Subscription Box Metrics

I am going to share some valuable information about the type of metrics you should be monitoring in your subscription box company to ensure it is a success. I will break down some common terms and explain exactly how you can track each metric the easiest way. I personally believe if you don’t understand or track these key metrics your subscription box company will 100% fail. My advice to anybody running a subscription box company would be to spend some time getting familiar with the following terms and learning how they can optimize and improve them in the daily running of their business. Once you start doing this you will be able to get to your goals a lot quicker and you will understand exactly what you must do to turn a profit in your business.

1. CLTV = Customer Lifetime value.

This is how much money a customer gives you throughout the lifetime of their subscription.
I am going to be very blunt here. If you have been running a few months and still don’t understand or have a basic idea of what your Customer lifetime value is you shouldn’t be running any form of paid advertising. The reason why you shouldn’t be running any form of paid advertising is because you don’t even know what a customer is worth to you so you don’t realistically know how much you can even spend to acquire a new customer. This is why a lot of subscription box company’s struggle to turn a profit. Either they are spending way too much on customer recruitment versus lifetime value or they aren’t spending enough. E.G they have found a profitable channel but they are afraid to higher their marketing budget to acquire customers at a quicker rate because they are unsure of how it will directly impact their business.
There are a couple of different kinds of software which can be used to track this and some of the other metrics I will mention. I will cover them at the end of the post. The easiest way to roughly work out your lifetime value manually though would be like this.

Example

1. Your box costs $20
2. Your monthly churn rate is 10% (customers stay 10 months)
3. Multiple $20 by 10
4. Lifetime value = $200
5. Of course, this is a very basic calculation and doesn’t account for any discounts at the start of the subscription or many other factors which may come into play. Here’s a tip a customer’s lifetime value doesn’t have to end once they cancel their subscription. If you are smart you will sell your email list once-off products. This is a fantastic way to boost a customer’s lifetime value and maximize the amount of cash you make from every customer.

2. Gross Margin as part of lifetime value.

Here’s another part that needs to be addressed. The lifetime value I discussed above only accounts for revenue. To truly understand how much a customer is worth you need to take your gross margin into consideration. Gross margin is the amount of money left over after taking out the costs required to serve the customer (The COGS of all the boxes sent to the customer)

Here’s a simple way to work it out

1. Company A makes $5 profit per box.
2. The typical customer stays with them 10 months
3. Each customer is worth $50 profit to company A.
4. Cost Per Acquisition (CPA)

This is how much you are spending on marketing to sign up each customer. Using Company A as an example, let’s pretend they are spending $50 on Facebook every time they sign up a new customer. This is really bad news for them as it means they will never turn a profit.
Let’s take a look at the figures.

1. We worked out above that each customer is worth $50 gross profit to company A and they usually stick around 10 months.
2. It also costs company A $50 to sign up a new customer.

This means Company A is not making any money from any customer that signs up to their box. They are actually losing money because they will have other fixed costs that need to be paid throughout the lifetime of that customers’ subscription to their box. What is scary for company A is they could spend thousands on marketing their box and grow their company to millions in revenue but they will never ever turn a profit using the above figures.
This is a very basic example, but these types of things happen all the time in subscription box companies, but on a much more complicated scale than what I discussed above. If you understand your metrics though, and you are tracking them, you will be able to prevent what I mentioned above and ensure your company is on the path to success.
The quickest and easiest way to track your CPA would be the following calculation.

1. In June you signed up 500 customers.
2. You spent $5000 on marketing
3. $5000/500 = $10 CPA

If you have your pixel set up on Facebook, you can obviously track it in real-time for that channel. You should also spend some time figuring out a way to track it individually for each different marketing channel so you know which ones are the most profitable.

3. Churn

This is one of the most important metrics in any subscription business. Subscription Churn is the number of customers who stop paying for your service over a given period of time. I will probably make a separate post about churn in the future as I could write pages and pages about this and what you can do to help improve it. Depending on the market a good B2B SAAS company can have extremely low churn (5%-7% Annually) Unfortunately B2C products such as subscription boxes are a lot higher. So, we have to do everything we can to make as much profit as possible from the customer while they are with us. (Selling other services and products to them to help with this) Realistically, you should be aiming to have under 10% churn on a monthly basis. If your churn rate is any higher then 15% you need serious work to bring it down. You should be sending surveys to your customers and finding out why they are cancelling and tackle them problems head-on. (There is a lot more to reducing churn which I will cover at a later date)

Your churn rate goes a lot deeper than what I discussed above though. It can be broken even further into the following categories.

1. Passive Churn – This means customers dropping out of their subscription without wanting to. E.G Failed Payments. – You should have a good dunning tool to help fight this
2. Active churn – Customers cancelling because they no longer want to use your service.
   You should also be breaking your churn down further using cohorts so you can actively monitor things closely and look for patterns. E.G Break your churn down further using acquisition cohorts. (Customers segmented by when they signed up for your box) You can then see when in a user’s lifetime cycle, they are likely to drop off and put steps in place to prevent this. I am only touching the surface of things you can and should be doing, I will come back in the future and write a separate post dedicated to this.

There is a lot more metrics to cover and things you should be doing. I will come back when I get a chance and write more articles about metrics and expand on some points if people tell me these sort of posts will help them.

How to track your metrics?

As mentioned at the start of the post. The best way to track these metrics is by using software specifically designed for it.
Up until recently, we have used a fantastic program called ChartMogul. This program lets you see everything and is worth every penny. I recently came across another piece of software though called Sublytics and I am really impressed by it and considering moving everything over. While ChartMogul is more for Saas Companies. Sublytics is focused much more on subscription boxes. You can literally see everything with Sublytics and incorporate all your metrics into one place. It even lets you monitor your Fulfilment Metrics and your customer service metrics all from the one dashboard.

If you can’t see your metrics and don’t pay much attention to them your box will not be a success. It would be the same as walking out of your house with a blindfold on. You wouldn’t have a clue of what’s going on or how to get to your destination. You wouldn’t do that in real life so don’t do it in your business.