Measure Your Subscription Growth: The 8 Most Important Metrics
To successfully hit business goals, it is crucial for your goals to be quantifiable and measurable. Here are the eight most important metrics that your business we recommend you focus on to drive your long-term growth and achieve your business goals.
- Monthly Recurring Revenue (MRR)
Monthly recurring revenue is the most important metric of all for any subscription business. When a new customer subscribes, your business gets predictable recurring revenue! Your business will not have to struggle to find new customers each month or to forecast expected sales.
To calculate for MRR:
You can calculate this in two ways. First, you can get the total sum of the monthly fees your subscribers pay you. Or, you get the Average Revenue per User (ARPU), and then multiply the ARPU by the total number of subscribers your business has.
MRR = Sum of Monthly Subscription Fees
MRR = ARPU * Total Number of Subscribers
2. Monthly Recurring Revenue Growth (MRR Growth)
Your business’ MRR fluctuates from month to month. As the MRR grows, it is important to pinpoint these changes and analyze its growth.
There are three aspects to consider when calculating the MRR Growth, namely: New Customer MRR, Existing Customer Expansion MRR, and Churn MRR. All these give you the MRR Growth by adding the New MRR to the Expansion MRR then subtracting the Churn MRR.
Net MRR Growth = New MRR + Expansion MRR — Churn MRR
a. New MRR
- This refers to the revenue brought by the newly subscribed customers.
b. Expansion MRR
- Expansion MRR is the increase in revenue brought from upselling (customers upgrading their plans) or cross-selling (customers subscribing to additional products or services).
c. Churn MRR
- Churn MRR is the revenue that has been lost from customers cancelling or downgrading their plans. Churn MRR is a bit different from customer churn that will be discussed later in the article.
3. Average Revenue per User (ARPU)
Another metric to keep an eye on is ARPU. It is vital for calculating customer lifetime value. ARPU is different from customer lifetime value in that it’s usually calculated for a specific period (often one month), whereas customer lifetime value includes the entire time that the user is a customer of your business.
To calculate for ARPU:
You can calculate this by dividing total revenue in a given time period by the number of customers.
ARPU = MRR / Total # of Customers
4. Lifetime Value (LTV)
Lifetime Value assesses the profit your business makes from any given customer. LTV measures the financial value of a customer during their time with your business. It aids in creating major business decisions about sales, marketing, product development, and customer support, such as: “How much should I spend to acquire a customer? Who are my best customers? How can I offer products and services tailored for them? How much should I spend to service and retain a customer? What types of customers should sales reps spend the most time on?”
To calculate for LTV:
First, we need to use three other metrics, namely: Average Revenue per User (ARPU), Churn, and Gross margin. Calculate it by taking the revenue you earn from a customer, subtract out the money spent on serving them, which gives you the gross margin per customer, and see for how long they stay bringing you this profit before churning.
LTV = ARPU * % Gross Margin / % MRR Churn Rate.
5. Customer Acquisition Cost (CAC)
Customer Acquisition Cost is an estimate of the cost associated with acquiring a new subscriber. It includes the costs associated with acquiring a subscriber, including marketing, sales, and headcount. When utilized with LTV, CAC would answer questions such as “How effective are my sales and marketing efforts? When combined with LTV, am I spending too much to acquire customers in relation to what they’re worth? Can I monetize subscribers at a higher rate than it takes to acquire them? How long will it take to achieve payback and what are the implications for capital?”
To calculate for CAC:
You can calculate this by summing all of your Sales & Marketing expenses and divide it by the number of customers acquired on a given period.
CAC = Total Sales & Marketing expenses / # of New Customers
6. Customer Acquisition Cost (CAC) Recovery Time
This is another important metric because it tells you how long it will take to recover your CAC. To calculate this, divide CAC by ARPU to determine how many months of having a customer it will take to cover the cost of acquiring them in the first place. This is also sometimes called the “Payback Period.”
CAC Recovery Time = CAC / ARPU
Churn is the most important metric to keep an eye on, which refers to the number of customers who stop their subscription from one month to the next. As your churn increases, it becomes harder to grow and scale your business. This means that your acquisition costs will get higher, as you have to not only find new customers, but replace all of the ones that were canceled. Reducing churn is the #1 factor in the sustainability of your business. Simple subscription payment options with HelixPay are a huge driver to reduce customer churn.
To calculate for Churn:
You can calculate your churn rate for a specific period (whether monthly, quarterly, or annually) by taking the number of cancellations and dividing it by the total number of customers, and then multiplying that by 100.
MRR Churn = SUM (MRR of Churned Customers)
MRR Churn Rate % = Churned MRR / MRR * 100
8. Customer Retention Rate (CRR)
How long do your customers stay as subscribers? That’s what your customer retention rate (CRR) measures: the rate you keep customers over time. It’s a key indicator of the health of your business and an important number to keep track of. It is also the inverse of churn rates. Many businesses put a lot of time and effort into trying to find new customers. But the reality is that, peso for peso, it’s far cheaper to keep an existing customer happy (and keep selling to them) than to woo a new one. Not only that, current customers often buy more things and even refer their friends and families — at no cost to you. So, having a high customer retention rate should be a key part of your business strategy.
To calculate for Customer Retention Rate CRR:
You can calculate this by finding out how many customers you have at the end of a given period (week, month, or quarter). Then, subtract the number of new customers you’ve acquired over that time. Divide by the number of customers you had at the beginning of that period. Then, multiply that by one hundred.
These are 8 of the most important metrics to track to improve your subscription business. HelixPay’s powerful tools and easy smooth customer experience make it easy for businesses to offer subscriptions and build a successful recurring revenue business.
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