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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.

 

1. 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.

 

2. 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 

 

3. 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 

 

4. 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

 

5. 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.

 

6. 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

 

7. 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

 

8. 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.

 

9. 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. 

 

10. 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.

 

11. 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

 

12. 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)

 

13.  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.

 

Elevate your financial strategy with our virtual CFO services, designed to optimize subscription pricing, customer acquisition costs, and overall profitability for your subscription-based venture.

 

 

Schedule a call with us today to undestand and better track your KPIs for B2C Subscription Services

 

The material / information contained above or other parts of this website is for general information purposes only and should not be relied upon for tax, legal or accounting advice. You should consult an expert in the relevant field before engaging in any transaction since applicability of the above may be different on the facts and circumstances of your situation. While we have made every attempt to ensure that the information contained on this website has been obtained from reliable sources, we are not responsible for any errors, omission or the results obtained by using the above information. We are not responsible for updating the above for changes in law, practices, or interpretation.

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