7 Must-Track KPIs for Subscription Business Success

As a serial entrepreneur who has started and run multiple businesses, I know firsthand the importance of tracking key performance indicators (KPIs) on a regular basis. When it comes to subscription-based businesses, there are seven KPIs that stand out as essential for success.

• Average Monthly Churn Rate: This metric measures the percentage of subscribers who cancel their subscription each month.
• Customer Lifetime Value: This metric measures the total amount of revenue a customer is expected to generate over the course of their subscription.
• Monthly Revenue Growth: This metric measures the percentage increase in monthly revenue compared to the previous month.

These are just a few examples of the KPIs that can make or break a subscription-based business. In this article, we'll take an in-depth look at each of these metrics and how to track and calculate them effectively. Whether you're just starting out or looking to optimize an existing subscription business, this guide is sure to provide valuable insights and takeaways.

Average Monthly Churn Rate

As an entrepreneur, tracking subscription key performance indicators (KPIs) is essential to your business' success. The Average Monthly Churn Rate KPI measures the number of subscribers who cancel their subscriptions over a month-to-month basis. It reflects the stability of your business and how many customers you keep long-term.

Definition

Average Monthly Churn Rate measures the number of customers who cancel their subscriptions each month. It is calculated as a percentage of the customer base that churns each month. A higher churn rate may signify more customer dissatisfaction or competitive issues.

Use Case

As a business owner, you need to understand your subscription churn rates for the retention and acquisition of customers. Understanding churn rate allows you to assess the effectiveness of your strategies and tactics. When you know how customers leave your subscription, you can address these issues and improve customer retention.

How to Calculate KPI

The formula to calculate the Average Monthly Churn Rate is:

Calculation Example

If you have 1,000 customers at the beginning of the month, and 50 customers terminate their subscriptions during the month, the churn rate is:

KPI Advantages

• Helps you understand customer churn rates and the impact of business decisions;
• Enables you to make data-driven retention strategies;
• Provides you with insights into how many customer subscriptions you retain long-term.

KPI Disadvantages

• Some industries have naturally higher churn rates, such as software as a service (SaaS);
• It only looks at monthly churn rates;
• It doesn't consider the customer's lifetime value or how long they stayed with the subscription before canceling.

KPI Industry Benchmarks

Industry benchmarks for the average monthly churn rate vary across industries. However, an average monthly churn rate below 5-6% for most subscription businesses is ideal.

Customer Lifetime Value

As a serial entrepreneur, I know how essential keeping track of subscription KPI metrics is for running a successful business. One of the most important KPIs to track is the Customer Lifetime Value (CLV).

Definition

CLV is the total amount of money a customer is expected to spend on a company's products or services over the course of their lifetime as a customer.

Use Case

CLV is crucial for determining the profitability of customer acquisition and retention efforts. By understanding the expected value of a customer, businesses can make informed decisions about how much money to invest in marketing and retention strategies.

How To Calculate KPI

CLV is calculated by multiplying the average value of a sale by the number of repeat transactions by the average retention time.

Calculation Example

Let's say that the average value of a sale is $100, customers make three repeat transactions on average, and the average retention time is two years. The CLV would be:

This means that each customer is expected to spend $600 on your products or services over their lifetime.

KPI Advantages

• Helps businesses determine the value of each customer and allocate marketing resources accordingly
• Assists businesses in making data-driven decisions about customer retention strategies
• Allows for the evaluation of the effectiveness of marketing campaigns based on customer acquisition costs and lifetime value

KPI Disadvantages

• Assumes that customer behavior is consistent and predictable
• May not be applicable to businesses with high customer churn rates

KPI Industry Benchmarks

CLV benchmarks vary across industries. As a general rule, a higher CLV is better, but what is considered high can vary by industry. For example, a company in the telecommunications industry may have a significantly higher CLV than a business in the retail industry.

Monthly Revenue Growth

As a serial entrepreneur, one of the most important metrics I track is monthly revenue growth. This KPI helps me measure the performance of my business and identify trends and patterns that can inform future decisions. In this chapter, I'll dive into the definition, use case, calculation, advantages, disadvantages, and industry benchmarks for this KPI.

Definition

Monthly Revenue Growth measures the percentage change in revenue from one month to the next. It provides insight into the health of a business by tracking revenue trends over time.

Use Case

This KPI is vital for businesses of all sizes, especially those on a subscription model. By tracking monthly revenue growth, you can identify opportunities for growth and potential challenges, such as churn or revenue dips.

How To Calculate KPI

To calculate monthly revenue growth, use the following formula:

Calculation Example

Let's say your business had revenue of $10,000 in January and $12,000 in February. To calculate monthly revenue growth:

KPI Advantages

• Identifies growth opportunities
• Highlights potential revenue challenges
• Provides insight into overall business health

KPI Disadvantages

• May not reflect the full picture of business health
• Can be impacted by short-term events or anomalies
• Doesn't account for differences in monthly revenue cycles or one-time events

KPI Industry Benchmarks

The industry benchmarks for monthly revenue growth can vary significantly by sector. As a general rule of thumb, 5-10% growth month-over-month is a good target for most businesses. However, it's important to benchmark against competitors in your specific industry to get a more accurate understanding of performance.

Customer Acquisition Cost

As a serial entrepreneur, one of the most important KPIs that I have come across is the customer acquisition cost (CAC). CAC measures the total cost of acquiring a new customer for your business. It is crucial to track this KPI to ensure that you are efficiently utilizing your resources and maximizing your profits. In this chapter, we will explore the definition, use case, calculation, advantages, disadvantages, and industry benchmarks for the CAC KPI.

Definition

CAC is the cost you incur in getting a new customer for your business. It takes into account all of the expenses associated with acquiring a new customer - marketing, sales, promotions, etc. The KPI is calculated by dividing your total sales and marketing expenses by the total number of new customers acquired.

Use Case

As an entrepreneur, it is essential to determine the cost of acquiring new customers to understand the overall health of your company. By knowing your CAC, you can allocate resources effectively and decide on the most appropriate marketing channels for your company.

How to Calculate KPI

To calculate CAC, you need to determine your total sales and marketing expenses and the total number of new customers. The formula for the CAC KPI is:

Calculation Example

Let's say that your business spent $10,000 on sales and marketing in a month and acquired 100 new customers. Your CAC would be:

This means that it costs you $100 to acquire one new customer.

KPI Advantages

• Budget Planning: CAC helps you plan your budget effectively by understanding your marketing and sales expenses.
• Performance Measurement: By tracking CAC, you can measure the performance of your marketing campaigns and identify which channels have the highest ROI.

KPI Disadvantages

• Excludes Other Costs: CAC only takes into account your sales and marketing expenses, which is not an accurate representation of the total cost of acquiring a new customer.
• Not Useful for All Businesses: CAC is not useful for businesses that have a long sales cycle or sell high-ticket items.

KPI Industry Benchmarks

The industry benchmarks for CAC vary depending on the industry. For example, e-commerce businesses have a higher CAC than software companies. However, a general benchmark for CAC is to have it be less than the first sale amount. This means that you are acquiring customers for less than they are worth to your business.

Average Revenue Per User

As a subscription-based business, one of the most important key performance indicators (KPIs) to track is your average revenue per user (ARPU). ARPU provides valuable insights into your revenue stream, enabling you to make better decisions regarding pricing, product development, and much more. In this chapter, we'll define ARPU, explore its use cases, and explain how to calculate the metric. We'll also delve into the advantages and disadvantages of using ARPU and take a look at industry benchmarks for this crucial KPI.

Definition

ARPU measures the amount of revenue your company generates for each customer on average. To calculate this metric, you divide your total revenue by the number of active subscribers during the same period. Essentially, ARPU shows how much money your business is earning per subscriber, giving you a clearer picture of your overall performance.

Use Case

ARPU is an invaluable metric for subscription-based businesses that want to evaluate their performance. It can help you determine whether your pricing strategy is working as intended, assess the quality of your customer base, and pinpoint areas where you can improve your revenue stream. By tracking ARPU, you can make informed decisions about your product and marketing strategy.

How to Calculate KPI

Calculating ARPU is straightforward as long as you have access to accurate data regarding your revenue and subscribers. Here is the formula to calculate:

Calculation Example

Suppose your subscription-based business earned a total of $50,000 in revenue last month. Additionally, you had 1000 active subscribers during the same period. To calculate ARPU, you'd use the following equation:

So, your ARPU for the month would be $50.

KPI Advantages

• Helps you understand your customer base: ARPU provides a clearer picture of your customer base by allowing you to identify the most profitable subscribers.
• Assess business performance: By comparing ARPU against historical data, you can track your business's performance over time and identify potential trends in customer behavior.
• Aids pricing strategy: ARPU helps you decide which pricing or subscription plans are most effective and efficient for your business.

KPI Disadvantages

• Doesn't show profitability: While ARPU provides an insight into your revenue stream, it doesn't give any information regarding your costs or profitability.
• Complexity: Calculating ARPU can be complex and time-consuming if you don't have a reliable system or tool in place to track your subscribers and revenue.
• Differentiation: ARPU doesn't differentiate between new and old customers or revenue generated from different products or services.

KPI Industry Benchmarks for the KPI: 'Average Revenue Per User'

ARPU benchmarks vary widely depending on the industry, market, and product. While there is no hard and fast rule, here are some rough industry benchmarks for ARPU:

• SaaS industry: $100-$300 per month
• Streaming industry: $8-$15 per month
• Food and Beverage industry: $15-$30 per customer

Customer Satisfaction Score

As a serial entrepreneur who has had to launch and operate multiple businesses, I've learned that tracking and understanding key performance indicators (KPIs) is critical to success. One of the most important KPIs for subscription-based businesses is the customer satisfaction score.

Definition

The customer satisfaction score measures how satisfied customers are with your product or service. It's important to keep in mind that this score is relative and can change over time based on customer expectations, industry competition, and other factors that impact overall satisfaction. A high customer satisfaction score is typically a good indication of a company's ability to retain customers and grow its business.

Use Case

Tracking customer satisfaction scores can help you identify areas where your business can improve its customer experience, leading to higher retention rates and more positive word-of-mouth referrals. This score is especially important for subscription-based businesses, where customer churn can have a major impact on revenue.

How to Calculate KPI

The formula for calculating customer satisfaction score is relatively simple:

Calculation Example

Let's say you sent out a customer satisfaction survey to 500 customers and received responses from 400 of them. Of those 400 responses, 300 were positive. Using the formula above, your customer satisfaction score would be:

So, in this example, your customer satisfaction score is 75%, indicating that the majority of your customers are satisfied with your product or service.

KPI Advantages

• Provides insight into customer satisfaction levels
• Can help identify areas for improvement in customer experience
• Can help improve customer retention rates

KPI Disadvantages

• Results can be impacted by factors outside of your control, such as industry competition or changing customer expectations
• Results may be skewed by survey response bias (e.g. customers who are more likely to respond to a survey may not be representative of your customer base as a whole)
• Difficult to establish benchmarks, as industry averages can vary widely

KPI Industry Benchmarks for the KPI: 'Customer Satisfaction Score'

According to the American Customer Satisfaction Index (ACSI), the average customer satisfaction score for e-commerce and retail businesses in the United States in 2021 was 76.5%. However, it's important to keep in mind that benchmarks can vary widely based on industry and other factors.

Net Promoter Score

As a serial entrepreneur who has started and run many businesses, I know how important it is to track your company's performance with key performance indicators (KPIs). In this chapter, we will discuss the top seven online classes on subscription KPI metrics and how to track and calculate them. Let's start with the most popular KPI - Net Promoter Score.

Definition

Net Promoter Score (NPS) is a customer loyalty measure that ranges from -100 to 100. It is based on a single question: 'How likely is it that you would recommend our company/product/service to a friend or colleague?'

Use Case

NPS is widely used by businesses in various industries to measure customer satisfaction and loyalty. Businesses can use NPS to identify promoters (customers who are highly satisfied and willing to recommend) and detractors (customers who are dissatisfied and likely to spread negative word-of-mouth). By understanding the sentiment of their customers, businesses can make informed decisions to improve their products and services.

How To Calculate KPI

First, you need to send out a survey to your customers asking them the NPS question. Then, you need to categorize the responses into three groups: Promoters (those who answer 9 or 10), Passives (those who answer 7 or 8), and Detractors (those who answer 0 to 6). Next, you calculate the percentage of each group by dividing the number of respondents in each group by the total number of respondents. Finally, you subtract the percentage of Detractors from the percentage of Promoters to get the NPS score.

Calculation Example

Suppose you sent out a survey to 100 customers, and you received the following responses:

• 55 customers answered 9 or 10 (Promoters)
• 30 customers answered 7 or 8 (Passives)
• 15 customers answered 0 to 6 (Detractors)

To calculate the NPS score:

KPI Advantages

• Easy to understand and implement
• Provides a simple metric for measuring customer satisfaction and loyalty
• Helps businesses identify promoters and detractors

KPI Disadvantages

• Only captures a single aspect of customer satisfaction
• Does not provide actionable insights into how to improve
• May not be suitable for all industries and businesses

KPI Industry Benchmarks

The NPS score varies widely across industries. Here are some industry benchmarks for NPS:

• Airlines: -2
• Retail: 45
• Software: 58
• Telecom: 26

In conclusion, if you're running a subscription-based business, it's crucial to keep track of certain key performance indicators (KPIs) to ensure success. The average monthly churn rate can provide insight into customer retention and satisfaction, while the customer lifetime value can give an idea of each customer's overall revenue potential.

• Monthly revenue growth is another important KPI, as it measures the business's overall success and growth.
• Customer acquisition cost and average revenue per user can provide insight into the business's profitability and potential for expansion.
• It's also important to track customer satisfaction score and Net Promoter Score to ensure that customers are happy and likely to recommend the business to others.

By regularly monitoring and analyzing these KPIs, businesses can identify areas for improvement and make informed decisions to optimize their subscription model. With a focus on these essential metrics, subscription-based businesses can increase their chances of long-term success and growth.