Why Subscription Models and Reporting Metrics Are Important

Jump to read:

Importance of Subscription Models and Reporting Metrics

FAQ

Conclusion

When it comes to software, businesses are quickly learning that traditional models often lack the insights provided by subscription models and reporting metrics. These tools give companies greater control over long-term outcomes. 

We know that subscription businesses can be more agile than their traditional model counterparts — and what it really comes down to is data.

The data you can get through subscription models and reporting metrics can vary greatly from traditional software. In fact, you need to measure these other data points in order to attain better long-term growth and sustainability.

This article explores how subscription models and reporting metrics help businesses stay agile, make informed decisions, and optimise for growth.

Also Read:

• How to Create a Subscription Revenue Model Template
• Subscription Metrics Part 1: Recurring Revenue in B2B

Importance of Subscription Models and Reporting Metrics

Subscription models and reporting metrics help you gain a dynamic understanding of your business’s performance. Here are some key areas where subscription models and reporting metrics are important:

1. Revenue recognition

One of the biggest advantages of the subscription model comes in the form of revenue recognition. Through reporting metrics of subscription contracts, commitments, upsells and more, you can accurately begin to predict the revenue coming in and the liquidity you can expect. When customers are subscribing to your product or service, there are certain commitment periods, or guaranteed prices for a given period of time (think one-time, yearly fees, etc.). Having guaranteed revenue that you can see clearly is a major advantage when future sales are largely unknown.

When you use established SaaS metrics and trends to conduct subscription revenue forecasting, you can make better, more accurate budgets, reinvest money into hiring or product development, and project your future growth. It also helps identify areas of revenue leakage, where potential income may be slipping through missed upsell opportunities, or customer churn. Or, if you find your business is underperforming or you are not projecting the results you had imagined, you can take action to change the course of your business before the last numbers come in and it's too late to do anything about them.

For context, here are the steps involved in revenue recognition for SaaS businesses if you follow the ASC 606 guidelines. 

Also Read:

• Essential Subscription Revenue Recognition Strategies
• ASC 606: What Every SaaS CFO Needs to Know About Revenue Recognition

2. Customer Lifetime Value

While technically you can calculate customer lifetime value (CLV) with a traditional software model, it becomes much more accurate and clear with a subscription model. Similarly to revenue recognition, the data points you can collect regarding customers' average commitment periods will be easier to measure and predict than those of one-time purchases. With traditional software, it can be difficult to capture or predict if a customer is likely to renew a subscription, make future purchases, or upgrade.

With subscription models and reporting metrics, you can see each step of the customer life cycle. From initial conversion to upsells and renewals, to seeing predictors of drop-off and churn rate, you can better understand what each customer is worth. Being able to understand CLV means that you can more easily measure the cost per acquisition (CPA) of your marketing and sales efforts, and return on investment (ROI) of these efforts over time.

3. Customer Churn

One of the most important metrics for SaaS subscription companies to measure is customer churn. With traditional models, churn can't really be measured, because often there is a one-time upfront cost with perpetual license agreements, and little visibility or predictability of customer "loss." 

Consider how you may calculate your SaaS churn rate. For many B2B companies, you may have 10–20% of the customers accounting for more than 80% of the revenue. If ACV or ARR is 100, 1 customer churn may be worth $10 or 10% churn, and another customer churn is worth $2, or 2% churn. The churn in this case is depicted by how much new sales (in dollar amount) are needed just to stay on the same revenue level.

When you can measure real customer loss through subscription models and reporting metrics, you can also find the potential reasons behind it — and then take action.

 Here are the common causes of churn to get you started. Once you identify yours, you can take action to reduce it and improve customer retention.

For example, maybe you introduce a new pricing tier structure, only to find more customers are dropping off. You may need to reevaluate your tiers or identify if the price points for features being offered are not seen as a good value. You can then adjust your offerings or pricing model, and see how this affects the churn rate. By reducing your customer churn rate, you'll be able to increase your monthly recurring revenue and get a better handle on your revenue recognition.

Also Read:

• Churn Analysis: Definition, Ways to Do it, & How to Monitor it
• What is a Good Churn Rate for SaaS Companies? Benchmarks

FAQ

1. What are subscription models and reporting metrics?

Subscription models are recurring revenue frameworks where customers pay periodically. Reporting metrics are the KPIs used to analyse performance, including MRR, CLV, and churn rates. Together, subscription models and reporting metrics provide actionable insights to improve decision-making and drive growth.

2. How often should I review my subscription models and reporting metrics?

Ideally, you should review monthly or quarterly. Monitoring trends in subscription models and reporting metrics can help ensure that you're proactively adapting to customer needs and market changes.

3. What tools support tracking subscription models and reporting metrics?

Platforms like Younium offer specialised dashboards and insights to streamline data tracking, which makes it easier to manage and optimise your subscription models and reporting metrics.

4. Can metrics reporting help identify customer churn early?

Yes. Businesses can track churn-related metrics like renewal rates, product usage frequency, and support ticket volume. This way, you can intervene with retention strategies before the customer leaves.

5. How can I transition my software business to a subscription model?

To transition, start by assessing your current pricing, customer value, and product usage. Design a subscription offer that aligns with customer expectations and business goals. Then, monitor performance through robust subscription models and reporting metrics. Younium can support this transition by offering tools for billing, reporting, and analysis.

Conclusion

There are many advantages of the software subscription model over traditional models, and the major one is metrics reporting. Through subscription models and reporting metrics, you'll be better positioned to measure and understand revenue recognition, customer lifetime value, and customer churn, putting you in a position to have control over sustainable long-term growth.

Want to learn more?

-> How to decide on pricing tiers for subscriptions

Want to learn more about the best practices for transitioning to a subscription model software business? Download the White Paper now.

Take a look at Younium's subscription Insights features here.