4 key metrics for your subscription business
DESCRIPTION
Do you know how healthy your subscription business is? If you're just looking at today's revenues, you're in for some nasty surprises. Churn, lifetime value, monthly recurring revenue (MRR), and Customer Acquisition Cost are leading indicators of later revenues. Join Fusebill CEO Steve Adams to explore the key metrics that SaaS companies need to be focused on.TRANSCRIPT
April 8, 2023 1
The 4 Key Metrics for Your Subscription Based Business
Saturday, April 8, 2023 2
Speaker Introduction
Steve Adams, CEO
www.fusebill.comCall Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
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Agenda
Subscription Metrics Overview
4 Key Metrics1. Monthly Recurring Revenue (MRR)2. Churn3. Customer Lifetime Value4. Customer Acquisition Cost (CAC)
Defining a Dashboard for Subscription Companies Fusebill Introduction
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Subscription Metrics Overview
What makes Subscription businesses different?
Revenue for the service comes over the customer lifetime.
2 levels to every sale: Acquiring the customer Keeping the customer
Revenue is a lagging indicator of success
Bookings can be misleading
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4 KEY METRICS FOR YOUR SUBSCRIPTION BUSINESS
“If you cannot measure it, you cannot improve it”. - Lord Kelvin
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#1 Monthly Recurring Revenue
The most important subscription metric. MRR is the effective monthly revenue from all active recurring subscriptions
under the account.
Example: A $10/monthly plan = $10 MRR. A $120/year plan = $10 MRR.
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Why MRR?
Normalizes annual charges Focus on repeatable business The best predictor of next month is
this month. Changes in MRR indicators of
health
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Measurements
Monthly active recurring revenues
“Active” – exclude cancelled customers, non-paying, failed collections
“Recurring” – exclude 1 time charges like setup fees and professional services
Think about usage charges. Include only if they are repeatable (like user licenses)
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Applications of MRR
Heartbeat measure – is this month better than last month? Remember: can’t catch up a lost month’s revenue
Forecasting: Baseline forecast – how much new business do I need ? Adjust future periods by: Contracted or committed amounts (watch for early terminations)
Customer churn Further Analysis Segment active / engaged customers from passive – higher risk
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#2 Churn
Churn (% customers lost per time period) drives customer lifetime and customer lifetime value
Beware of averages – timing of churn impacts revenues
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3% churn 3% churn after 3 months
3 year revenue = $2200
3 year revenue = $1320
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Why Measure Churn?
Churn is the direct opposite of growth
Limits growth – can’t add new customers fast enough to account for losses
Satisfaction index
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Typical Measurements of Churn
• (#Cancellations / #CustomersAverage)#Cancellations = #Customersstart + #Customersnew - #Customers end
Measurement Issues• Counting customers at all!• Defining a cancellation
– stops using services– stops paying for service– doesn’t pay for 60 days
• Time Periods– Daily drives you nuts, monthly is good
• Statistical anomalies
Pick oneBe consistent
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Variations of Churn Rates
Customer churn Single product companies All customers similar
Subscription churn (i.e., product level) Measure product performance
Revenue Churn Accounts for variations in customer size Lumpy customers
Aging Churn of new customers typically much higher than older ones Successful sales month can increase churn…
Cohort Analysis – look at lifetimes of similar customers
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Typical Impact of Billing on Churn
Free Trial Ends
Annual Plans
Monthly Plans
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#3 Customer Lifetime Value
Per customer view of business
Projects breakeven and profit per customer
Use to model cash needs
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(200)
(150)
(100)
(50)
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Client Economics
Customer Acquisition Cost Cumulative Contribution
ProfitBreakeven
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Determining Lifetime Value
• CLV (Lifetime Margin) – (Cost of acquisition)• Cost of Acquisition
– Marketing Programs and Promotions– Sales (salaries, commissions)– Channels (commissions)
• Contribution Margin– Revenue – Costs
• Costs– Cost of Goods– Customer Support– Data Center, Bandwidth…– Sales costs (incentives for upgrades, renewals)
Segment• By channel • By product
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Applying CLV?
Places value on customer base
Highlights impact of 3 levers: acquisition costs Revenue/margin Customer lifetime
Useful to examine cohorts Clients from 2010 vs 2012 Online vs sales team Gold vs Bronze
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#4 Customer Acquisition Cost
The cost to acquire a particular customer.
The key to determining your level of sales and marketing investment.
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Why Measure CAC?
Use CAC to optimize sales and marketing programs
Highlights unprofitable channels and programs
Measures efficiency
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Variations of CAC
Full cost view Include all salaries, commissions, program spend etc.
Incremental costs: Essentially treat headcount costs as fixed
Marketing Program Only consider external marketing program costs
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Recap
Four Key metrics MRR – recurring revenue Churn Customer Lifetime Value Customer Acquisition Costs
Pick an approach and be consistent
Sometimes data can be a challenge
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FUSEBILL INTRODUCTIONAutomate billing for subscription companies
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Fusebill Executive Dashboard
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Track Lifetime Value, Churn
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Fusebill Platform Overview
Scalable Multi-Tenant PCI Compliant Security
API Layer – Customers, Subscriptions, Transactions
PricingProducts
Price PlansUsage TiersDiscountsCoupons
AccountsSubscriptions
InvoicesLedgersReseller Tracking
PaymentsAdjustments
BillingRating
Usage VolumesPro-ratingTaxationCouponsCurrency
Adjustments
PaymentsCredit Card
ACHStorage Vault
GatewaysDunningRetries
Online Checkout
Self-Service Portal
Agent Interface Analytics
External Payment Processing
InvoicingPayment
Terms Date Control
Review, Edit Aging
Adjustments
Swipe & Subscribe
Lifecycle Management
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For more information on subscription metrics:
KISSmetrics Blog Bessemer’s Top 10 Laws of Cloud Computing and SaaS
[email protected]: @fusebill
References
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Sign up at www.fusebill.comThank You!
[email protected]@fusebill.comTwitter: @fusebill