The plan focuses on key metrics essential for evaluating the performance of a subscription-based business. These metrics include Monthly Recurring Revenue (MRR), Customer Lifetime Value (CLTV), Customer Churn Rate, Average Revenue Per User (ARPU), and Subscriber Growth Rate. By tracking these metrics, businesses can make data-driven decisions to enhance profitability and sustainability.
For example, by monitoring MRR, a company can identify opportunities to upsell or adjust subscription pricing. Similarly, understanding CLTV helps in strategizing long-term customer engagement and maximizing revenue. Managing Customer Churn Rate is crucial as it directly impacts growth and stability. ARPU provides insights into revenue generation from each customer, promoting better pricing strategies. Lastly, Subscriber Growth Rate is vital for tracking business expansion and effectiveness of marketing efforts.
Top 5 metrics for Subscription business performance
1. Monthly Recurring Revenue (MRR)
The total revenue generated from all active subscriptions in a month. Calculated as the sum of all subscription values per month.
What good looks like for this metric: $10,000 - $500,000 depending on industry
How to improve this metric:- Increase the price of your subscription plans
- Upsell existing customers to higher-tier plans
- Acquire new subscribers through marketing campaigns
- Improve product offerings to reduce churn
- Implement annual or semi-annual billing cycles
2. Customer Lifetime Value (CLTV)
The total revenue a business can reasonably expect from a single customer account throughout their relationship. Calculated as average revenue per account multiplied by average customer lifespan.
What good looks like for this metric: $100 - $1,500 depending on industry
How to improve this metric:- Enhance customer support to increase retention
- Develop loyalty programs
- Segment customers for personalized marketing
- Offer cross-sell and upsell opportunities
- Collect and act on customer feedback
3. Customer Churn Rate
The percentage of customers who cancel their subscriptions over a given period. Calculated as the number of customers who left divided by the total number of customers at the start of the period.
What good looks like for this metric: 2-8% per month
How to improve this metric:- Improve customer onboarding experience
- Regularly engage with customers through communication channels
- Offer limited-time promotions to retain wavering customers
- Analyse reasons for cancellation and address common issues
- Introduce long-term subscription discounts
4. Average Revenue Per User (ARPU)
The average amount of money earned from each active user or subscriber. Calculated by dividing total revenue by the number of active users.
What good looks like for this metric: $10 - $200 per month
How to improve this metric:- Encourage customers to upgrade their plans
- Introduce add-ons and premium features
- Bundle products and services
- Improve user experience to enhance perceived value
- Use targeted pricing strategies
5. Subscriber Growth Rate
The rate at which new subscribers are acquired over a given period. Calculated as the percentage increase in subscribers from one period to the next.
What good looks like for this metric: 5-10% per month for growing businesses
How to improve this metric:- Invest in digital marketing campaigns
- Offer referral incentives
- Enhance presence on social media platforms
- Partner with influencers or other businesses
- Continuously optimize your website for conversions
How to track Subscription business performance metrics
It's one thing to have a plan, it's another to stick to it. We hope that the examples above will help you get started with your own strategy, but we also know that it's easy to get lost in the day-to-day effort.
That's why we built Tability: to help you track your progress, keep your team aligned, and make sure you're always moving in the right direction.
Give it a try and see how it can help you bring accountability to your metrics.
