Case Studies

The 5 Key Subscription Business KPIs You Need to Know

ZIQY subscription experts share valuable insights on measuring your subscription business performance.

March 8, 2019

17 min read

In the world of subscription business, measuring growth goes beyond traditional revenue metrics.

To truly assess the performance of your recurring business model, it's essential to focus on specific key performance indicators that reveal your company's financial health.

These strategic KPIs allow you to determine the quality and success of your subscription offering with surgical precision. Their accurate and regular analysis forms the foundation of a robust continuous improvement process.

Why are these KPIs crucial?

In a subscription model, performance isn't measured solely on one-time sales, but on the ability to generate recurring and predictable revenue over time. These metrics give you a 360° view of your business.

The goal? Maximize performance of your company by optimizing each growth lever identified by these indicators.

KPI #1: Monthly Recurring Revenue (MRR)

The MRR (Monthly Recurring Revenue) represents the most critical indicator of subscription business.

It's the amount of predictable revenue generated each month by all your active subscriptions. This metric offers clear visibility into your company's financial stability.

MRR Calculation

MRR = Number of active subscribers × Average monthly subscription price

KPI #2: Churn (Attrition)

The churn rate refers to the rate of customer or subscriber loss over a given period.

It constitutes one of the most revealing indicators of your subscription offering's performance. A high unsubscription rate generally signals customer dissatisfaction or problems in your value proposition.

Golden rule of churn

Your churn rate must absolutely be lower than your acquisition rate to ensure your company's growth. Otherwise, you're losing more customers than you're gaining.

How to master churn

To effectively control your "churn rate" and reduce it to the maximum, you must precisely identify the factors affecting your subscribers' retention.

Deep customer knowledge then becomes your best strategic ally. Here are the essential questions to ask yourself:

What was the origin of these unsubscribed customers? Did they subscribe with a discount on the first months?
What is your subscribers' sentiment when receiving their product or service?
Is the service quality up to their expectations?
Have you implemented marketing automation scenarios to nurture the relationship with your subscribers?

KPI #3: Customer Acquisition Cost (CAC)

The customer acquisition cost (Cost Of Customer Acquisition) represents the total amount you invest to acquire a new customer.

The most accurate calculation method consists of determining your total budget dedicated to marketing and communication expenses. This includes AdWords campaigns, display, press relations, influencer partnerships, etc.

Then divide this amount by the number of new customers acquired over the corresponding period.

CAC at launch

It's not abnormal that at the launch of your activity, your CAC exceeds immediate customer revenue. Keep in mind that you pay to acquire customers only once, but they generate recurring revenue throughout their lifetime.

This is precisely where CLTV (Customer Lifetime Value) comes into play to balance the economic equation!

KPI #4: Average Revenue Per User (ARPU)

The average revenue per user (Average Revenue Per User) corresponds to the average amount each customer brings you over a given period.

Calculation formula: ARPU = Total revenue from all customers ÷ Total number of customers

Concrete example: If you generate €5,000 in revenue with 200 customers, your ARPU will be €25.

This metric allows you to anticipate the total amount of monthly revenue with precision. It proves particularly useful in:

Cash flow planning
Anticipating your future investments
Financial modeling of your growth

Optimizing your ARPU

Increasing your ARPU involves strategic cross-selling and up-selling without disrupting your subscribers' experience or increasing the churn rate.

KPI #5: Customer Lifetime Value (CLTV)

The customer lifetime value (Customer Lifetime Value) represents the sum of discounted profits expected on average over the complete lifetime of a typical customer.

This metric can prove complex to grasp for new companies. Indeed, it's difficult to precisely estimate how long your customer will remain subscribed on average without historical data.

However, once you start analyzing your monthly performance, you'll be able to formulate reliable hypotheses about your subscribers' average lifetime.

CLTV vs CAC: The crucial balance

Customer lifetime value is particularly critical as it determines a sustainable CAC. The higher your CLTV, the more you can justify significant investments in customer acquisition. The objective: CLTV > CAC to ensure profitability.