5 Subscription Business Model metrics you should track to measure success.

Measuring the success of a subscription business

The subscription economy offers as many advantages for businesses as it does for consumers. But mindsets need to shift when evaluating subscription success compared to one-time purchases. To ensure you are on the right track and don't have any setbacks, here are a few metrics we suggest you keep an eye on. Top tip: make sure you regularly track and analyze them.

MRR (Monthly Recurring Revenue)

Let's start with a clear new metric to track. How much revenue can you predict monthly? If you offer a product portfolio of simple subscription plans, you only need to calculate the number of subscribers by the monthly plan price.

Number of subscribers x monthly plan price

However, this can become more complex depending on other billing components, e.g. if you offer subscription periods longer than a month, if you have a usage-based subscription or if you offer multiple discounts. Remember: do not include one-time fees in this calculation.

ARR (Annual Recurring Revenue)

If you’re already tracking your monthly revenue for a short-term evaluation, it’s a great idea to track your accumulated yearly revenue metrics. You can do this easily. Just multiply your MRR by 12.

MRR X 12 months

Please note that if you have a 12-month subscription period, you will need to subtract any set-up and one-time fees.

Customer LTV (Lifetime Value)

Subscription models make receiving customer feedback easy. You can find out about their product satisfaction and help solve their problems, retaining them for longer. However, if they cancel their subscriptions after a shorter period, you most likely promised them something they did not receive. Once you have calculated the average customer lifetime, you need to multiply it by your monthly subscription price.

Average Lifetime of the Customer x Monthly Subscription Price

Retention Rate

This number indicates how many of your customers stay subscribed to your service after they have the option to cancel a subscription. Of course, it would be great to keep them all. While this seems unlikely, you should always strive to achieve the highest number possible.

Did you know that another word for Retention Rate is Subscription Renewal Rate? For more insight, look at our other article that summarizes the advantages of tracking this KPI.

Trial Conversion Rate

We know this won’t apply to all of you. Not every subscription model offers its potential customers a free trial period. However, you should consider this approach. If you have a great product that continuously benefits your customers, you can easily offer them a solution to help them try it out. Not only is this a great way to showcase your product to many people, but it also builds trust. Potential customers always consider how respectable a company appears, so how do you calculate the Trial Conversion Rate?

Number of customers who swapped from trial to paid model / Number of trial customers

When a customer converts from a trial to a paid model, this often means you have succeeded in proving you are delivering value. However, if you see many churns, it most likely means something has not turned out as expected for the customer. You might have presented your product well, but ultimately, you were overpromising. Another reason could be that the customer won't pay the price for the result you delivered, even though it might have been helpful. If you see a big gap in the Trial Conversion Rate, follow up with your customers to better understand their decision.