5 Metrics Every #Subscription / #SaaS Business Needs to Know

To run an effective subscription business, you need to carefully monitor various metrics. The metrics can indicate the health of your business and help identify areas you need to focus on to grow and maximise profits. The metrics can also indicate where there is a problem with your business model and more importantly, what can be done to solve it.

Below are five important metrics (when you are just starting) that every subscription business should know. I'm ignoring CMRR as I've already talked about it before. You can read it here

Monthly Revenue

Monthly revenue refers to the amount of subscription income your business has generated over a given month. This is the net income (i.e. income after refunds have been processed). Here is the formula for calculating the monthly revenue:

Monthly Revenue = Total Subscription Revenue – Refunds

Keep in mind that this is a simple calculation that does not take into account the expenses of the business. You can however track the performance of your business by benchmarking this metric against your revenue plan.

Average Monthly Subscribers (Customers)

This simple metric will help you know the monthly growth rate of your subscriber base. To find the average monthly subscribers, simply add the number of subscribers at the beginning of the month you are tracking with the total subscribers at the end of the month. The total subscribers should then be divided by two. Below is the formula for finding the average monthly subscribers:

Average Monthly Subscribers = (Subscribers at Start of Month + Total Subscribers at End of Month) / 2

You can know whether your customer acquisition efforts are going according to plan by tracking the average monthly subscribers.

Revenue Per Customer

This metric refers to the revenue your business gets from each active subscriber. The metric is especially important if you have a SaaS or other subscription business with different price points.

By calculating the metric, you can know how much value you are deriving from each customer. From the information you gather, you can tweak your prices or offerings to maximise your profits. Below is the formula of calculating the revenue per customer:

Revenue Per Customer = Total Monthly Revenue/Average Monthly Subscribers

Lifetime Customer Value

The lifetime customer value (LCV or LTV) will determine whether or not your subscription business will make a profit from the customers acquired.

One of the major costs that SaaS businesses have to contend with during the growth stage is acquiring customers. The cost of acquiring customers (CAC) is usually high upfront. The lifetime value of the customer should be higher than the CAC for the business to turn a profit.

Identifying the LCV will help you know how much revenue should be allocated on acquiring new customers. Below is the formula of calculating the LCV:

Lifetime Customer Value = Total All-Time Revenue/Total All-Time Paid Customers

The LCV can be further calculated based on gross profit, net profit, product type or subscription.

Renewal Rate

For SaaS, recurring revenue is the lifeline of the business. This means customer renewals are vital in indicating the health of your business. Generally, renewal rate is calculated on a monthly basis. The formula for calculating the metric is:

Monthly Renewal Rate = Total Monthly Renewals/Total Eligible Monthly Renewals

The inputs of the renewal rate subscription can be changed based on type of subscription and renewal period. For example, you can use the formula to calculate the quarterly, semi-annual or annual renewal rate. The formula will help you know your churn rate and the results of other customer retention efforts you may have in place.

Measuring the above metrics will help you know how your subscription business is performing at any given time.