In the ever-evolving landscape of e-commerce, subscription-based models have become increasingly popular. They offer businesses a reliable and recurring revenue stream, something that can be budgeted against. This has been evident in the rise of Netflix and Amazon Prime, but also with Patreon, offering content creators an avenue to charge subscriptions to their output. From big businesses down to smaller companies, subscription billing is proving increasingly popular in the modern environment.
As the subscription economy continues to flourish, monitoring key metrics becomes imperative for sustaining profitability. There are essential subscription billing metrics that businesses should monitor and seek to optimize where possible. We’ve covered the importance of general metrics in our article Measure Your Profit and Scale Your Store with Metrics, and this applies to subscription billing in much the same way.
Here are four key metrics to monitor and how you can affect them for your business.
Churn Rate
The churn rate is a critical metric that indicates the percentage of customers who cancel their subscriptions within a given period. According to insights shared on LinkedIn by industry experts, rising churn rates have become a concern for businesses operating on subscription models. High churn rates can be indicative of issues such as poor customer satisfaction, unmet expectations, or increased competition.
To optimize the churn rate, it is important to focus on customer retention and possibly utilize customer experience (CX) software to do so. Oracle Fusion Cloud CX software leverages data across marketing, sales, and service to measure and improve customer satisfaction. At the higher end of the scale, it is also able to engage in marketing, sales, and service applications, which help encourage growth and improve churn rate.
Active Subscriber Growth
Speaking of growth, tracking the number of active subscribers is crucial for understanding the health of a subscription-based business. Given the metrics around churn rate and cancellations, having active growth within the subscriber base is massively important – any losses can be soaked up if subscriber growth is good.
This is a simple one to combat – you have to make sure your offering is good. Businesses should focus on enhancing customer experience, offering personalized content, and regularly assessing the value proposition of their subscription services. At the top end of the scale, streaming services do this by releasing new programs – Netflix recently found a hit with their miniseries Fool Me Once, which got traction in the media and, therefore, led to new subscribers wishing to see the show.
Payment Failure Rate
Payment failure is a common challenge in subscription billing models, as discussed in an article by Raconteur. High payment failure rates can result in revenue leakage and negatively impact cash flow. If payments fail on a regular basis, you can lose subscribers, severely impacting the other metrics we’re talking about.
Automated software can help to manage and maintain failed payments. Again, by using automated billing, it is easy to identify where payments fail and take action to resolve those issues. Subscription billing software provider SOFTRAX emphasizes how their system supports multiple types of contracts and allows for the seamless updating and managing of said contracts. Automated software allows for simple updating of customer billing information, which is vital in ensuring regular payments and continuity of revenue.
Lifetime Value
The Lifetime Value (LTV) metric quantifies the total revenue a business expects to generate from a customer throughout their entire relationship. It helps you evaluate the potential value of a subscription customer to a business and directs decision-making, ensuring prioritization of the most valuable customers. Optimizing LTV involves extending customer relationships and encouraging loyalty.
How can this be done? Providing exclusive content, loyalty programs, and personalized recommendations can enhance customer engagement and contribute to a higher LTV. By focusing on customer satisfaction and value delivery, businesses can ensure long-term profitability. This plays into subscriber growth a little – if you can ensure a customer stays on board once they’re with you, LTV increases. Take the example of the Dollar Shave Club – the nature of the business means customer are likely to keep returning as they still need to shave, but they stave off competition with regular updates of their products and services.
