Since there is a lower initial sale companies rely heavily on recurring revenue and that means the metrics to track success are going to be different than traditional software sales.
There are many layers to subscription metrics from data that shows overall health of the business to data that provides insight into subscriber behavior. Which ones do you need? Well, you need all of them — here’s a breakdown of each type along with how you can use this information to drive more revenue for your business.
In an online subscription business people tend to focus on Month Over Month Revenues (MMR) because the data provides you with important information about your client base and your ability to attract and retain subscribers. MMR tells you if you are on track to meet your targets and it allows you to calculate churn rate and lifetime value of your customers. It’s a great snapshot for executives and company dashboards because it clearly shows if the company doing worse or better overall. The drawback to MMR is that the data will tell you something isn’t working, but it’s not going to tell you exact problem or how to fix it.
Dividing your data into renewals compared to new subscriptions takes you one level deeper than MMR. It’s essentially a breakdown of the subscription base. It tells you the make-up of your subscribers and gives you important insights about the interests and needs of your target market. This is really a departmental report – it’s tactical and allows you to gauge what events have occurred that have impacted renewals.
If new subscriptions outweigh renewals, you can look at several key aspects of your business. Do your subscribers simply have short-term needs? If so, how can you offer added value to convince existing customers to retain their subscriptions? Do your marketing messages create expectations that your product or service cannot fulfill? In this case, adjusting you marketing communications can set customer expectations that are in line with what you offer. More often, the issue is simply that new subscribers are not sufficiently educated about your product or service. Refining your customer on boarding process can help educate new customers and drive user adoption.
Cohort analysis metrics provide you with the most detailed insights and are by far the best metrics for actionable information because you can cross reference the changes that have happened in your company and the impact on subscribers. You can changes that range from updating value propositions, rebranding activities, product releases to new marketing communications programs.
For example, a company might have 3% monthly customer churn. However after grouping subscribers based on the month they signed up, we might find that 10% of churn happens in the first 90 days and then after 90 days churn drops to 2% a month. This type of analysis leads to a variety of recommendations that impact customer adoption and therefore long-term revenue. The types of changes that come from cohort analysis include:
One word of caution before you begin digging into cohorts – it’s easy to get lost in the data making it difficult to act decisively, so make sure to consider your sample size and time frame when evaluating the usefulness of cohort analysis. If you’re just starting your subscription business don’t worry about cohort analysis, focus on getting customer renewal rates under control for all your customers.
Monitoring and measuring these key metrics is one step to building a stable, profitable subscription business. The time you spend tracking these metrics and adjusting your strategies can pay off in terms of increased retention and improved ability to attract the clients you want. I hope you found this helpful, if you have any other metrics or insights you’d like to share, I’d love to hear from you.