The document discusses the subscriber journey for subscription businesses. It outlines key milestones in the subscriber lifecycle including signing up free users, billing subscribers for the first time, and renewals. It then discusses important key performance indicators (KPIs) associated with these milestones such as customer acquisition cost, churn rate, recurring revenue, and customer lifetime value. Calculating and understanding these KPIs is important for subscription businesses to optimize growth and profits over the long run.

1. Subscription Commerce:
Mapping & Measuring
the Subscriber Journey

2. When you truly understand
the subscriber’s journey and
it’s KPIs, you stand a better
chance at earning their trust
and their money.
— — — — —

3. The Subscriber’s Journey
The following is a description of the main events that occur as a visitor discovers your
product, becomes a paying customer, and transforms into a loyal subscriber.
We’ll take a look at each of these events and then we’ll discuss KPIs like churn rate,
customer acquisition cost (CAC), recurring revenue and customer lifetime value (CLV).
Signing up
free users
Billing subscribers
for the first time
Renewals

4. MILESTONE:
Signing up free users
It is incredibly important to sign up
free users because they constitute the
majority of the customer base that
becomes paying subscribers.

5. MILESTONE:
Billing subscribers for the first time
Once a free trial ends or a user decides to upgrade from the
freemium product to a paid version, the user must submit payment.
Some companies collect payment information before letting
visitors sign up for the trial or freemium product, but most wait until
the initial billing event.
It must be absolutely clear from the start that users are signing
up for recurring payments.
Don’t be ambiguous. It only leads to a tarnished reputation down the line—not to mention increased
costs and lost revenue due to spiking customer contacts, refund requests and chargebacks.

6. MILESTONE:
Renewals
-In subscription commerce, you are most
concerned about gaining a predictble,
recurring revenue stream.
Get customers in now in order and upsell them later. This gives you less
revenue upfront, but greater potential revenue downstream.

7. Up until now, we’ve focused on the important
milestones of the subscriber lifecycle.
Now, we’re going to talk about the KPIs
associated with these events.

8. The only way for your subscription
business to thrive is by growing
renewals. To see how well you are
thriving, you must monitor
the following KPIs:
Customer
acquisition cost
Churn rate Recurring
Revenue
Customer
Lifetime Value

9. KPI:
Customer acquisition cost
Consider your answers to the following questions, as they all
factor into an important subscription KPI: customer acquisition
cost (CAC).
How much do your email marketing efforts cost?
How much do your search engine marketing (SEM) efforts cost?
How much does your ecommerce solution cost?
What are your payment terms with affiliates? Are they paid per signup or per
transaction, and does that commission continue for each renewal?




=

10. CAC =
Total cost of acquiring subscribers
Total amount of new subscribers
To calculate CAC, total all of your costs for acquiring customers as a single number. Next,
divide that total by the number of new subscribers gained from these marketing efforts.
If each month your company acquires 10,000 customers and spends $350,000 on all those
acquisition efforts (including email marketing, SEM, ecommerce, etc.), your monthly CAC is
roughly $35 per customer.
There are a number of other factors that go into calculating CAC, like employee salaries,
infrastructure costs, etc. The point to remember is that acquiring customers takes time, money and
human resources.
Customer acquired each month 10,000
Marketing costs $350,000.00
CAC per customer $35.00

11. In its simplest form, the churn rate is calculated
by establishing how many customers canceled
in a given time period.
KPI:
Churn rate
Churn rate % = x 100
Number of canceled subscriptions
(Time period x Number of active subscriptions)

12. If you had 10,000 active subscribers at the beginning of a month,
and by the end of the month you had 7,500 active subscribers, your
monthly churn rate would be 25 percent.
Monthly
Churn Rate %
x 100
2,500
( 1 x 10,000 )
=
Interval
Amount of active subscribers 10,000
Amount of canceled subscribers
Churn Rate 25%
KPI:
Churn rate
1
6,000

13. Now, imagine a scenario where
you’re effectively increasing the
number of subscribers who sign up
each month and decreasing the
number of subscribers who cancel
each month.

14. In this scenario, you acquired 10,000 subscribers in the first month; 11,000 in the
second; and 12,000 in the third. Meanwhile, 2,500 subscribers canceled that first
month; 2,000 in the second; and 1,500 in the third. Your total of acquired subscribers
is 33,000 and your total canceled subscribers is 6,000. Your monthly churn rate is
now at 6 percent.
Monthly
Churn Rate %
x 100
6,000
( 3 x 33,000 )
=
Interval Total32
Amount of active subscribers 33,00012,00011,000
Amount of canceled subscribers 6,0001,5002,000
Churn Rate 6%4%9%
KPI:
Churn rate

15. But churn does not occur in a vacuum. To calculate the true
impact of your churn rate, forecast how many users you’ll
need to acquire to reach your revenue goals.
For example, let’s say on January, 1, 2016, you have 100,000 subscribers. To reach your
revenue goals, you need 200,000 active subscribers by January 1, 2017. For the next
twelve months, you need an average of approximately 8,400 new users every month.
KPI:
Churn rate

16. What happens to your forecasting if you have an
average monthly churn rate of 4 percent?
To reach your goal, you’ll actually have to acquire an average of
11,834 subscribers every month.
KPI:
Churn rate

17. Recurring revenue is fairly simple to figure out. Take the amount of revenue generated
by a subscriber and divide that number by the amount of billing intervals.
KPI:
Recurring revenue
+ + + ...
Recurring revenue =
Monthly recurring
revenue
Annual recurring
revenue
Revenue generated
Revenue generated Revenue generated
In the case of a single subscription that costs $9.99 per month, the monthly recurring
revenue is $9.99 per subscriber, while the annual recurring revenue is $119.88.
Billing interval
Billing interval Billing interval
= =OR

18. What happens when you increase the number of
subscribers each month?
Monthly price
Total
$9.99
Monthly intervals
Revenue each monthly interval
Monthly Recurring Revenue
1 quarter
$ 329,670
$ 329,670
3
$ 119,880
$ 109,890
2
$ 109,890
$ 104,895
1
$ 99,900
$ 99,900
Number of subscribers
Revenue from active subscriptions
33,000
$ 329,670
12,000
$ 329,670
11,000
$ 209,790
10,000
$ 99,900
Returning to our churn rate scenario, your company acquires 10,000 subscribers in the first month,
11,000 in the second, and 12,000 in the third. At $9.99 per subscriber, your company is generating
$329,670.00 in quarterly recurring revenue.

19. There are two methods for increasing
recurring revenue. The first is to acquire
more subscribers, and the second is to
increase the value of each subscription
by persuading subscribers to upgrade
to a more expensive plan.

20. According to subscription metrics guru Joel York, the simplest
way to calculate CLV is by dividing your recurring revenue by your
churn rate.
KPI:
Customer lifetime value
CLV =
Recurring revenue
Churn rate
$ =

21. Reviewing our previous scenario: Your company acquires 33,000 subscribers in three
months, but loses 6,000 subscribers to churn over that time period. Each subscriber
is paying $9.99 each month. At the end of the three months, your company has
generated $329,670 in recurring revenue from all active subscriptions with a 6 percent
churn rate.
Your CLV, therefore, would be $5,439,555.00,
or $164.84 per customer.
CLV =
$329,670
6%
Monthly price $9.99
Monthly intervals
Monthly Recurring Revenue
CLV
1 quarter
$ 329,670
$ 5,439,555
3
$ 109,890
$ 2,877,120
2
$ 104,895
$ 1,208,790
1
$ 99,900
$ 399,600
Number of subscribers
Monthly churn rate
CLV per customer
33,000
6%
$ 164.84
12,000
4%
$ 239.76
11,000
9%
$ 109.89
10,000
25%
$ 39.96

22. How upgrades and downgrades affect
recurring revenue and CLV
Consider the scenario where the subscription is for a number of
licenses for a given product or service. It is common for downgrades to
occur, for example, if an employee leaves a company. The company now
needs fewer licenses. This affects CLV negatively.

23. Other important scenarios that negatively affect CLV include cancellations,
refunds and chargebacks. These will all raise your churn rates and decrease
recurring revenue rates — both of which have enormous impact on your
CLV. Make sure you have a well thought out plan for reengaging these
lapsed subscribers in order to lessen the impact on CLV.
Make sure you have a well thought out plan for reengaging
these lapsed subscribers in order to lessen the impact on CLV.
KPI:
Customer lifetime value
$ =

24. Conclusion
To find one real friend in a lifetime is good fortune;
to keep him is a blessing.”
- Baltasar Gracian
All too often, you think of customers as commodities—interchangeable goods who will
always be available to add to your business’s bottom line. The fact of the matter is that
your business is a commodity for your subscribers.
If your business lives and dies by subscriptions, you need to understand the map of
your subscriber’s journey and its relevant KPIs. Make sure that your ecommerce arsenal
has capabilities to support subscribers at each stage of their journey and to accurately
report subscription specific KPIs. This will ultimately reduce headaches and provide
business stability for the future.
“

25. Cologne, Germany
Brabanter Str. 2-4
50674 Cologne
Germany
p
f
+49 221-222 45-0
+49 221-222 45-19
Chicago, USA
350 N. Clark Street
Suite 700
Chicago, Illinois, 60654
p
f
+1 312-922-8693
+1 312-376-1854
San Francisco, USA
333 Bryant St.
Suite LL120
San Francisco, California, 94107
p +1 415-617-9482
Tokyo, Japan
Wakamatsu Bldg. Level 7
3-3-6 Nihonbashi-Honcho
Chuo-ku, Tokyo 103-0023, Japan
p
f
+81 (0) 3-6869-2200
+81 (0) 3-6701-1969
cleverbridge provides global subscription billing solutions that help companies build long-term customer
relationships and grow recurring revenue streams. With its flexible, cloud-based billing and monetization
platform, cleverbridge integrates seamlessly with client systems, simplifies subscription business models and
delivers an optimized online customer experience. Leveraging cleverbridge expertise, technology and services,
clients monetize products and services more effectively, rapidly expand their global subscriber base and
maximize customer lifetime value. Headquartered in Cologne, Germany, cleverbridge has offices in Chicago, San
Francisco and Tokyo.
To learn more about cleverbridge, please contact inquiry@cleverbridge.com or visit www.cleverbridge.com.