To grow, subscription businesses must minimize customer churn which means regularly tracking the monthly churn rate and other metrics to know exactly how the business is performing—where it excels and where it faces challenges.
Recurly recommends that every subscription business understand and monitor the following key metrics. Metrics provide insights based on data, and they are the key to making the decisions that will support strong growth.
The predictable revenue a business can expect on a monthly basis; includes all invoiced recurring charges, credits, and refunds from active subscriptions. It typically excludes one-time charges, taxes, and other variable fees.
MRR = Sum of all recurring revenue for the month, including gains and losses
Often considered one of the most valuable metrics for a subscription business, this metric can help answer questions like:
Understanding and tracking the customer events that impact MRR is key to maintaining revenue momentum and/or identifying and addressing reasons for revenue decline.
|New MRR||MRR gained from new accounts with a new subscription|
|Expansion MRR||MRR gained from accounts upgrading or otherwise contributing more MRR today than they did yesterday|
|Reactivation MRR||MRR gained from accounts that have churned completely and then returned with a new subscription.|
|Churned MRR||MRR lost from accounts that have churned their last or only subscription|
|Contraction MRR||MRR lost from accounts downgrading subscriptions or otherwise contributing less MRR than yesterday|
|Net MRR||New MRR + Expansion MRR + Reactivation MRR - Contraction MRR - Churned MRR|
When measured over the course of a month, Net MRR demonstrates the change in total MRR from last month to this month, while the components of the Net provide insight into the reason for a positive or negative change.
This metric can help answer question such as:
How much revenue received, on average, from each customer.
This metric provides a quick glimpse into the current worth of your customers and can be an indicator of overall growth when increases are seen. Keep in mind that a few very large customers can greatly impact the average, so it’s also useful to look at the range of revenue contributed by each customer. Your ARPC helps to answer questions such as:
An estimate of the cost associated with acquiring a new customer. It generally includes all of the costs associated with acquiring a customer, including marketing, sales and related headcounts.
This metric is important for assessing Subscriber ROI (Return on investment) since costs impact profit. It also provides visibility into acquisition campaign efficiency and helps keep a pulse on marketing and sales budgets. When combined with LTV, it helps to answer questions such as:
An estimate of the profit made from the average customer over the period that they remain a customer (from signup to churn).
Note: Recurly Analytics uses a discount rate of 10% in its calculations of LTV. This is to account for the fact that lifetime value is a future-looking metric, and the value of a dollar today will be worth less in the future.
Customer lifetime value is an incredibly important metric as it represents the upper limit on how much you should spend to acquire new customers. It helps businesses make key business decisions related to sales, marketing, product development, and other important investments. It helps to answer questions such as:
The rate at which people who sign up for a free trial version of your product or service become paying subscribers.
It’s important to think about trial length and the costs you will incur in offering a free product or service compared to the value you will gain from the percentage of trial users who convert. This metric can address questions such as:
The total number of subscribers that have expired their subscriptions over a selected time period, usually separated by expiration reason: voluntary or involuntary. This can be shown as a number or percentage.
Your subscriber churn rate is an indication of the stability of your business and how well the business retains customers. It can answer questions such as:
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This metric measures how much profit is received from each subscriber.
This helps businesses understand the true nature of their growth and if it’s sustainable. They might have a high LTV, but it’s only sustainable if their Customer Acquisition Cost is lower than the customer Lifetime Value.
How long it takes to recoup the costs of acquiring a new customer. This metric provides an overall measure of the efficiency of a subscription business and is often used by investors.
A general guideline is to keep payback at or under 12 months. The longer the payback time, the more capital will be required to grow your business. The shorter the payback period, the more capital is available to reinvest back in the business and accelerate growth.
The percentage of revenue the company retains after accounting for all the direct costs associated with making a product or providing a service.
This metric provides a measure of a business’ profitability. This metric indicates whether sales are sufficient to cover direct costs and is an important signpost to profitability. While the calculation itself is simple, it's crucial to measure costs of goods sold (COGS) accurately for your business. A box of the month club will have a very different COGS than a SaaS business or an OTT business.
This metric answers questions around operational costs and efficiency, such as:
Subscription businesses use these key metrics to understand exactly how their business is performing so they can make the decisions that will build their customer base, improve plan performance, and profits—critical factors that enable business growth and success.