The subscription model isn’t new. I spent my early career (err 20 years ago) administrating traditional subscriptions. Then, subscriptions were used purely as a way of getting money from your customer. Communication would be limited to renewal notices…letter upon letter, email upon email, with the aim of getting customers signed up for another year. And the main subscription metric was renewal rate.
A lot has changed since then. The subscription model is now used to get much closer to customers, build long term relationships and, in some cases, flex to support their needs. This has been influenced by the balance of power moving to the customer, increasing competition and fresh thinking from industries such as SaaS.
So, have subscription metrics evolved to support a more customer centric approach? First, we polled our community for their top three and then added three of our own. Some will come as no surprise whilst others will have you thinking differently.
1. Renewal rate
Renewal rate is no surprise, still a great indicator for subscription health – especially when you’re measuring both churn rate (% of customers you’re losing) and value (expansion on existing customers). We’re always careful about suggesting benchmarks but a sweet spot is 80-85% volume renewal rate. Anything over may suggest you’re not pushing your pricing far enough. And for value, aim for 100%+. Obviously, if you’re in your early stages or have lots of new products coming on board this won’t be anywhere near high enough. But for mature subscription products, you should be recovering any lost revenue from churn with monetisation of your existing customers. That means any new business is new revenue and net growth!
2. Monthly recurring revenue
This is a key subscription metric for SaaS where more revenue is generated from monthly rather than annual subscriptions. But this is an important metric whether you have monthly, quarterly or annual subscriptions. Monitoring this is a great guide as it is a predictor of performance and avoids all focus going on closed deals which can often be lumpy e.g. Q4 rush. Another takeaway is it gets you in the mindset of monthly recurring value – customers benefiting from your service at least once per month.
3. Customer lifetime value
Use this to measure what the average customer is worth to your company. This is really important to support forecasting and business planning, and can get more sophisticated over time as you grow your subscription business. With this subscription metric you can get a view of what a customer will be worth to you in their lifetime. There are different ways to calculate this but a rule of thumb is multiply your average revenue per account (or total revenue) by your average subscription term (e.g. if you have a renewal rate of 80%, you can predict an average 4 year term). This will give you guidance on how much to invest in maintaining and on go to market activities. We’d also recommend measuring the ratio between LTV and customer acquisition cost (CAC) as this can also guide your levels of investment. More sophistication will lead you to measuring cost of retaining each customer too.
But what’s missing?
Yes, you should be measuring these things – but they are all a bit reactive and lack a focus on the customer. What metrics can give us a better view of what’s happening right now? Ones that give you an opportunity to be proactive with your customers?
Here are a further 3 subscription metrics to track:
4. Customer sentiment
This could easily be about usage – engagement and behaviour. This is important to track of course, but doesn’t tell you the full story especially when you’re dealing with enterprise subscriptions. Instead, capturing data on sentiment regularly is a great way to monitor and understand customer health. Imagine you’ve seen a dip in sentiment within one of your key accounts, drill a bit deeper and you’ll know how to intervene to save an account or solve changing customer needs with new product solutions. There are four traditional sentiment metrics including net promoter score (NPS). But one we’ve created measures the most important thing: value and usefulness, the must-have score (MHS). We covered these in a recent blog here.
5. Net customer growth
This one’s simple. It’s your monthly increase (or loss) of customers. Often businesses can get caught up focusing on acquisitions or churn in isolation. But Customer growth is one of the most important things we strive for, so a company wide view on this and it’s drivers are important for a subscription business to track. This coupled with insight on why customers are leaving and joining can keep the mission on course.
6. Net Recurring Revenues
Take a time period, calculate your retained and expansion revenues, and divide by the previous revenue in that time period. Measuring NRR identifies segments of your subscriber base that are high growth versus low/no growth. Successful subscription businesses derive the majority of their revenue from current customers. And this metric will highlight who you’re generating more value from, to monetise effectively.
7. Net Contract Value Index
NCVI takes the contract value you had last year, the percentage that was renewed, and sets a growth goal for the year. In other words, the NCVI is the uplift target from last year to this year. In this way it is a model of performance expectation for a company to achieve – a north star metric. Managing this on a consistent basis across all teams has been proven to drive serious growth.
What’s your go to metric? Tell us what subscription metrics you’re using and why. Get in touch here: email@example.com
The Subscription Innovation Centre is a new membership programme from Substribe. A key benefit is how we monitor sentiment analysis to inform customer health. These quantitative measures give teams the insight to make important customer interventions. Find out more here.
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