So you’ve built your subscription publication, service or product and you’re ready to promote and sell it. What’s next? Tracking and analyzing performance, of course!
As you scale your business, know and understand these five metrics, as they will give you a good indication on the performance of your subscription business:
- Revenue per Month
- Average Monthly Subscribers
- Revenue per Subscriber
- Lifetime Customer Value
- Renewal Rate
Be sure that you’re looking across your entire subscriber base when calculating each of these five metrics. We also recommend tracking each month to get a top-level view of your business. As you grow, we also suggest that you learn how to dive deep into the details of each metric. There are links to articles below on detailed tracking, segmentation and other key subscription financial metrics.
1. Revenue per Month
Your revenue is a calculation of the subscription income your company has received over a given month based on your overall sales, minus the amount you refunded to customers. Calculate this number by subtracting the amount you refunded from the amount of your subscription income.
Amount spent on subscriptions – Amount refunded = Revenue per Month
Remember that this just a simple revenue calculation and does not take into account the other expenses you incur as you run your business. Bonus points to you and your team if you benchmark this metric against your revenue plan.
2. Average Monthly Subscribers
The average amount of monthly subscribersyou have is a simple metric that will show you how fast your customer base is growing – or how it’s not. For the month you are tracking, add the amount of subscribers you had at the beginning of the month to the amount of subscribers you had at the end of the month, and divide by two.
(Subscribers at Beginning of Month + Subscribers at End of Month) / 2 = Average Monthly Subscribers
This numbercan also be calculated by first adding together the number of subscribers you have at the end of each day of the month (Day1 + Day2 + Day3 ) and then dividing that number by the number of days in the month.
Sum of each day’s subscribers / Number of days in the month = Average Monthly Subscribers
Either way, your sum will be the same. Track your average monthly subscribers on a spreadsheet to see the growth of your subscriber base over time.
3. Revenue per Subscriber
To track your revenue per subscriber, take the number you calculated for Revenue per Month and divide it by the number you calculated for Average Monthly Subscribers.
Revenue per Month / Average Monthly Subscribers = Total Revenue per Subscriber
This metric is especially informative for businesses that have subscription offerings with different price points. It gives insight into how much value you are seeing from each subscriber and is useful in tweaking the price of your subscriptions if need be.
4. Lifetime Customer Value
This metric covers the total value of your customer relationships over the lifetime of their relationship with your company. This metric is especially useful for subscription businesses because customers are recurring and not just briefly in your orbit for a one-off purchase. It will also inform you on how much money you should be spending on finding new customers as it allows you to intelligently make a decision on what percentage of your revenue you should be spending on subscriber acquisition.
Calculate Lifetime Customer Value by first adding together your Total All-Time Revenue and the number of Total All-Time Paid Customers, then dividing your revenue number by your customer number.
Total All-Time Revenue / Total All-Time Paid Customers = Lifetime Customer Value
It should be noted that this equation is the broadest measurement of customer lifetime value as it simply measures total lifetime revenue per customer. The inputs can certainly be modified for segmentation with metrics like subscription or product type and net or gross profit.
This simple calculation works best when you have simple product offerings, infrequent “re-upgrades” where customers leave but end up coming back, and you have a concrete number of accounts.
Note that if you have a business with long subscription terms, you’ll need to discount the amount of revenue you include in the formula. For example, if you have a customer who is two years through a three year subscription, the dollar value your subscription is worth needs to be discounted to correspond with the amount of time elapsed.
5. Monthly Renewal Rate
As recurring revenue is the lifeblood of your subscription business, measuring customer renewals is a vital to gauging your overall strength. Renewal rates are most commonly calculated on a monthly basis by dividing the amount of customers who renewed in that month by the total amount of eligible renewals in the same month.
Total monthly renewals / Total eligible monthly renewals = Monthly Renewal Rate
This equation can be modified by changing the inputs time period and type of subscription. With this calculation, you will be able to tell at what rate you are losing customers, and it will inform your further retention efforts.
Other Resources
The metrics found in this article are high-level measurements to help you track the key performance indicators of your subscription business. For more detailed look and tutorials, Subscription Insider has published this in-depth information for members to use:
- The Four Basic Secrets to Leveraging Your Numbers
- Subscription Business Financial Model
- Measuring Retention Rate
- Subscription by Channel Report
- Site Overview Reports
Brian Hood is a contributor to Subscription Insider.
