Understanding the success and continued growth of your subscription business means measuring and analyzing key metrics, but which ones are most important?
Understandably, many companies get bogged down in financial data, but that’s not a comprehensive perspective on business operations, especially for a SaaS (or similar) company. To truly understand how a business is performing and why, you need to examine a wider range of metrics that go beyond just dollars and cents.
These 10 key metrics are essential aspects of running your business in a measurable way, in addition to the support a subscription billing solution offers. Capturing data related to each of these metrics, understanding how they are related, and contextualizing them offers invaluable insights into subscription business management and where improvements could be made.
The product metric area is about understanding what your company offers to potential subscribers. The number of product releases, trials, demos, installs, upgrades, and/or time passed since the last upgrade can be included.
The product metric area helps you understand how often your product is evolving, painting a clearer picture of what you offer customers. It also helps you keep tabs on how much you are innovating relative to your competition, how current your customers are, and how well your product-based funnel items are doing.
These metrics may include data points such as the number of users, visits, and/or other key user actions. Usage also provides a window into customer loyalty and the lifetime value your product offers to them.
The usage metric is critical to understanding whether your products are useful and needed. For example, if you see significant activity in the products metric but little movement in usage, it signals that the changes to your product are out of step with the market’s needs. Combining insights from the products and usage metrics can unify development efforts with customer needs.
The support metric area measures the responsiveness and the efficacy of your customer support department. Key data points in the support metric can include ticket volume, time to first response, conversations per teammate, ticket backlog, and overall customer satisfaction. For example, if your first response time is exceptional, but your ticket backlog is up and customer satisfaction is down, that’s a clear signal your team isn’t resolving issues adequately.
Moreover, the support metric can provide you with insights into the quality of your product. If a new update was released and the ticket volume suddenly spikes, that could be a sign that the new release caused some confusion, or that there’s a bug that requires attention.
Converting new business is critical for any subscription service. Sales metrics shed light on how well you’re doing in terms of expanding your customer base. Data points like the number of sales opportunities and conversion rates tell an important story about your sales operations. If 100,000 people visit your site in a month and 5,000 subscribe to your service, that gives you a conversion rate of 5%.
However, tracking these numbers over time and comparing them month over month is where the real insights come from. Increases over time show that the company is growing steadily, while declines are a signal that something might be wrong. Measuring sales metrics against your marketing data is critical to understanding whether or not your messaging is resonating with audiences.
Marketing is not just about how much you spend, but what you spend it on. If subscription rates don’t rise with marketing spend, reconsider how you’re spending those dollars. Is it messaging? Are you targeted enough? Is it the channel in which you’re investing, or a particular part(s) of the world?
Marketing and sales metrics go together. To understand the effectiveness of your marketing operations, you must understand whether sales are driving growth or not. If you’re increasing your marketing spend, but sales are stagnant, that’s a red flag that something needs your attention.
Some subscription services already have partner basics covered. They monitor the number of partners and the revenue derived from each. They also typically keep an eye on their partners’ satisfaction to ensure the longevity of the partnership. ou should also keep tabs on partner engagement between your organizations. Do they have the resources they need to make the sale? Do they coordinate with your sales, marketing, support, and other teams? Do you bring each other leads, if appropriate? Tracking partner metrics helps you identify potentially problematic partners early in the relationship and address these deals before they become an issue.
Monthly recurring revenue (MRR) is a common factor for subscription businesses because most subscribers renew on a monthly basis. The growth of MRR is dependent on retaining and growing existing customers and signing up and expanding new logos. ARPU gives a baseline understanding of the average customer’s value to your business. For some subscription services, this number won’t change from month to month because the subscription price is fixed. For other companies that offer tiered products or varying pricing levels, ARPU could fluctuate more.
Acquisition refers to the effort related to signing up new customers. One of the key metrics for this area is customer acquisition cost (CAC). This refers to how much money your company spends in order to sign each new customer, on average. Simply divide the total marketing (and related) spend by the number of new customers.
Acquisition is intimately tied in with billing for SaaS and similar companies, as freemium, trials, and time-sensitive discounts are all promotional vehicles which can affect the company’s bottom line. This comes back around to marketing as well, to help measure the success of a particular sale.
Understanding your profitability both now and in the future is essential to growing your business successfully. Key metrics include gross margin, EBITDA (earnings before interest, taxes, depreciation and amortization), EBITDA-CapEx and net income. Related metrics include LTV and the LTV-CAC ratio.
The lifetime value (LTV) of a customer helps provide a window into what you expect to make from a customer for the length of their subscription. For example, if the average customer subscribes for 10 years at a rate of $1000 per year, their lifetime value is $10,000. The LTV-CAC ratio shows how effective your acquisition efforts are long term.
Churn rate refers to the number of customers that have canceled their subscription compared to the total number of customers at the start of the billing cycle. Churn rate is an important figure to determine how many of your customers are renewing their subscriptions. You can’t address voluntary or involuntary churn if you aren’t able to track it. And you certainly can’t test improvements or solutions to reduce your churn rate if you can’t compare one billing cycle to the next.
Monitoring the churn metric is a critical element for a subscription business because loyal subscribers are your lifeblood.
Key performance indicators go beyond financial data
Your key metrics need to go beyond financial ones to be most effective. While it is critically important to analyze the money coming in and going out, it’s also important to understand all aspects of your business that got you there. Tracking many of these metrics makes it easy to pull all the relevant data from other sources, giving decision-makers in the company all the insight they need to create a more successful subscription business.