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SlimPay outlines five essential KPIs for subscription business success

As one of Europe’s leading providers of subscription payments processing services, SlimPay is a well-qualified source of knowledge and insights on achieving success in the subscription business. Now, in its newly published white paper, Five Essential KPIs for your Subscription Business, SlimPay presents five critical performance metrics to monitor closely for long-term success in the subscription business sector.

For most readers it will go without saying that the Key Performance Indicator, or KPI, is an essential measure of success for any and all businesses. KPIs offer firms a simple method to track organisational developments and progress over time, producing driven knowledge and insights for improved strategic decision-making. In a white paper published earlier this month, leading European provider of subscription payments processing services SlimPay contends that carefully and correctly chosen KPIs should be the foundation for an organisation’s strategy.

The June 2017 white paper, entitled Five Essential KPIs for your Subscription Business, outlines five critical metrics that SlimPay argues should be monitored to stay on track to achieve success within the subscription business world. Given the complex nature of the typical business model of subscription businesses, highly specific KPIs are an essential aspect of informed, strategic decision-making, and are necessary components in the creation of a complete and comprehensive picture of organisational performance.

In the following sections, each of the five KPIs mentioned in the new SlimPay white paper has been briefly explained. Additionally, the calculation formula for each of these metrics has also been provided. In the full version of the white paper, SlimPay’s experienced and knowledgeable team goes into depth to offer clear and comprehensive descriptions and application directions for each KPI, as well as deeper insights into why each metric is so important to achieving success in the subscription business.

1) Monthly Recurring Revenue (MRR)

Arguably the most important KPI of all is revenue for which a company has reasonable assurance that it will continue to occur at regular intervals in the future. The simple calculation for MRR requires almost no calculating at all: it is equal to the total of all paying customers monthly fees. To achieve a more effective calculation of a MRR growth however, MRR must first be calculated for the following sectors of a company’s customer base:

  • New customers
  • MRR expansion – customers upgrades and cross sells
  • MRR churn – revenue lost from subscription downgrades and cancellations

Thus, taking into account the above three MRR calculations, the net calculation for MMR growth is as follows:

New MMR net = New MRR + Expansion MRR Churn MRR

2) Average Revenue Per Account (ARPA)

ARPA refers to the amount of revenue generated per account. Instead of per customer, the term average revenue per account is used, as a customer may have more than one account [n.b. Occasionally referred to as average revenue per user (ARPU)]. Knowledge of ARPA can help a company to conduct comparative analyses of different cohorts in order to expose trends, evaluate pricing strategies, and so forth. ARPA offers a means of monetising the customer base, which enables the company to analyse revenue generation and growth at a unit level, and can be helpful towards identifying both low and high generating products.

Amount of revenue generated per account = Monthly recurring revenue / Total amount of customers

 

3) Customer Churn Rate (CCR)

Churn rate refers to the percentage of customers a business loses in a given time period. Churn is the unquestionable scorn of all subscription businesses. This is because to achieve growth and expand, growth rate (number of new customers) must outpace churn rate (number of customers lost).

Churn = Number of customers lost / Number of customers at start of month or relevant reference period

 

4) Customer Lifetime Value (CLV)

Customer lifetime value is a projection of the total net profit a customer makes a company and is a highly useful metric in helping businesses to make strategic decisions related to, for instance, planned spending for customer acquisitions, insight into who the most valuable customers are, and for forecasting spending plans for the retention of existing customers.

Customer Lifetime Value = Average revenue per account x Gross margin ? % Monthly recurring revenue churn rate

 

5) Customer Acquisition Cost (CAC)

As its name suggests, customer acquisition cost (CAC) refers to the amount spent convincing a customer to subscribe to your service or product. CAC can offer an organisation valuable insight into highly important areas of strategic planning, such as the amount of available resources that can be profitably spent to acquire a [group of] customer(s).

Customer Acquisition Cost (CAC) = All costs association with the acquisition of a customer / Total # of customers

 


To access [PDF] the new white paper, Five Essential KPIs for your Subscription Business by SlimPay, click here.

For the latest insights and news from SlimPay, be sure to visit the SlimPay Blog.

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