January 20, 2020
Measuring growth and overall performance is an important part of any business. It is vital to have an insight into how the business is performing in the market. This simplifies the decision-making process and allows businesses to improve their performance. To form a picture of business growth, it is important to know what metrics must be focused. Having access to huge amounts of data can sometimes overwhelm businesses. To avoid this issue it is important that businesses have a list of core metrics. A narrowed list of metrics reduces the effort to track business growth.
If you are a business with a subscription model then tracking these indicators is fairly easy. For this reason, businesses in every industry have been shifting to a subscription-based model. With subscription management software in place, businesses are offering their products through cloud services. In the subscription business model, some key metrics are tracked to calculate revenue and other performance indicators. The indicators or metrics that are helpful for measuring business growth include:
Monthly Recurring Revenue:
One of the most important and basic metric is MRR or monthly recurring revenue. Simply put, this metric gives a view of sales every month. This metric tracks monthly subscription so you do not have to wait on customer’s payments. Through the subscription management software, a monthly subscription is offered at a fixed price. At the end of every month, recurring revenue and subscription renewals are calculated automatically. This metric also offers a view of growth in subscribers’ base. This way you can view the number of new customers joining your subscribers’ base. So, how does it help in assessing business growth? When MRR increases with time, it implies that your customers’ base is growing and current subscribers are renewing their subscription. In case the MRR does not increase, it usually indicates that customer conversions are running low or some are choosing to cancel their subscriptions.
Customer Lifetime Value:
Measuring customer lifetime value for your subscription business is extremely important. The reason is that it offers insight into how much revenue a single customer is generating during their subscription lifecycle. The purpose of this metric is to measure how much revenue one customer will help your business generate. With CLV, you can make better decisions regarding customer support and satisfaction, product development, and sales. This metric also allows you to predict how much revenue a new customer would generate. This way, companies do not have to wait for months before customer value can be measured.
Usually, the calculation of lifetime value is done by gauging the average revenue per customer account and churn rate per customer. In simple words, the churn rate is the number of customers that cancel their subscription. Usually churn rate is calculated on a monthly basis. Calculating customer lifetime value is helpful for lowering churn rate which will consequently lead to a more loyal and satisfied customer base. Without proper insight into how much customers are contributing to business growth and the amount of cost on developing products, your business cannot increase their sales.
As mentioned above, the churn rate is defined as the number of customers who choose to unsubscribe from their subscription plan. Every business aspires to maintain a low churn rate. This goal is achieved by offering flexible pricing plans and understanding the customer’s needs and demands. Still having a churn rate is inevitable but the key is to address the issue by understanding what areas of customer relationship need improvement. There are some key areas that businesses can address to reduce churn rate including; evaluating their product’s performance in the market, quality and pricing of the product, and customer feedback. There is a possibility that your company might need to reconsider its product design and revamp customer service. This will surely lead to better performance.
When it comes to improving business performance and driving sales, it is important to look at customer and revenue churn separately. Customer churn is designed to calculate how many customers have unsubscribed from a subscription service. On the other hand, revenue churn is the amount of revenue lost because of discontinued subscriptions per month. Addressing the causes of churn rates can help in achieving business goals. Decisions made on the basis of accurate data drives businesses in the right direction. So, if you are a subscription business looking to enhance your business growth then SubscriptionFlow is the right place to start.