Ecommerce merchants are changing how they provide products and services to customers. According to PYMNTS.com, consumers are more willing to make additional purchases from merchants and brands that offer recurring revenue relationships. As trends shift toward subscription ecommerce, sellers are recognizing the importance of calculating subscription revenue to maximize customer value.
Many products and services can be turned into a subscription revenue model. For growing shops, recurring or predictable income can help accelerate growth. In a subscription-based economy, there is a multitude of methods to help merchants manage and track revenue in order to optimize offerings.
By understanding the metrics of subscription revenue, ecommerce business owners are more equipped to nurture customer relationships and enhance brand loyalty.
In the subscription economy, predictable recurring revenue is a staple and core benefit for merchants looking to move away from single purchase operations. The bottom line is recurring revenue makes it easier to analyze and improve current offers and prepare for future trends.
Some of the most important metrics and KPIs for ecommerce subscription businesses are monthly recurring revenue (MRR) and annual recurring revenue (ARR). Data-driven strategies can help merchants understand the most essential subscription analytics to track regularly. As customer lifetime values increase, merchants simultaneously provided with valuable long-term subscription data get a more complete picture of a customers journey from acquisition to retention.
Understanding MRR and ARR trends within the business ecosystem can provide better clarity on the overall health of the business. However, breaking ARR or MRR into subcomponents can provide more accurate measurements of specific product or service performance. Subcategory metrics to track outside of bigger picture subscription revenue can include:
Understanding which revenue streams to focus on requires benchmark goals based on your business industry and customer base. For example, there may be an industry factor that leads to high churn, especially in volatile markets, or fewer options for product upgrades.
All these components, however, can help merchants better calculate subscription revenue and understand the strategies required to enhance the overall customer experience.
Predictable income is invaluable in ecommerce as it provides merchants a way to track revenue and analyze customers’ buying patterns. Churn rates are a high priority as they can give merchants critical information pertaining to customer cancelation. For subscription ecommerce business success, retaining happy customers should be top priority, which means taking initiatives to focus on fixing or improving overall customer experience. Churn rates can indicate where drop-offs occur to help ecommerce business owners create more effective solutions.
Figuring out why customers cancel should be simple. Subscription commerce platforms are transforming how ecommerce businesses are able to access detailed insights that can clue in business health and overall performance.
Consider the following measurements when calculating subscription revenue:
Analyzing the percentage of customers who cancel in a selected time frame allows merchants to carefully examine different types of cancellations. For example:
One of the most valuable metrics for subscription merchants to consider is the customer lifetime value. This measurement shows the total revenue you’ll get from a customer over the lifetime of the relationship. CLTV provides a way for merchants to calculate subscription revenue from a single customer.
Calculating subscription revenue can take many forms. Focusing on cancellation as we outlined above can help ecommerce businesses to optimize performance and focus on metrics like CLTV and churn rates. If you’re focusing on acquisition revenue, the questions are:
For acquisition revenue, tracking customer acquisition costs (CAC) provides insight into key aspects of the business, including the success of sales teams, pricing strategies and customer service. This allows businesses to gain a deeper understanding of finances to properly forecast and budget for future spending.
Similarly, examining strategies to boost average order value can also offer a window into shopping behaviors and how much is spent on certain products or services. By learning how much your customers are spending on each order, you can better plan pricing and marketing strategies to improve AOV.
Subscription revenue is income generated through recurring payments. Examples can include weekly, monthly or annual subscription products or services. Some providers are veteran companies — for example, magazine subscriptions from the early ’90s. Ecommerce is finding a similar rise in demand for subscriptions that offer the convenience of renewals, upgrades, downgrades and other customizable features.
Ecommerce shop owners are quickly recognizing the advantages of simplified billing and customer acquisition, while simultaneously building on customer relationships for long-term loyalty. Learning how to move toward a subscription revenue model is quite different from traditional ecommerce setups and requires a different set of calculations and management.
The benefits of subscription commerce are two-fold — both for the company and the customer. From a customer’s perspective, subscription offers provide convenience by automating product or service repurchases. For merchants, subscriptions can forecast future sales and cut costs normally associated with customer acquisition.
Consistent revenue streams can help ecommerce businesses optimize and scale faster. With the right data, the foundation of success can be easily planned, executed and optimized.
With subscriptions, merchants are better positioned to quickly onboard a customer, create automated invoices from fixed costs, accept payment information and provide customers the product or service quickly at regular intervals.
The shift in customer and merchant relationships allows ecommerce business owners to focus on service or product expansion, customer relationship nurturing and scaling customer acquisition.
Recurring revenue can provide essential metrics for merchants to evaluate routinely.
The subscription industry is continuously evolving. As customers' preferences change, merchants are finding invaluable data and metrics from recurring revenue that can be used to help grow or scale existing subscription offers.
Handling your subscribers’ lifecycle operations and monetizing the opportunities presented in each revenue stream requires a flexible and robust subscription commerce platform. While it can seem overwhelming to start, monitoring revenue can help unveil untapped opportunities to improve subscription offers.