Subscriptions are the fastest-growing area of eCommerce, projected to be worth over $2.64 billion by 2028, demonstrating compound annual growth of 72.9%. Subscription programs are, when leveraged well, extraordinary opportunities for consumer brands, as they bring in consistent, recurring revenue.
But to get the best results from this highly lucrative business model, you might need to up your subscription analytics game.
Subscription Analytics Really Matters: Here’s why
If you want to make the most out of your brand's subscription program, or if you’re thinking of introducing one, subscription analytics is the secret sauce. Behind every successful subscription brand, there is a robust data analytics program informing business, merchandising, and marketing decisions.
By analyzing the preferences, behaviors, purchase patterns and satisfaction levels of their subscription customers, brands can optimize their offerings and pricing, improve customer experience, and implement effective retention strategies.
Key Metrics for Subscription Programs
Let’s dive into the most important subscription metrics that consumer brands need to track and optimize.
Subscription Churn Rate
Subscription churn rate refers to the percentage of subscribers who cancel or do not renew their subscriptions within a given time period.
It is the most important subscription metric, indicating the rate of customer attrition within a subscription program. Churn rate provides insights into the health and sustainability of your program, as well as the efficacy of your customer retention strategies.
Calculating Subscription Churn Rate
To calculate subscription churn rate, you need to determine the number of subscribers who ended a specific period (such as a month or a quarter) with no active subscriptions and subtract one. Then, divide this number by the number of subscribers who had at least one active subscription at the beginning of that period. Finally, multiply the quotient by 100.
The resulting percentage represents the churn rate for that particular time frame.
A high churn rate shows that a significant number of subscribers are discontinuing their subscriptions, which will have a negative impact on revenue and business growth. On the other hand, a low churn rate indicates that customers are satisfied and are more likely to remain subscribed, contributing to increased revenue and customer lifetime value.
Subscription Churn Rate Benchmarks (at 3 and 6 months)
You should aim to keep at least 66% of your subscriptions active after three months, and a minimum of 50% still going strong after six months. If you can retain a good chunk of your subscribers over an extended period, it suggests your customers see value in what you're offering, they're satisfied with your service, and they're less likely to cancel their subscriptions.
Reducing Churn Rate
Reducing churn rate is a critical goal for any subscription-based business in order to maximize revenue. To tackle churn head-on and boost your subscription business's long-term success, consider the following:
Do you have a quality issue with any of your subscription products?
Ensuring top quality is key to keeping subscribers happy. If customers aren't satisfied with the items they receive, they are likely to look elsewhere. So, be sure to collect customer feedback regularly via surveys and customer support, and pay close attention to reviews. Taking action to rectify quality concerns will help boost customer satisfaction and reduce churn.
Are you just attracting bargain-seekers that just want a one-time discount?
If your subscription program primarily attracts customers who are only after the initial discount and have no interest in a long-term relationship with your brand, it can lead to a high churn rate. You might want to evaluate your marketing and positioning strategies to attract high-value customers who value the ongoing benefits of the subscription beyond the initial discount.
Is a subscription program right for your brand?
If your churn rate is high (e.g., +50% after a couple months) it could indicate an existential problem with your subscription program. Consider whether a subscription model aligns with the nature of your products. It may be tempting to have non-transactional revenue coming in, but
While it makes sense for consumer packaged goods (CPG) like household items or food and beverages, long-lasting products may not be suitable for subscriptions unless you offer consumable accessories or auxiliary products that complement them or are used with them.
- For instance, it would not make sense for a cast iron cookware brand to offer a subscription on their pans. However, they could trial offering cast iron seasoning oil on a semi-regular subscription.
By addressing these questions and considering the compatibility between your offerings and the subscription model, you can make informed decisions to tackle churn rate issues and enhance customer retention.
Lifetime Value (LTV) is a fundamental metric that measures the total gross margin a customer generates throughout their entire subscription journey. It takes into account not just the initial purchase but also the recurring margin from a long-term subscriber.
Calculating Subscription LTV
Here’s how to calculate LTV. First, calculate gross margin by subtracting SKU cost from net sales. Then, divide gross margin by the total number of subscribers over the particular time period.
Subscription LTV Analyses
When it comes to LTV, two key data comparisons can provide insights for your subscription program’s success.
- The first analysis involves comparing the LTV of subscription customers to that of transactional customers. Your subscription LTV should be significantly higher than the transactional LTV if you’ve had a program in place for 3-4 months. If it’s not, that indicates issues with the subscription program.
- The second analysis involves comparing the LTV of subscribers with that of customers who have never subscribed. By analyzing the LTV of these two groups, businesses can understand the impact and profitability of their subscription program. The LTV of subscribers should be much higher than that of non-subscribers, demonstrating the incremental value and revenue potential that comes with maintaining a loyal subscriber base.
Improving Subscription Lifetime Value
The discount balance
- While offering discounts can attract customers initially, be cautious not to over-discount. Some customers may solely be interested in taking advantage of the discount and may not remain loyal in the long run. This can hinder your ability to achieve your margin goals.
- Instead of offering discounts right from the start, consider implementing discounts after a certain number of months to incentivize customers to stay in the subscription program. For example, you could provide a discount every three months or at other specific milestones. This approach encourages customer retention and rewards loyalty while preserving margin.
Recognize the value of subscription customers
- Subscribers should be among your most valuable customers. However, it's essential to quantify how much greater their LTV is compared to non-subscribers. This data helps you evaluate if your subscription program is worth the investment in marketing, product design, fulfillment, and other efforts.
More Useful Subscription Metrics
In addition to LTV and churn rate, there are several other relevant metrics that provide insights into the performance of your subscription program. Here are some more metrics to consider:
Total active subscriber count
This metric provides a high-level overview of the number of active subscribers at any given time. The goal is to increase this count over time, indicating a growing customer base and the success of your subscription program.
Average subscriptions per customer
Average subscriptions per customer measures whether customers are subscribing to multiple products or services you offer. It helps you identify potential subscription bundles, which can dramatically increase revenue and LTV.
Subscription Average Order Value
Average order value in a subscription program measures the average value of each subscription order placed by customers. You can use this data point to assess the profitability of individual subscription orders and identify opportunities to optimize pricing, implement upselling and cross-selling strategies, and introduce higher-tier subscription options.
Average Days from Subscription Start to Cancel
This metric tracks your average subscription duration. It provides another angle through which to analyze customer engagement and retention, and it can potentially uncover times to implement strategic discounting.
- Where are there drop offs? After about 3 months? 5? These can be guiding posts toward discounting and other retention efforts.
Qualitative Subscription Analysis
While quantitative data provides valuable insights into customer behavior, preferences, and subscription metrics, qualitative data adds an additional (and we would argue) vital layer to your data.
Capturing subscribers’ subjective experiences, opinions, and feedback adds context to the numbers, which gives you a specific understanding of customer motivations, preferences, and pain points.
Here are a few examples of qualitative data and how to collect and analyze it:
Conduct surveys to gather feedback directly from subscribers. Ask open-ended questions about their overall experience, satisfaction levels, suggestions for improvement, and specific aspects of the subscription they appreciate. Analyze the responses to identify common themes, areas for improvement, and opportunities to enhance customer satisfaction.
Online Reviews and Social Media Monitoring
Monitor online platforms, review sites, and social media channels to capture customer feedback and discussions related to your subscription offering. Pay attention to both positive and negative sentiments, identify recurring themes, and address any concerns or issues raised by subscribers.
Support Tickets and Customer Interactions
Review customer support tickets, emails, and chat interactions to understand common customer queries, pain points, and areas where subscribers may be facing challenges. Look for recurring issues or requests and analyze the interactions to identify opportunities for process improvement, product enhancements, or better communication.
By combining qualitative data with quantitative data, you can gain valuable insights into the customer experience, uncover specific areas for improvement, and make informed decisions to enhance your subscription program.
Conduct one-on-one or group interviews with select subscribers to delve deeper into their experiences, motivations, and needs. Use structured or semi-structured interview formats to ensure consistency while allowing for detailed responses. Analyze the interview transcripts or recordings to identify patterns, sentiments, and actionable insights.
Top 3 Tips for Running a Successful Subscription Program
- Track top reasons customer cancellations
There are a number of common reasons customers cancel their subscriptions and potential insights to drawn from them:
- “I already have more than I need” -> Can you offer a less frequent subscription option?
- “Too expensive” -> If a customer isn’t able to comfortably afford a subscription, even with a discount, it might not be a good fit. However, it may also be possible that a competitor has a lower-priced product.
- “I no longer use this product” -> These customers may want to switch to a different one of your products, or they may simply have tired of the one they’ve been receiving. Either way, you could offer them another product as a replacement.
- Decide which products to offer and promote as subscriptions
Not all products are well-suited for subscriptions. Evaluate your product offerings and identify those that align best with a subscription model. Consider factors like recurring needs, convenience, and customer value. Focus your efforts on promoting these products as subscriptions, highlighting the benefits and value customers can derive from subscribing.
- For some CPG brands, their most popular subscription product is also their go-to acquisition product/SKU.
- Leverage Subscription Data for Decision-Making
Harness the power of subscription data to answer critical questions and guide your decision-making process. It can help you answer questions and make decisions such as:
- Which products should we offer as a subscription?
- Are subscription customers more valuable than customers that have never had a subscription?
- Should we push subscriptions to new customers or existing customers? Subscription programs can be used as acquisition tools but often function best when used as retention programs advertised through email, SMS, or retargeting in other ad platforms.
- Are AOV and Gross Margin/Order better or worse for subscription orders? If it is too low, should we think about raising prices/eliminating discounts?
- Is the monthly churn rate acceptable? Why are customers churning from the subscription program?
- Which channels generate the first orders of subscription customers? Try to understand which products customers subscribe to, the channel they first order through, and whether they start a subscription on their first order or later. This can help you decide when to send your customers messaging related to your subscription program, which products to show them, and which channel to approach them through.
Mastering Subscription Analytics with Daasity
An ancient adage from the philosopher Socrates goes, “If you have a subscription program, you need to use Daasity to analyze it.”
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At Daasity, we enable omnichannel consumer brands to centralize, analyze, and report on all their data. This includes subscription data: we have a robust ReCharge subscription, and every data point mentioned in this article can be tracked and analyzed with Daasity.
For more about how we can help power subscription growth and insights, please contact us for more information.