The metrics used to analyze the profitability of subscription business

http://techcrunch.com/2015/10/05/easily-measure-the-profitability-of-your-consumer-subscription-business/

Summary:

  • Monthly Average Revenue Per User (ARPU)  = Subscription Revenue / Average Subscribers
  • Monthly Subscriber Churn Percent = Subscribers lost in month / Base of subscribers at beginning of month
  • Gross Margin Percent = Gross Profit (from subscribers) / Subscription Revenue
  • Subscriber Lifetime Value (LTV) = (Gross Margin Percent * Monthly Subscription ARPU) / Monthly Subscriber Churn Percent
  • Customer Acquisition Cost (CAC) = Sales & Marketing Expenses / Gross Customer Additions
  • Payback period (Breakeven points for each user) = Cumulative cash flow for average user
  • Subscriber Return on Investment (ROI) = LTV / Customer Acquisition Cost

Some metrics such as gross margin and customer acquisition cost are too generic, and can be applied to all types of businesses. Also, we should define / set the meaning of success, based on the past data of already successful subscription businesses.