a score of 7 or 8 are called “passive” and enter into the calculation of the overall percentage.
The result of the calculation is expressed without the percent sign
Metrics like these, supplemented with additional numbers that meet your business needs, can be used to help assess potential changes to be made in your value proposition and quickly identify key issues.
For example, a sudden change in your company’s MRR may indicate that you need to assess how receptive consumers are to new services or the impact of new services on customer loyalty.
The MRR closely tracks current and future revenue, so it can even provide additional real-time insight into the financial health of your business.
In contrast, a low trial conversion rate could help a marketing team refine their advertising campaign to target customers who align more closely with potential product offerings or add-on services, or who may be more open to trials. or price changes.
The same goes for increases or decreases in customer churn rate, especially when a new product feature is introduced.
Sales and marketing teams can use this information to increase the promotional effort on a new feature, make adjustments to the value proposition, identify new opportunities for additional services, or refine pricing.
Every business is unique, but applying the best practices in subscription management has a huge impact on the overall performance of your subscription plans.
Your business should use all the tools and data at its disposal to ensure that it takes full advantage of its subscription model.
stewte subscription-to-cash platform is a data-driven and analytic-driven management platform. It allows its users to manage their activity thanks to customizable dashboards updated in real time, without having to re-key anykind of data.
Our customer support team is ready to assist you in setting up reports, customizable dashboards and other analysis tools that will help your business to easily manage its growth and the profitability of its subscription offers.
Dotsha delivers the first subscription-to-cash automation platform designed to put every subscription-based or usage-based business on autopilot … from early subscription to cash collection!
Your business can scale fast without turning its back-office into a mess!
Keep growing faster… we’ve got your back !
All-In-One platform that unify {Pricing}+{Check-in}+{Billing}+{Payments}+{Dunning}+{Reporting} while the MRR just keeps growing, Dotsha’s plaform is an easy to use and quickly implemented cloud-based platform that augment your existing information system with robust API integrations in order to deliver optimal automation with minimal code. You will forget we are there!
EMMANUEL PASQUET
Approx. reading : about 8 min
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