Subscription businesses are becoming more and more common as people shift away from buying individual items to subscribing to a service that provides them with regular access to the things they need. While this business model has many benefits, it’s important to track key performance indicators (KPIs) to ensure that your subscription business is on track for success. This article will discuss subscription KPIs every entrepreneur should track.
Monthly Recurring Revenue (MRR)
As the name suggests, monthly recurring revenue is the amount of money a subscription business brings in each month from its subscribers. This metric is important because it shows whether your subscription business is growing or shrinking.
To calculate MRR, simply add up all your subscription fees in a given month. If you have different subscription tiers, calculate the average subscription fee per customer.
Annual Recurring Revenue (ARR)
Annual recurring revenue is simply MRR on an annualized basis. This metric is important because it shows the long-term growth potential of your subscription business.
To calculate ARR, simply multiply your monthly recurring revenue by 12.
Average Revenue Per User (ARPU)
The average revenue per user is a metric that measures the average amount of money each subscriber pays monthly. This metric is important because it shows whether your subscription business is generating enough revenue from each customer to be sustainable in the long run.
To calculate ARR, divide your subscription business’s total monthly revenue by the number of subscribers you have.
Customer Lifetime Value (CLV)
Customer lifetime value is a metric that estimates the total amount of money that a customer will spend on your subscription service throughout their relationship with your business. This metric is important because it shows whether your subscription service generates enough revenue to cover the costs of acquiring and retaining customers.
To calculate CLV, you’ll need to estimate the average length of time a customer will remain subscribed to your service and the average monthly subscription fee. Once you have those numbers, simply multiply them to get your customer lifetime value estimate.
Customer Acquisition Cost (CAC)
Customer acquisition cost is a metric that measures the amount of money you spend to acquire each new customer. This metric is important because it shows whether your subscription business is generating enough revenue to cover the costs of acquiring new customers.
To calculate CAC, divide your subscription business’s total marketing and sales expenses by the number of new customers you acquired in a given period.
Churn Rate
Churn rate is a metric that measures the percentage of subscribers who cancel their subscription in a given period. This metric is important because it shows whether your subscription business is losing more customers than it’s gaining.
To calculate churn rate, simply divide the number of customers who cancel their subscription in a given period by the total number of subscribers you have.
Lead Velocity Rate (LVR)
Lead velocity rate is a metric that measures the speed at which your subscription business is acquiring new customers. This metric is important because it shows whether your subscription business is growing sustainably.
To calculate lead velocity rate, simply divide the number of new customers you acquire in a given period by the total number of leads you have.
Conclusion
These are just a few of the subscription KPIs every entrepreneur should track. By monitoring these metrics, you can gain insights into the health of your subscription business and make necessary adjustments to ensure its long-term success.