Tag Archives | Customer Lifetime Value

In the subscription economy, 100% of profits come from existing customers

For the vast majority of recurring revenue businesses, existing customers don’t just fuel growth—they represent all of the businesses’ profits. Take the average customer relationship in the SaaS market: it takes 3.14 years to reach profitability, which for a $12,000/year subscription would mean $37,680 to hit breakeven. That means a full 68 percent of the revenue needed to achieve profitability is collected after the initial contract. This means profitability stems first from ensuring customer success and then growing the relationship. That percentage gets higher the further you can extend the lifetime of a customer and as the relationship becomes more profitable. In our research, we’ve found that the most profitable, best-performing companies realize 90 percent or more of a customer’s […]

The Truth Behind Recurring Revenue Growth in Subscription Economy

Goals for revenue growth change over the lifecycle of a company, in both magnitude and composition: Early stage startups want 100 percent growth or more. Late stage startups aim for 60 to 80 percent growth. Companies near the public offering stage are in the 40 percent range. For public companies, growth objectives start to fall below 20 percent. As companies mature, growth begins to blend new customer acquisition with existing customer upgrade and add-on sales—and for the best-performing companies, an increasing percentage of growth comes from existing customers, year over year. In fact, for these best-performing companies, our research shows a direct correlation between average customer lifetime and percentage growth contribution from existing customers. To better understand this dynamic, consider […]

Want to Be Profitable in the Subscription Economy?

The secret to profitability can be found through usage data. By “usage data” we mean data concerning customers’ usage of a subscription service. This metric is the basis for designing rate plans and billing usage charges. For example, if you look at your own mobile plan, the charges based on data, call time, and texting are prime examples of usage data. More specifically, they are all examples of metering, reporting and invoicing usage. In the Subscription Economy, massive volumes of usage data are generated daily for a service provider. This usage data captures utilization of features, content consumption and more at a user, contract and customer level. The companies that connect usage data to critical decisions in customer success, product […]

How to Calculate the Breakeven Point for Digital Subscriptions

In subscription-based business models, maximizing customer lifetime value is understood to be a key success factor to a profitable business. But how do you know at what point a customer relationship turns profitable? While there are obvious differences between customers, it turns out you can calculate your average customer lifetime to reach the breakeven point using your existing operating metrics. So how is this done? Here are the standard operational metrics known by every online service: Customer Acquisition Ratio (CACR) – the sales and marketing costs to sign up a new customer as a ratio to revenue acquired Customer Renewal Cost ratio (CRCR) – the sales and marketing costs of closing a renewal as a ratio to revenue renewed Research […]