Better Subscription Metrics, Better Business Insights
When it comes to revealing business insights that produce rapid growth for a subscription business, the truth isn’t always in plain sight. More often it’s hiding in the metrics you didn’t even know existed and that you aren’t tracking (or aren’t tracking correctly).
Improve your reporting strategy to allow for KPIs that make growth-focused decisions much more obvious. This article highlights seven key subscription metrics that are routinely overlooked or misapplied. Each one offers significant potential for optimizing operations and accelerating growth in subscription businesses of all sizes.
1. More Granular Return on Ad Spend (ROAS) Metrics
The importance of ROAS makes intuitive sense: you absolutely need to know which marketing efforts are producing results and which aren’t, so you can get rid of what’s not working and do more of what is working. Unfortunately, there are two problems with ROAS metrics that frequently hamstring their accuracy and actionability for subscription businesses: lack of granularity and lack of connection to customer lifetime value (CLV or LTV).
Lack of Granularity: Just checking ROAS by source is not granular enough, and often leads to allocating marketing dollars to entire channels or campaigns based on results that are being driven by just a few outperforming ads. Similarly, shutting off an entire underperforming campaign will likely eliminate at least some ads that are actually generating very positive metrics. More granular ROAS metrics solve this issue and allows more nuanced and data-driven decisions.
The Sublytics ROAS dashboard achieves this kind of granular visibility through direct integrations with Facebook and Google (and their related properties), which allows merchants to dynamically correlate marketing costs to customer LTV — at the source, campaign, ad group, ad, and custom UTM levels. The end result: the ability to make more precise cuts for specific, underperforming marketing efforts while only allocating more energy and money to marketing that is producing the greatest growth.
Lack of Connection to Customer Lifetime Value: The second common issue with ROAS metrics occurs when businesses link ROAS to customer acquisition or short term sales revenue without including LTV. This leads to short sighted marketing decisions that limit growth potential. To see the true value of marketing efforts, ROAS has to take into account the overall increase in LTV attributable to specific marketing efforts. Where possible, that should also include the margin of the lifetime sales made to that customer. If you aren’t keeping track of the overall lifetime value, the picture you get is distorted and will lead to poor allocation of marketing resources.
To illustrate how ROAS goes wrong without LTV metrics, imagine the following situation. You set your monthly KPIs to include ROAS based only on revenue generated. You tell your marketer you need to hit your KPIs. Given those KPIs, your marketing ends up focusing on efforts that do two things that do not align with overall business objectives: initiate sales with lower margins and higher churn rates. A common example of this would be a campaign that features a deep discount offer code for starting a subscription. It produces great revenue and customer acquisition numbers, but those customers churn two months down the road and are less valuable during their tenure because sales to them have lower margins.
To help merchants avoid these common growth pitfalls, we built Sublytics metrics to report ROAS in terms of LTV over custom time periods and allow additional cost tracking elements like cost of goods sold (including discounts), shipping, and other overhead expenses to ensure that ROAS includes the actual net margin of sales. We also enabled merchants to select/de-select certain expense elements when diving into the ultimate ROI from particular customer origin points. Resulting in an unmatched level of granularity that allows you to measure ROAS in terms of LTV linked directly to the specific channel, campaign, ad, promotion, etc. where the customer was acquired.
2. Retention Metrics
To make informed marketing and business operation decisions, you have to know how many customers continued to make purchases over a specific time period. But to make the kind of decisions that drive significant long term subscription growth you have to go beyond that. You also have to be able to identify the various factors behind why those customers continued to make purchases.
For example, Sublytics retention metrics allows merchants to track retention based on specific products purchased, promo codes used, campaign/ad origin, trial subscription conversions, etc. These correlations reveal many actionable business insights, including
- The marketing efforts that produce the highest long-term retention numbers.
- The initial product purchases which are most likely to keep customers coming back for more.
- The low retention products that make the best candidates for elimination or redesign.
- The customer profiles that would benefit the most from additional dedicated customer service contacts.
Each of these metrics has the potential to reveal correlations that can lead to data driven decisions that optimize all aspects of the subscription business.
3. Customer Churn Analysis
Churn is the flipside of retention, and like retention analytics, churn analytics need granularity to produce actionable insights. Churn numbers need to be linked to specific causes. Whether customers are actively opting out (active churn) or just not making purchases and/or allowing credit card information to lapse (passive churn), the true value in churn analytics comes from understanding why the churn is happening for specific customer cohorts.
Since billing and fulfillment are common drivers of passive and active churn respectively, Sublytics uses integrations with billing and fulfillment platforms to track churn issues related to fulfillment and card decline. This data helps businesses understand and quickly correct their most common billing and shipping issues. It also gives them quantitative data to leverage when requesting better service or lower rates during calls with shipping providers.
Similarly, Sublytics allows the tracking of customer service dispositions through integrations with customer support databases, email service providers (ESPs), and help desk platforms. This is particularly useful for tracking cohort churn related to customer service and product issues. This data can then be used when setting customer service/experience KPIs and optimizing customer contact protocol for future cohorts. Specifically, the data can identify customer profiles at the greatest risk for churn and allow more effective allocation of customer service resources.
4. Subscription Growth
Capture the net gain or loss of subscribers over a given period. Subscription growth metrics incorporate both how aggressively you are acquiring new customers as well as the rate those customers are churning out. When combined with revenue per user and average margin over the selected period, it gives a good pulse on the overall trajectory of your business. Subscription growth metrics are a perfect for briefing executives or investors who need a high-level snapshot of your business health.
Subscription growth metrics are particularly important for cash flow projections and sales and inventory forecasting, which is why Sublytics allows users to quickly adjust time frame constraints for Subscription growth to get a better picture of historical trends.
5. Fulfillment Delivery Rates and Reasons
For most subscription businesses, fulfillment is a major source of business costs and customer churn. It’s also one place that a subscription merchant has a good deal of leverage in terms of negotiating price points anchored in fulfillment performance. Tightening up fulfillment operations is a clear path to improving customer experience and increasing retention.
To help do this, you need to track key fulfillment metrics and regularly audit your fulfillment center by accessing tracking and dispositions from the postal provider (UPS, USPS, FedEx, Canada Post, etc). Using the Sublytics platform, our merchants can monitor delivery dates and dispositions (e.g. package undeliverable, refused package, held at customs, held at post office, etc.) They use these data points to hold both internal and external fulfillment partners accountable in a clear, quantitative way.
Merchants are also able to make strategic changes across departments to reduce the most common “problem” dispositions. Key changes have included: streamlined customer shipping info updates, optimizing packing, and improved shipment pick-up processes. Additionally, the Sublytics automated alert system helps merchants damage control shipping issues systematically and in real time. It reports delivery issues to customer service so they can act quickly to remedy the delivery issue, often before the customer realizes there is an issue at all! The result is reduced customer frustration and reduced fulfillment-driven churn.
6. Sales and Inventory Forecasting
When experiencing rapid subscription growth, one of the biggest challenges is ensuring accurate inventory. If sales exceed inventory, customer experience suffers, churn increases, and growth tends to slow. If inventory exceeds sales, cash flow rapidly becomes an issue, and the mismatch between revenue expectations and reality creates friction throughout the organization.
The best way to ensure sufficient inventory and realistic revenue expectations is to accurately forecast sales and inventory levels. To do this, Sublytics uses a synthesis of metrics including: customer acquisition, retention, churn, specific price points, and product margins to provide a dashboard that allows decision makers to manage inventory levels and revenue projections to a minimal margin of error.
7. Cash Flow Analysis
Key for accurate growth planning, cash flow analysis maintains financial solvency. Traditional accounting software cash flow analysis is useful and should be reviewed regularly to manage and project cash inflows and outflows.
Where possible, more advanced cash flow projections should be created and updated regularly to help with growth planning and to create more accurate forecasting. At Sublytics, we find large differences between businesses in terms of the metrics that best inform more advanced cash flow projections, so we work with individual businesses to create projection tools that best fit their situations.
Better Subscription Metrics Today Accelerate Business Growth Tomorrow
If you’re a subscription business that doesn’t have access to one or more of these seven key metrics, start tracking and regularly reviewing them now. They will lay the solid analytics foundation that is required to make data-driven decisions that enable business survival and significantly accelerate business growth.
