Subscription revenue is the lifeblood of any subscription-based business. It represents the recurring income you generate from customers who regularly pay for your products or services. Subscription revenue KPIs are the key metrics that help you track and optimize your subscription revenue performance and inherit market leadership. From software-as-a-service (SaaS) to monthly beauty boxes, many businesses have embraced this approach. However, to truly leverage the potential of a subscription model, it’s crucial to understand and track the Subscription Revenue Key Performance Indicator (KPI).
Join us as we demystify subscription revenue KPIs in this blog! Grasp their significance and master calculating the KPI to thrive in the subscription business.
What is Subscription Revenue?
Subscription Revenue refers to the predictable and recurring revenue generated from subscribers who have signed up for a business’s service or product on a periodic basis. This revenue does not include one-time fees, ad hoc sales, or other non-recurring sources.
Subscription revenue KPIs are the indicators that measure the health and growth of your subscription revenue stream. They help you answer questions such as:
- How much revenue are you generating from your subscriptions every month or year?
- How fast is your subscription revenue growing or declining over time?
- How much does it cost you to acquire and retain your subscription customers?
- How long do your customers stay subscribed to your products or services?
- How much value are you delivering to your customers through your subscriptions?
“Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity correspondingly stronger returns on invested capital”
The Most Common and Important Subscription Revenue KPIs:
Some of the most common and important subscription revenue KPIs help businesses assess consistent income and retention success. The lists are as follows:
- Monthly Recurring Revenue (MRR): The total revenue you receive from your monthly subscriptions.
- Annual Recurring Revenue (ARR): The total revenue you receive from your subscriptions yearly.
- MRR Growth Rate: The percentage change in your MRR from one month to the next.
- Customer Acquisition Cost (CAC): The average money you spend to acquire a new subscription customer.
- Customer Lifetime Value (LTV): The average revenue you expect to generate from a subscription customer over their lifetime.
- Churn Rate: The percentage of subscription customers who cancel or stop paying for your products or services within a period.
- Retention Rate: The percentage of subscription customers who renew or continue paying for your products or services within a period.
- Customer Satisfaction Score (CSAT): The average rating your customers give your products or services based on their satisfaction.
The Formula for Subscription Revenue
Understanding the formula for subscription revenue is pivotal as It offers a clear snapshot of consistent income, helping businesses gauge growth, profitability, and sustainability.
However, for more in-depth analysis, businesses might want to segment this revenue by subscription tier, renewal rates, or customer cohorts.
Let us look at these examples that bring concepts to life with clarity:
A streaming service
Let’s assume a streaming service offers one package priced at $10/month. If they have 10,000 subscribers, their monthly subscription revenue is
10,000 * $10 = $100,000
A cloud storage company offers three tiers: Basic at $5/month, Pro at $15/month, and Premium at $30/month. If they have 5,000 Basic, 2,500 Pro, and 1,000 Premium subscribers, the total monthly subscription revenue would be:
(5,000 * $5) + (2,500 * $15) + (1,000 * $30) = $62,500.
Annual vs. monthly
A magazine subscription offers both monthly and yearly packages. The monthly package costs $5/month, while the yearly package costs $50/year. If there are 3,000 monthly subscribers and 1,500 annual subscribers, the monthly subscription revenue is
(3,000 * $5) + (1,500 * $50 ÷ 12) = $18,750.
Measure Subscription Revenue KPI Effectively with OKRs
Utilizing OKRsfor Subscription Revenue KPIs offers clear, quantifiable objectives. It aligns teams towards common revenue goals, prioritizes efforts, and provides a roadmap for measurable growth. This structured approach ensures consistent tracking and optimization of subscription strategies.
Objective 1: Significantly Boost Subscription Revenue
KR 1: Increase monthly subscription revenue from $50,000 to $60,000 by Q4.
Initiative: Launch a targeted marketing campaign for high LTV customer segments.
KR 2: Elevate the average revenue per subscriber from $10 to $12 by year-end.
Initiative: Reassess and adjust the pricing model to offer value-driven tiered packages.
KT 3:Decrease churn rate from 7% to 5% in the next 6 months.
Initiative: Establish a dedicated support team to address subscriber issues proactively, reducing churn.
Improving the Subscription Revenue KPI
Improving the Subscription Revenue KPI involves strategies such as optimizing pricing models, enhancing customer engagement and retention efforts, expanding product offerings, and closely monitoring customer feedback to ensure sustained growth and profitability.
Offering various tiers or packages can cater to different customer segments.
Focus on keeping subscribers through exclusive content, special offers, or improving service quality.
Regularly re-evaluate pricing
It’s essential to keep pricing competitive and in line with the value you’re offering.
Subscription revenue KPIs are essential for measuring and optimizing your subscription revenue performance. By tracking and analyzing these metrics, you can gain valuable insights into your subscription business and make data-driven decisions to grow revenue and delight customers. We hope this blog has helped you understand what subscription revenue KPIs are, why they are important to attain market leadership, and how to calculate them with formulas and examples.