Subscription based services are getting very popular these days. Different OTT platforms, shopping sites and even the RO system is moving towards the subscription-based model. it’s very important to effectively track the performance of the subscription businesses also. They need their own unique set of performance indicators and metrics, referred to as key performance indicators (KPIs). It’s
Let’s discuss some of these important KPIs in this article.
- Monthly recurring revenue (MRR)
MRR is that the revenue a company can expect to receive on a monthly basis.
It are often calculated as the number of customers multiplied by the monthly rate they pay.
MRR = Number of consumers * Monthly subscription rate.
Keep a close eye on your Monthly Recurring Revenue (MRR) to gauge the financial health of your B2C subscription business, and consider our specialized accounting services for accurate MRR tracking.
- Annual recurring revenue (ARR)
MRR gives short term analysis whereas ARR gives a long-time examine revenue in the coming year. it’s useful for forecasting purposes.
It are often calculated by multiplying the monthly rate by 12 and multiplying the result by the number of customers.
ARR = (Monthly subscription rate x 12) * Number of consumers
- Average revenue per user (ARPU)
There might be multiple subscription plans, so MRR and ARR are often skewed since different customers are paying different amounts per month/ per year. this is often why we calculate ARPU by dividing the MRR value by the total number of customers.
ARPU = MRR / Number of consumers
- Customer lifetime value (CLV)
CLV may be a measure to determine the revenue an individual customer is likely to bring into a business throughout their whole journey of association with the business. it’s profitable for a business when it exceeds the costs of onboarding and delivering them the service.
CLV = Average Transaction Size x Number of Transactions x Retention Period
- Customer Acquisition Cost (CAC)
Success of a subscription business depends on two things: acquiring customers and retaining them. Customer growth and profit relies on customer acquisition, and it should more than customer churn rate.
Marketing, onboarding, and different channel costs includes while acquiring customer that add up to CAC.
This also helps in analyzing what strategy to use to bring the value down. for instance , company can calculate the typical CAC for acquiring customers over social media vs other channels to provide information in the market. It helps to settle on the cheaper and more effective ways to acquire customers.
CAC is high for a replacement business. It can cost between 150-200% of their first year’s actual contract value (ACV). However, that prime CAC can be compensated with upsell opportunities within each contract. This strategy is understood as the CAC Payback Model, where the entire value of a customer’s LTV offsets the costs of their first year.
- Churn rate
Churn rate refers to the amount of customers who have stopped to use the service of a business.
It are often calculated as the subscription cancellations received over a certain period divided by the total customers you had in that time.
Churn rate = Subscription cancellations/ Total customers
- Lead velocity rate (LVR)
Lead velocity rate shows how effective your business is at drawing in new customers.
It are often calculated as the difference in qualified leads (potential customers) from one month to another, divided by the amount of qualified leads in the last month, then multiplying the full by 100.
LVR = ((Number of qualified leads in current month – Number of qualified leads last month) / Number qualified leads last month) x 100
- SaaS Bookings
It is the measure of the total revenue a business will get through subscription contracts.
It is the sum of new contracts, renewals, upgrades, and add-ons during a given period. Downgrades and churned MRR are subtracted from this total to urge the final bookings. it’s beneficial to
calculate this on monthly basis.
Monthly bookings = (New Contract Revenue + Renewals + Upgrades + Add-ons) – (Downgrades + MRR churn)
Upgrade bookings are always less costly than new bookings, so one should pay great attention toward upselling existing customers.
- Payback Period
It is the average time it takes for recovering the customer acquisition cost through MRR.
It also can be calculated as CAC/ (ARPU * Gross margin %)
It helps to calculate the break-even point and to further decide the pricing of the subscription plans accordingly.
- Trial Conversion Rate
It is the rate that gives an idea of people who sign up for a free trial version of your product or services are converted to paying subscribers.
TCR= Subscription trials started during a Month that convert to paying customers/ Subscription trials started in that particular Month
It’s beneficial to make a decision on the trial length and compare the costs by offering a free product or service to the value gained from the percentage of trial users who convert.
- Subscriber Return on Investment (ROI)
It measures what proportion profit is received from each subscriber. It helps to live growth and the sustainability of the business.
ROI= Lifetime value/ CAC
- Quick Ratio
It measures company’s ability to grow recurring revenue in spite of churn. it’s also known as growth efficiency. It indicates company’s short-term liquidity position and measures a company’s ability to satisfy its short-term obligations with its most liquid assets.
Quick ratio = (New Business MRR + Expansion MRR)/ (Churned MRR + Contraction MRR)
- Margin of profit Percentage
The percentage of revenue the company retains after accounting for all the direct costs associated with making a product or providing a service.
It measures a business’ profitability, whether sales are sufficient to hide direct costs.
Gross margin percent = (Subscription revenue – Cost of goods or services)/ Subscription revenue.
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Schedule a call with us today to understand and better track your KPIs for B2C Subscription Services
