No matter what industry you’re in, you need to pay close attention to the most important key performance indicators (KPIs). Even if you’re not a “numbers person,” don’t let that be an excuse for you to fall behind or miss out on opportunities! If you want to acquire customers, increase monthly revenue, and improve your business’ growth trajectory, you need to become familiar with the most important metrics and what they actually mean for your business.
Subscription model businesses are unique and won’t fit a standard marketing approach, so focusing on generic metrics isn’t going to cut it. We’ve helped subscription companies like yours grow their businesses by implementing strategies that work and monitoring the most relevant metrics.
Find more ways to grow your business with essential subscription marketing KPIs as the primary driving force behind your marketing efforts.
Identifying the Most Important Subscription KPIs: What Matters Most
Keeping track of marketing KPIs for subscription companies is a crucial part of running your business and making sure you’re doing everything you can to make it profitable and sustainable. But the KPIs you need to focus on will be different than most other businesses.
You have to hone in on the key metrics that really matter: how much you’re spending per customer, how quickly you’re losing subscribers, how long people are sticking around, and more.
The most important key subscription metrics are going to tell you everything you need to know about the health of your business, including where you’re underperforming and where you’re thriving.
From how much you spend to acquire new customers to lagging indicators like churn rate, these essential metrics will give you incredible insights into how well your business is doing — and what needs some TLC.
If you want your subscription business to achieve long term growth and success (who wouldn’t?), you should focus on important metrics that quantify your performance in acquisition, revenue, and retention above all else.
Customers are the lifeblood of your subscription business, and their behavior and loyalty are critical indicators of how profitable and sustainable your company is. Tracking metrics like lead generation, new subscribers, and how much it costs to acquire leads and customers will inform your marketing spend and help you determine how much revenue you’re actually seeing.
It’s not enough to get new customers; you need to make sure you can keep existing customers happy, too. Customer retention is one of the most challenging aspects of running a successful subscription business, but too much customer churn (and consequently, revenue churn rate) will put your business in the red.
Monitoring customer retention rates provides valuable insights into the effectiveness of your strategies and the overall satisfaction of your customers. (You should also listen to what your customers are saying on social media, via feedback forms, and to your customer service representatives, by the way!)
For most businesses, revenue metrics are the most important, and this is especially true for businesses with a subscription model. Monthly recurring revenue (MRR) is a good indicator of short-term stability while annual recurring revenue (ARR) will help you measure your business’ long-term growth. Along with customer lifetime value, tracking these metrics will allow you to make informed decisions to enhance revenue growth and ensure sustainability.
The Five Subscription KPIs You Should Be Tracking
Across your sales and marketing teams, you’ll want to track a number of metrics, but if you want to focus on growing your business, here are the top 5 KPIs you should prioritize for your subscription business:
Customer Acquisition Cost (CAC)
Acquiring customers is likely one of your top priorities when selling subscription services, but it’s not enough to just know how many people subscribe to your business; you also need to determine how much it costs to get new subscribers.
Customer acquisition costs determine how much you have to spend in order to convince leads to convert. This customer acquisition KPI is absolutely critical for subscription businesses; depending on when customers terminate (and the resulting average revenue per customer), your CAC can give valuable insight into how you can target more valuable customers and reduce unnecessary spend.
As one of the leading KPIs for subscription businesses, finding the average customer acquisition cost is just as essential as tracking the operational costs of running your business. Take into account how much you spend on paid advertising and other marketing initiatives over a set period – anything that is centered on getting someone to sign up for your product or service. Then, divide that by the number of customers acquired over the same period of time, and you’ll learn just how much money you’re putting in per person to grow your subscriber base.
Subscriber Growth Rate
Active subscriptions are the core of any subscription-based business. Subscriber growth rate calculates the rate at which new subscribers are joining and existing subscribers are churning to provide insights into the health and trajectory of your company’s subscriber base. Ultimately, tracking subscriber growth rate allows businesses to identify customer trends, optimize their marketing strategies, and ensure long-term sustainable growth in their market.
When you can accurately calculate your subscriber growth rate, you’ll be able to make predictions about the future of your subscription business. By calculating this KPI, you’ll also have the opportunity to look more closely at customer churn and subscriber growth individually, which can help you better predict growth and set more informed goals.
Average Order Value and Monthly Recurring Revenue (MRR)
Average order value is exactly what it sounds like – the average amount any given subscriber spends in a transaction with you. A high average order value ensures that you can cover all of your expenses while making a profit.
Depending on your exact model, the cost per product, subscription tiers, and more, you may have a lower order value on average, but what you want to look out for is how many orders are discounted, how many are recurring, and how many new subscribers you get each month along with this metric.
Additionally, you can track monthly recurring revenue and average monthly revenue to give you a better idea of how your business is doing. Rather than solely assessing how much your customers are spending, you can also look at how much recurring revenue they are generating – so even if you have a lower order value, this recurring revenue accounts for how much you’re actually making each month when your subscribers don’t cancel.
Many e-commerce platforms or integrations will already have the average order value in your reporting dashboard. If you’re doing things the old fashioned way, just take your total sales revenue and divide that by your total number of orders.
Customer Lifetime Value (CLV)
With a subscription business model, subscription retention rate is absolutely essential; you don’t want customers to sign up for one month and immediately cancel, after all. Customer retention KPIs, namely customer lifetime value, can help you determine how long your customers are subscribing to your service and how much revenue they generate for you from the time they first sign up to the time they cancel.
The lifetime value of your customers is the total average revenue expected from the entire relationship between your customer and you. In other words, this is the amount of revenue you can expect from your customer over the course of their subscription.
Calculating customer lifetime value (CLV) will give you insight into how much you should spend on acquiring new customers (based on how much their lifetime value offsets customer acquisition costs).
To find your customer’s lifetime value, take the average revenue per customer and multiply it by your gross margin percentage. Then, take your total and divide it by your customer churn. Some subscription businesses find it helpful to decrease LTV by a small percentage to account for future uncertainty.
Subscription Churn Rate
With a subscription business model, some customer churn is inevitable, but you need to keep an eye on your churn rate (the number of people who have canceled or failed to renew in a given period) to monitor the effectiveness of your marketing efforts, the satisfaction of your customers, and the success of your business.
If you have too many customer cancellations over time, you’ll never be profitable, and improving your churn rate by retaining subscribers is paramount for the growth of your business!
Tracking a lagging indicator like churn rate is going to set you up for long-term success once you’re able to narrow in on the aspects of your subscription model that need improvement. Subscriptions never want to lose a customer, but analyzing the reasons someone might unsubscribe will allow you to improve your business and acquire more customers.
To calculate this metric, just take the number of subscribers who have canceled or haven’t renewed after your standard subscription time period (let’s say, one month) divided by the number of subscribers you started with.
Not a math person? No problem, there are a ton of free templates with excel formulas for subscription KPIs out there to help.
How Your Subscription Metrics Should Inform Your Sales and Marketing Efforts
Measuring data like lost customers, average revenue per user, revenue churn, and more will help you determine the health of your business at any point, but these numbers should also help you maximize your business’ potential for new customers, recurring revenue, and customer retention.
It isn’t enough to just look at the data and calculate some KPIs; use these metrics to improve your sales and marketing initiatives!
These KPIs aren’t just numbers; they’re a quantitative measurement of your success and growth potential – if you know how to use them. By analyzing subscription metrics such as customer lifetime value and acquisition cost, businesses can gain valuable insights into their subscribers’ behavior at various points in the customer journey and identify where your efforts may be lagging, from creating brand awareness to providing exceptional service and building a strong customer relationship with subscribers.
When you leverage data-based strategies, you can optimize your marketing campaigns to specific customer segments, enhance the overall customer experience, and ultimately increase revenue.
Not sure where to start? Tell us about your business growth goals and let our team take care of the heavy lifting.
How to Measure Your Business Growth With Subscription KPIs
This is far from a complete list of important KPIs to track for subscription business owners, but focusing on the most relevant and impactful metrics can help you keep a handle on how things are going and find areas of improvement. If you don’t pay attention to the right metrics, making informed decisions based on data is close to impossible, and if you want to see your subscription business take off, you have to look at the numbers.
The best marketers know their metrics inside and out and focus on key data points that make sense for each business model. In a subscription business, these KPIs are going to help you make sure you not only can predict profitability but also determine how effectively your marketing strategy is performing.
Keep a handle on your metrics, and you’ll be able to grow your business predictably and sustainably. And if you need help with measuring your success and scaling your business, our team is here to help with proven digital marketing strategies at the ready.