Shopify Ecosystem

(2022) Subscription Metrics To Scale Growth

(2022)-subscription-metrics-to-scale-growth

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At Upscribe, we know that continuously improving and adapting your online store helps you hold onto existing subscribers and attract new ones. One of the best ways to optimize your store’s performance is to use subscription metrics to determine your strengths and weaknesses.

If you’re not familiar with subscription metrics, or how to use them to help your online store perform better, you’ve come to the right place. Today, we’ll look at the key subscription metrics you should evaluate and why they are important. Let’s go!

What Are Subscription Metrics?

Subscription metrics provide key information about your subscribers and subscription numbers. The most important part of these metrics are the subscription key performance indicators (KPIs).

Online stores that use subscription metrics tend to perform much better.  For instance, Four Sigmatic, an online store selling crash-free coffee and other plant-based products, used Upscribe’s advanced subscription analytics to prevent their customers from canceling subscriptions. By analyzing this data and implementing forward-thinking solutions, they were able to increase their active subscribers by 50%.

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This is just one of many examples of online stores using analytics to move to the next level.

Subscription metrics: 

  • Give you an idea of your online store’s trajectory, both financially and in terms of subscription numbers
  • Tell you more about your customers, allowing you to adjust your marketing and user experience strategies moving forward
  • Can help you figure out ways to improve your website ranging from its design to navigation to price adjustments on your subscription packages

Did you know that most Shopify stores fail due to a lack of strategy and adequate planning? This is just one reason why it is vital to continuously analyze your store’s subscription KPIs and metrics. By looking at these analytics, you can make informed decisions when adapting your business strategy.

Let’s take a look at the six most important subscription metrics, what they are, and how these metrics can help you improve your subscription-based online business. 

Churn Rate

When it comes to a subscription-based online store, churn rate relates to the number of people who cancel or fail to renew their subscriptions. A successful subscription business needs to retain customers, and renewed subscriptions equates to increased income. 

The churn rate is calculated by taking the number of people who cancel their subscription (i.e. the churn number) divided by the current number of existing customers. Ideally, you should measure your churn rate over a specific period of time. 

Here is an example of a churn rate, calculated over a period of 30 days:

  • If you had 100 subscribers at the start of June, but lost 12 by the end of the month, your churn rate formula would be: (12 / 100) x 100 = 12%

By analyzing your churn rate for different weeks, months, or years, you can determine whether your store’s churn rate is improving or not. Your churn rate tells you how successful your store is at retaining customers. This metric can be especially useful in helping you figure out what strategies may work best for your brand.

For instance, if you change your site design or layout and notice that your churn rate suddenly worsens, you will know that these changes directly impacted your subscriber base. You can then adapt your site’s design and layout accordingly. 

However, this is just one example. Determining what is good or bad for your churn rate (and what risks you should take) isn’t always straightforward. You need to take all available subscription revenue metrics into account when planning for the future of your store.

To reduce your churn rate, you can do various retention tactics. For example, you can launch a series of reactivation emails providing an enticing discount to customers that have not purchased any of your products or subscription bundles in the last three months or so. Here’s a series of reactivation emails sent by NZ Tools:

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Renewal Rate

Another key figure is the renewal rate. The renewal rate tells you how many customers choose to renew their subscriptions with you over a period of time. 

To calculate the renewal rate, divide the number of subscriptions that were renewed at the end of a specified time period by the total number of subscriptions scheduled for renewal, and multiply that number by 100. A renewal rate of 80% and above is a good indication of a healthy customer retention rate. 

By tracking your renewal rate, you can amplify your efforts to retain existing customers and encourage subscription renewals. Implement a marketing campaign directed at customers with subscription periods coming to an end. For example:

  • Send out emails to customers reminding them that their subscription is coming to an end.
  • Incentivize renewals by offering discounts or rewards for renewed subscriptions. 
  • Promote a sale or special offer for existing subscribers only.

Recurring Revenue Metrics (i.e., MRR and ARR)

Two vital recurring revenue metrics are your monthly recurring revenue (MRR) and annual recurring revenue (ARR).

Firstly, MRR is essentially your predictable monthly revenue (e.g. what you earn from monthly paying subscribers). While looking at your investment data or overall revenue can be helpful, your MRR can give you a more specific understanding of your predictable income. 

ARR is the yearly equivalent of MRR, looking at your predictable annual revenue. While comparing MRR over, say, the last six months might give you an idea of your store’s short-term performance, ARR is essential to understanding how your subscription service is performing in the long term. 

The solution to increasing revenue metrics will vary from store to store, and your solution should be tailored to your customers and product offering.

An increasing number of online stores are seeing the value of recurring revenue in providing sustainable growth in the long run. Using Upscribe to track and manage their subscriptions, these brands are able to focus on growing their revenue around a loyal customer base, instead of acquiring one-time customers that don’t fully see the value in what they have to offer.

Customer Lifetime Value

A customer’s lifetime value or CLV estimates the revenue you will earn from a given customer over the full duration of their subscription. 

The value of knowing your customers’ CLV includes:

  • Understanding the costs involved in acquiring and retaining a customer.
  • Knowing what financial impact the loss of any subscribers will have on your business
  • Determining the potential for growth and being able to plan for future costs.

Ready, Set, Food increased their margins by 35% through a range of actions. These included monitoring cart completions, abandonments, and the steps active leads undertook, all linking back to improve CLV.

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Trial Conversion Rate

Many online stores offer free trials to show potential customers what they can enjoy as a paid subscriber. Your trial conversion rate essentially tells you how successful your website is at turning free trials into paid subscribers. A lack of conversion tactics is a significant cause of failure for Shopify stores.

A reasonable conversion rate is 25% or above if you run an opt-in free trial. However, if you run an opt-out free trial, a decent rate is about 60% or more (Userpilot 2021). If your conversion rate is low, you should set aside time to determine the reasons.

Here are some ways of increasing your trial conversion rate:

  • Show your customers that you value them (e.g. communicate with them).
  • Ensure your onboarding process is straightforward, engaging, and well-designed.
  • Personalize customer experience during the trial phase.

A simple and engaging onboarding process goes a long way in converting trial customers. You can make the onboarding process as easy as possible with Upscribe’s user-friendly onboarding application.

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Customer Acquisition Cost

Customer acquisition cost, or CAC, determines how much you spend for every customer you acquire. Your custom acquisition cost can include sales, marketing, and web-design expenses that are used specifically to encourage new customers to sign up. It’s essential to keep your CAC as low as you can.

In short, CAC is equal to the total cost of acquiring customers divided by the number of customers acquired.

There are a whole host of ways to lower your CAC. ASOS, for instance, avoids throwing out tons of clothing items by announcing major clearance sales (e.g. up to 80% off).

If your CAC is noticeably high, here’s what else you can do:

  • Improve your customer retention.
  • Prioritize the right audiences.
  • Consider affiliate programs.
  • Automate marketing.
  • Focus on the sales funnel and how it applies to your business.

Other Important Metrics

The metrics we’ve discussed thus far aren’t the only ones worth considering, but they are, in our view, the most important.

Here are some additional metrics not to overlook:

  • CLV:CAC Ratio This is the ratio of the lifetime value of your average customer divided by the customer acquisition cost. 
  • Freemium Conversion Rate Like your trial conversion rate, this measures how many people sign up for a premium version of your service while enjoying a free version, if applicable. The difference here is that it would mean you offer a free version that users can use indefinitely, unlike a trial version which would be time limited.
  • Growth Efficiency This tells you how your store has grown in the past year. It is also known as the Magic Number. To measure your growth efficiency, divide your ARR from the most recent twelve months by your ARR from the twelve months prior. For instance, let’s say it’s January 2023, and you want to know your growth efficiency. You would take your 2022 ARR and divide it by your 2021 ARR. For an even wider picture, you should compare growth efficiency figures from year to year.
  • Revenue Churn For a more advanced version of your churn rate, consider looking at your revenue churn. This factors in existing subscribers downgrading or upgrading their subscription, not just subscribers terminating their contract. Your revenue churn is calculated as lost revenue due to voluntary and involuntary contract cancellations and downgrading minus upgrading divided by your revenue at the start of a given period.

Turning Subscription Data Into Increased Revenue

Ultimately, by utilizing subscription metrics, you want to increase your revenue. To achieve this, it’s important that you analyze your metrics accurately to make important insights.

Here are some ways to gain insights from reviewing your subscription KPIs:

  • Use various pieces of data to understand the how and why of changes to your revenue.
  • Understand your audiences and what demographics you are appealing to.
  • Consider what changes you could make to your store to increase revenue, such as reducing your churn rate.
  • Focus on ways to lower your CAC.
  • Improve your trial conversion rate by making the case for a full-time subscription more convincing.

Learn More Through Our Blog

In this article, we’ve discussed the most important subscription metrics and exactly why they matter.

If you’re keen to learn more about subscription-based ecommerce stores, take a look at our blog. We look at topics ranging from how you can prepare your subscription business for a recession to how you can start a subscription box on Shopify.

Schedule an Upscribe demo today and check out our range of awesome features like a supercharged merchant portal and advanced analytics. These features can help users nurture their current subscribers, all while attracting new ones.

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This originally appeared on Upscribe and is made available here to cast a wider net.
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