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Vindicia - Subscription Metrics

Every company needs to track performance to make smart, informed decisions, as well as grow effectively and gauge success. Companies that operate with recurring revenue models need to adopt new-world metrics that reflect the economics of subscription business models, which are very different from the metrics found in traditional one-time, purchase-based businesses. To know more, visit: https://www.vindicia.com/solutions/reporting-and-analytics

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Vindicia - Subscription Metrics

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  1. Eight Metrics that Subscription Businesses Need to Track The Subscription People

  2. Table of Contents Recurring Revenue Models Call for Revamped Metrics 03 04 05 Monthly Recurring Revenue (MRR) Average Revenue per User (ARPU) 06 07 Customer Lifetime Value (CLV) Customer Acquisition Cost (CAC) 08 09 Churn Rate Growth Efficiency/Magic Number 10 11 Lead Velocity Rate (LVR) Subscriber Return on Investment (sROI) Track Metrics to Stay Responsive and Competitive 12 2

  3. Recurring Revenue Models Call for Revamped Metrics Every company needs to track performance to make smart, informed decisions, as well as grow effectively and gauge success. Companies that operate with recurring revenue models need to adopt new-world metrics that reflect the economics of subscription business models, which are very different from the metrics found in traditional one-time, purchase- based businesses. Fortunately, most subscription businesses have access to a wealth of data. There are literally hundreds of published metrics that businesses can track. The question is which of these metrics best reflect subscription business performance and generate the insights needed to steer business strategies toward profitability and growth? Here is our list of the top 8 metrics. 3

  4. 1. Monthly Recurring Revenue (MRR) MRR is the No. 1 metric for any subscription company. It is a gauge of the revenue a business can depend on from month to month, which is crucial for cashflow forecasting and real-time insight into financial health. $ x price of service # of active customers If you sell an online news subscription for $9.99 and have 145,000 active readers, your MRR would equal roughly $1.4 million. MRR can be calculated even if you sell annual subscriptions (divide the total price by 12 before multiplying by number of customers) or quarterly (dividing by four). x = 145,000 $9.99 $1.4 million 4

  5. 2. Average Revenue per User (ARPU) Subscriber revenue is rarely a simple calculation. Beyond the regular fee, revenue can rise or fall due to discounts, freemiums, upgrades, downgrades or one-time purchases, to name a few factors. The ARPU metric provides a single, rationalized figure that takes all of these variations into account. $++ + ÷ total value of subscription sales total number of customers The metric can be used as a barometer over time of customer engagement and satisfaction. When broken down by geographic markets and consumer demographic, ARPU can reveal further insights, indicating, for example, where to invest to bolster revenue. 5

  6. 3. Customer Lifetime Value (CLV) CLV is the most fundamental of all recurring revenue metrics. It tells you how much revenue a subscriber generates in total. The upside of the subscription business model is the simple truth that the longer you retain a customer, the more value they create. $ $ x – expected average lifetime acquisition costs and overhead average monthly revenue per customer A customer paying $9.99 per month for a subscription to a local news service has a lifetime value of around $120 after one year and $600 after five years, making CLV the key metric for measuring your break-even point and profitability. 6

  7. 4. Customer Acquisition Cost (CAC) ++ + Growth is the lifeblood of subscription companies, but it comes with a cost and must be balanced against expected revenue. Your data and the CAC metric will help you answer the question of how much you should be spending on customer acquisition. $ ÷ total acquisition marketing and sales spend for a given period new paying customers converted during that period CAC will tell you how effectively each dollar you direct toward acquisition is performing, across every channel, so that you can optimize budgets and strategies to increase conversion efficiency. $ 7

  8. 5. Churn Rate While churn is inevitable in a subscription business, the concept of “acceptable levels of churn” is intolerable. Churn is insidious, driving companies to invest more in acquisition to sustain growth targets, and ultimately damaging to brand value. 100 x ÷ total total number of customers during the same time cancellations for a given period When churn rises, internal value metrics fall. Companies must constantly measure both active and passive churn rates, analyze the causes, calculate the economic impact and take measured, corrective action to minimize churn through a data-based cost-benefit prism. 8

  9. 6. Growth Efficiency/ Magic Number One of the trickiest questions that a CEO and CFO face is how to allocate resources. Growth efficiency is known as the “magic number” because it captures how much growth in revenue can be generated by a dollar spent on marketing or reinvested in the business. Investors like to use the growth efficiency metric to evaluate a company’s performance. $ $ $ – ÷ recurring revenue in preceding quarter total recurring revenue in present quarter marketing and sales spend for quarter 1. *Round to the nearest tenth. The closer your magic number is to 1, the better. A low result could signal that you’re spending too much and not operating efficiently. Anything above 1 may be positive, but also indicative of over- spending and missing other market opportunities. 9

  10. 7. Lead Velocity Rate (LVR) LVR is a real-time metric that measures whether companies are doing a good job of growing their pipeline. 100 – x ÷ number of qualified leads in current month number of qualified leads in preceding month qualified leads in current month LVR can help contextualize progress toward various company goals, or deliver insight on the health of other key indicators. It could, for instance, point to poor performance in sales, marketing and other internal teams that needs to be corrected. 10

  11. 8. Subscriber Return on Investment (sROI) Unlike ROI, which is a macro metric, sROI allows you to drill down to expected returns at the subscriber level. Essentially, sROI is the ratio of lifetime value to acquisition costs, which gives an indication of the relationship between profitability and financial health. + ÷ CLV CAC Like LVR, a high sROI will indicate general health and profitable customers. A low figure points toward underperformance and potentially declining value. Track sROI to ensure that you’re not paying more for customers than they are worth. 11

  12. Track Metrics to Stay Responsive and Competitive Your subscription business should start by tracking at least these eight metrics. Over time, try to experiment with other metrics or twists on them. For example, variants on MRR include New MRR, Expanded MRR, Contracted MR and Churned MRR, which can produce more granular insights into your business model. By regularly tracking your data, you can keep a finger on the pulse of your subscription business to stay agile, responsive and sensitive, allowing you to gather the insights that inform daily and mission-critical decisions. 12

  13. Vindicia, an Amdocs company, offers comprehensive subscription management solutions that help businesses acquire and retain more customers. Providing much more than just a billing and payments system, the company’s SaaS- based subscription management platform combines big data analysis, strategic consulting and proprietary retention technology. Vindicia provides its clients with more recurring revenue, more customer data, better insights, and greater value throughout the entire subscriber lifecycle. That’s why they call us the Subscription People. To learn more visit www.vindicia.com. About Vindicia Copyright © 2019 Vindicia, Inc. All rights reserved. Vindicia, the Vindicia logo, Vindicia CashBox, Vindicia Select, and the designated trademarks herein are trademarks of Vindicia, Inc. in the U.S. and/or other countries. All other brands or product names are the trademarks or registered trademarks of their respective holders. 0719 13

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