6 Subscription Metrics You Need to Start Tracking

If you have a subscription-based business, then it is absolutely crucial for your company to keep subscriptions optimized at all times. However, unless you are tracking certain key subscription metrics, it is going to be very difficult for you to understand exactly what is happening with your subscriptions, let alone improve them.

However, if you are willing to track and analyze important subscription metrics, then you can gain valuable insights that can tell you where you are succeeding, and where you need to improve.

In this article, we are going to explain exactly what subscription metrics are and go over the top 6 most essential subscription metrics that you need to start tracking. Once you start tracking them, you will be able to get access to the information you need to improve your business.

What are Subscription Metrics

Subscription metrics are metrics that tell you how various aspects of your subscription business are performing.

Subscription metrics are similar to regular business metrics. However, they only reveal information for subscription-related activity. Many subscription-based businesses track performance using these metrics and you should too if you have a subscription-based business. Here are some of the most important subscription metrics to track.

1. Annual Recurring Revenue (ARR)

ARR is an important metric for businesses that have a subscription-based model because it helps to predict future revenue and gives businesses a clear picture of their overall financial health. It’s important to note that ARR is a forward-looking metric, as it is based on the assumption that current subscribers will continue to pay for their subscriptions for the next 12 months.

In addition to helping businesses make financial projections and hiring decisions, ARR can also be useful for comparing the performance of different business units or product lines. For example, a company might compare the ARR of its different products to see which ones are generating the most revenue.

In order to calculate the churn rate, you divide the number of customers lost by the number of customers at the beginning of the period.

While ARR is a useful metric, it’s important to note that it’s not the only metric that businesses should rely on. It’s important to also consider other metrics, such as customer lifetime value (CLV) and churn rate, in order to get a complete picture of the financial health of a business.

2. Monthly Recurring Revenue (MRR)

Monthly recurring revenue refers to the amount of revenue that your business is generating on a monthly basis. MRR is one of the most heavily used metrics in the subscription industry. This is because it shows how well a subscription business is performing on a month-to-month business. MRR is very helpful for tracking short-term performance. It can reveal crucial data about how well new strategies that your business implements are working.

The way to calculate MRR is by adding up the number of subscribers that you have and multiplying this by their monthly subscription rates. When you are calculating monthly subscription rates you should not include setup fees, suspended subscriptions, or one-time activation fees. 

3. Churn Rate

Churn rate refers to the rate at which customers cancel their subscriptions. “The goal for any subscription-based business is to keep churn rates as low as possible.” If your churn rate is low, it means that your customers are satisfied with your products or services and that your business is on track for success. If your churn rates get too low, however, it means that you might have to start making some changes in order to prevent losing too much revenue.

In order to calculate the churn rate, you divide the number of customers lost by the number of customers at the beginning of the period. Then you multiply that number by 1,000 to get a percentage. So, for example, let’s say you lost 100 customers in January but at the start of January, you had 1000 customers. In this case, to calculate the churn rate, you would divide 100/1000, which would give you .1. Then, you would multiply .1 by 100 to get the churn rate. In this case, the churn rate would be 10 percent. Different industries have different churn rates that are considered normal. However, generally speaking, you want to see your churn rate going down, not up. If it is going up significantly, it is time to start taking action to fix it.

4. Renewal Rate  

Renewal rate is a measure of the rate at which customers are renewing their subscriptions for your products or services. In order to calculate the renewal rate, you take the number of subscriptions renewed in a given period and divide it by the number of subscriptions due for renewal during that period. The renewal rate is the opposite of churn rate. The higher the renewal rate is, the better.

This metric is crucial because it tells you whether or not your products and/or services have long-term appeal to your clients. If your offerings lack long-term appeal, then you are going to have more trouble scaling your business because you will have to spend more time, energy, and resources replacing your customers. If the renewal rate is too low, then you are most likely going to have to make some significant changes to your products in order to fix this. You can get feedback from your customers through surveys and interviews to figure out why they did not renew. Then you can adjust your products in response to the feedback and try to improve the renewal rate. 

5. Customer Lifetime Value (CLV)

CLV is an important metric for businesses that rely on customer loyalty and repeat purchases. By understanding the value that a customer brings to your business over time, you can make informed decisions about how much to invest in customer acquisition and retention efforts.

There are several factors that can impact CLV, including the price of your products or services, the frequency of purchases, and the length of the customer relationship. By analyzing these factors and working to optimize them, you can increase the CLV of your customers.

In addition to comparing CLV to customer acquisition cost, you can also use this metric to compare the performance of different customer segments. For example, you might compare the CLV of your high-value customers to that of your low-value customers to see which group is more valuable to your business.

It’s important to note that CLV is not a static number, and it can change over time as customer behavior and other factors evolve. As such, it’s important to regularly track and analyze CLV in order to make informed business decisions.

6. Revenue Churn

Revenue churn is similar to churn rate. However, instead of measuring the rate at which customers are canceling their subscriptions, revenue churn measures the amount of revenue that is lost in a given period due to customers canceling their subscriptions. In order to calculate revenue churn, you divide revenue lost during a period by the revenue at the beginning of the period.

MRR is one of the most heavily used metrics in the subscription industry

As with many other metrics in this list, if the numbers are concerning, then you should take it as a red flag and start taking corrective actions immediately. The last thing you should want for your business is for it to have a high revenue churn rate.

Conclusion 

Unfortunately, many subscription business owners do not keep careful track of subscription metrics such as the ones mentioned in this article. As a result, many subscription business owners are caught by surprise when their business starts to trend downward. Sadly, many business owners only realize that their businesses in trouble after it’s too late to do anything about it.

By carefully tracking the subscription metrics mentioned above, you can keep an ever-watchful eye over the most important KPI’s associated with your business. The best subscription business owners understand the importance of subscription metrics and therefore go out of their way to make sure that they are always tracking them.

There is a famous saying, “what gets measured gets improved.” This saying is highly relevant for the subscription business industry. Do not make the mistake of thinking that just because your business already has a large amount of subscribers that that is a guarantee that it will stay this way indefinitely. Just look at Netflix for example. At one time Netflix dominated the video streaming industry and had few competitors. However, now, there is a very high number of streaming services and thus, Netflix has significantly more competition. You never know when a new competitor might emerge or when circumstances might change. Subscription metrics can help to protect you by keeping you informed.