Subscription Commerce

Subscription Business Models KPI analysis


Reading time: 8 minutes

Introduction to the importance of KPIs in subscription-based business models

Business models are constantly evolving to adapt to changing consumer needs and technological innovations. One of the most remarkable trends of the last decade has been the rise of subscription-based business models. Whether it's streaming platforms, software as a service (SaaS), or even meal delivery services, subscription has become a winning formula for many businesses. But as with any strategy, success lies not only in the choice of model, but also in its implementation and management.

And that's where Key Performance Indicators, or KPIs, come in. Simply put, a KPI is a measurable value used to assess a company's effectiveness in achieving its key objectives. For subscription-based businesses, these indicators are even more essential as they offer a clear vision of short- and long-term performance, from the acquisition of new customers to their retention.

Business is often compared to navigating at sea. As such, KPIs can be seen as the compass that helps entrepreneurs navigate towards their goal. Without this compass, it's easy to lose direction, waste resources or miss out on valuable opportunities.

But why are KPIs particularly important for subscription-based business models? The answer is simple: recurrence. Unlike one-off transactions, subscription models rely on an ongoing relationship with the customer. Every interaction, every renewal, every feedback has an impact on the overall health of the business. KPIs make it possible:

  • not only to measure customer satisfaction and engagement,
  • but also to anticipate trends,
  • spot potential challenges
  • and adjust strategy accordingly.

To succeed in the subscription-based business, it's not enough to attract customers; you also need to retain them. In this constant effort, KPIs prove to be invaluable allies. In the following sections, we'll examine more closely:

  • the specific KPIs that drive subscription-based business models
  • and the best way to use them to ensure your company's success and growth.

Selling Subscription Has Never Been Easier

Easily create and customize your offers. Automate your subscription management.

Fundamental KPIs you need to know for subscription-based businesses

The main advantages of subscription business models is their ability to generate recurring and predictable revenues. However, to ensure that this recurrence and predictability translates into sustained growth and profitability, it's essential to track the right KPIs. Here are the key indicators for any company operating with a subscription-based model:

1. Monthly recurring revenue (MRR)

MRR is undoubtedly one of the most critical indicators for a subscription-based business. It represents the total recurring revenue generated each month. By monitoring MRR, entrepreneurs can get a clear picture of their company's financial health and anticipate future cash flows.

2. Retention rate

The retention rate measures the percentage of customers who remain subscribers over a given period.

  • A high retention rate indicates not only customer satisfaction, but also revenue stability.
  • On the other hand, a low retention rate may indicate problems with the perceived value of the service or product.

3. Customer acquisition cost (CAC)

CAC is the total cost associated with acquiring a new customer, including:

  • marketing expenses,
  • sales commissions
  • and any other associated costs.

For a subscription model to be profitable, the CAC must be lower than the customer lifetime value (LTV). This brings us to the next KPI.

4. Customer Lifetime Value (LTV)

LTV (Life Time Value) is an estimation of the total net value a customer brings to your company throughout their relationship with you. It gives an idea of the return on investment for each customer acquired. A high LTV relative to the CAC indicates a healthy business model.

5. Churn rate

This is the percentage of customers who terminate their subscription during a given period. A high churn rate is a red flag, indicating potential problems with the product, service or market.

6. New subscriber growth rate

This indicator measures the effectiveness of your new customer acquisition efforts.

  • Positive growth means your marketing and sales strategies are working,
  • while stagnant or negative growth may require adjustment.

7. Return on investment time (ROI) 

For companies investing heavily in marketing or product development, knowing how long it will take to recover this investment is crucial. ROI provides a perspective on the cost-effectiveness of these expenses.

In short, these KPIs offer a complete overview of the inner workings of a subscription-based company.

  • Each indicator, taken individually, provides a perspective on a particular aspect of the business,
  • while together they provide a clear picture of the company's overall health.

In the next section, we'll look at the tools and techniques for effectively measuring these KPIs.

How to measure and analyze these KPIs effectively?

In a world where data is king, knowing how to collect and interpret it is a major asset. This is all the more true for a subscription-based business, as the slightest fluctuation in performance can have major consequences for long-term profitability. Here are a few tips and tools for effectively measuring and analyzing the KPIs of your subscription model.

1. Use dedicated analysis platforms

There are a host of tools on the market designed specifically to track the performance of subscription-based businesses. Platforms like ChartMogul, Baremetrics or ProfitWell can help automatically track many essential KPIs. Saving you the headache of doing it manually. Our PayFacile subscription management platform makes it quick and easy to visualize these KPIs.

2. Segment your audience

Not all customers are the same. They may come from different channels, have varied consumption habits, or be at different stages of their lifecycle. By segmenting your audience, you can:

  • obtain more precise analyses of the performance of each segment
  • and adapt your strategy accordingly.

3. Consider customer feedback as a gold mine

Beyond the numbers, your customers' comments and feedback can offer valuable insights into the underlying reasons behind certain KPIs.

  • Why do some customers unsubscribe?
  • Why have others been loyal for years?

Tools like NPS (Net Promoter Score) can help you quantify customer satisfaction.

4. Regularly review your KPIs

Markets, technologies and consumer habits evolve. So do your KPIs. What was relevant a year ago may no longer be today. Be sure to review and adjust your KPIs as your business and the industry evolve.

5. Integrate your data for a 360° view

Your subscription KPIs don't work in silos. They are linked to other aspects of your business, such as:

  • marketing campaigns,
  • operational costs
  • or sales effectiveness.

By integrating all these data, you get a complete view of your company's performance.

6. Training and education

It may sound basic, but understanding in depth what each KPI means, its implications, and how it compares to industry standards is crucial. Invest time (and sometimes money) in training your team in analytical best practices.

7. Don't be afraid to experiment

If a KPI isn't delivering the expected results, don't hesitate to try out new approaches or strategies. Experimentation can help you find innovative ways to improve performance.

Measuring and analyzing your subscription-based company's KPIs is not a one-off task, but an ongoing effort. By remaining curious, adapting your methods and trusting the data, you'll be better equipped to achieve your goals and ensure the growth and success of your business.

Common traps and how to avoid them

Understanding and tracking KPIs is essential, but as with everything in the business world, there are traps to avoid. When you're just starting out, it's easy to fall into some common mistakes. Let's tackle these potential pitfalls and see how to avoid them.

1. Focusing exclusively on growth

Seeing the number of subscribers increase is always pleasing. However, focusing solely on acquisition without paying attention to retention is a recipe for disaster. High churn coupled with high acquisition will be costly in the long run.

Balance your efforts between subscribers retention and customers acquisition. Ensure that new customers receive consistent value from your service.

2. ignore small changes

A small change in churn or CAC might seem insignificant at first glance. However, over the long term, these small variations can have colossal impacts.

Be vigilant. Set up alerts to keep you informed of changes in your KPIs, and act quickly to understand their causes.

3. Unnecessary comparison

It's natural to want to compare yourself to industry leaders or competitors. However, each company is unique, with its own dynamics, challenges and opportunities.

Instead of making general comparisons:

  • identify companies similar in size, market or business model and compare your KPIs with them.
  • Better still, use your own past performance to measure your progress.

4. Don't see the forest for the trees

With so many KPIs to track, it can be easy to get lost in the details and miss the big picture.

While tracking specific KPIs, step back regularly to assess how they interact and what they mean for the overall health of your business.

5. Ignoring the human side

Numbers are important, but behind every subscription is a person or organization with needs, desires and concerns.

  • Integrate systems to gather qualitative feedback.
  • Listen to your customers,
  • organize interviews or surveys
  • and use this information to enrich your understanding of KPIs.

6. Being too rigid

The world is changing, as is customer behavior and the competitive landscape. Holding on to obsolete strategies because they worked in the past is not the best approach.

Be agile. If a KPI isn't performing as expected despite your best efforts, it may be time to re-evaluate your strategy.

By avoiding these common mistakes, you'll be able to get the most out of your KPIs, make informed decisions and lead your subscription-based business to sustainable success.

Automated Recurring Payments and Subscriptions Management

Manage your recurring payments and subscriptions automatically.

Looking to the future: Why KPIs will be even more crucial in the future?

The business world is constantly evolving, and with it, subscription models are growing and diversifying. It is therefore essential to understand that what was effective yesterday may not be so tomorrow. In this ever-changing context, KPIs will be the lighthouses that guide companies through the sometimes tumultuous waters of the market. Let's take a look at why they will play an even more important role in the future.

1. The competition is rising

With the emergence of new technologies and easier access to markets, competition in the field of subscription-basedbusiness models will undoubtedly intensify. To stand out from the crowd, real-time understanding of performance through KPIs will be crucial.

2. Changing customer expectations

Customers are becoming increasingly demanding, seeking ever greater added value. KPIs, particularly those linked to customer satisfaction and retention, will be essential to anticipate and respond to these changing expectations.

3. The need for agility

Markets are evolving at lightning speed. Companies must therefore be agile, ready to pivot or adapt their offers rapidly. KPIs provide the data needed to make informed decisions.

4. Artificial intelligence integration

AI is already transforming the way companies analyze their performance. With more accurate predictions based on KPI analysis, companies will be able to:

  • anticipate market trends
  • and position themselves optimally.

5. The growing complexity of subscription models

As subscription models diversify (from simple monthly subscriptions to freemium models, bundled offers, etc.), the need to track and analyze a variety of KPIs becomes even more crucial.

6. Globalization of markets

As companies expand globally, understanding performance across different:

  • markets,
  • cultures
  • and regulations

will require even more refined KPI analysis.

7. Focus on sustainability

In future, success will be measured not just in terms of profits, but also in terms of durability. KPIs linked to environmental, social and governance (ESG) impact will therefore become paramount.

In conclusion, in a world where the only constants are change and uncertainty, KPIs will be the compass needed to navigate towards success.

Companies that know how to:

  • interpret,
  • adapt
  • and integrate

them into their strategy will be the ones to prosper in tomorrow's subscription market.