Constant Contact helps small businesses grow and communicate through email marketing. In the past two-plus decades, it has scaled from a small operation crammed into a stuffy attic, to a successful business that sold in 2015 for $1.1 billion.
Marketers tap into Constant Contact to seamlessly reach out to customers via email and build a customer database. This, combined with strong branding, has made the business a household name.
Imagine how many organizations have used Constant Contact to reach out to their customers. Now, picture how many of those customers need to be tracked, along with up-to-date contact information.
That’s a lot of data.
As a business owner, having reliable data is essential. But do you actually know what to do with all that information? Unfortunately, many businesses do not truly understand how to leverage the power behind the data they capture.
Exploring different types of subscription data
The subscription market continues to grow exponentially. Meanwhile, the traditional, single-purchase business model is being disrupted and transformed. Under the subscription model, customers pay a small recurring fee over the lifetime of a business relationship. This differs from the larger, often less affordable fee associated with one-time purchasing.
Consider, though, how much information must be collected and stored to ensure that each customer is tracked correctly, billing runs smoothly, and customer satisfaction is maintained.
Understandably, subscription-based businesses generate a tremendous amount of data:
- Customer information. The details of each customer, including contact information, payment methods, and what products and features each customer subscribes to.
- Financial data. Critical information such as the revenue that your business generates. This includes a breakdown of revenue between deferred and earned revenue, critical to maintaining ASC 606 compliance.
- Product catalogs. Tracking each product, feature, or service. This also includes when features are bundled, or combined to offer different choices to customers.
- Price. What each feature costs to be purchased.
Accurate data is critical for subscription business health
If your subscription management system does not correctly track a customer’s information, and they are charged an incorrect price, your business’s credibility will take a hit. And while a one-time error is likely forgivable, continual mischarges will likely send a customer to one of your competitors.
Ensuring your operations are running on accurate data is only part of the picture. Recurring billing businesses often collect more information than traditional brick-and-mortar organizations. Data comes in with not only every subscription cycle, but in between invoices as well. This generates a continual source of potential insights on customer satisfaction.
However, leveraging analytics goes beyond simply capturing this information. You need to find the right data to use and know why and how it will figure into your business decisions.
A business that ignores data is likely going to face significant challenges in growing profits and monetizing their product line. However, with data-informed insights, decision makers can make changes quickly to continually optimize and grow revenue, every month.
With subscription businesses, data analytics becomes a formidable ally to help:
- Understand your business health
- Provide actionable insights
- Forecast and mitigate churn
- Optimize pricing
- Track customers to determine behavior patterns
- Discover which products drive the most revenue
- Create intelligent forecasts and predict ‘what if’ situations
How do you start to organize all this data and make it work for you?
Data doesn’t come with an instruction manual. In business, it’s important to educate yourself on how to leverage the data you capture to generate results. What is the most important data in your arsenal, what missing data do you need to capture, and how do you leverage that data to generate the information you need?
Delving into the world of subscription data analytics
The number of businesses getting into subscription, or even hybrid models, is growing rapidly. Analytics can be a powerful tool in helping you gain a competitive edge in your market, but there are many factors to consider.
If you’re new to the analytics game, it may appear overwhelming. Mastering analytics starts with a robust and comprehensive system offering powerful reporting capabilities.
It’s important to keep in mind that subscription management and recurring billing software do much more than track customers and automatically generate invoices. While these might be the initial pain points driving a subscription business to a strong recurring billing platform, these systems also incorporate reporting functions which efficiently analyze large amounts of data.
Reports for fiscal health of a subscription business
A business can generate a number of reports to determine their financial strength. Finances aren’t always black and white, however. There are many different ways to break down finances:
- Payments received from customers
- Separating revenue into deferred and earned income
- Each sale for all customers. Capturing all sales for all customers, identifying the performance and growth of a subscription business
- Money owed by each customer as captured on their invoice
Each of these four reporting ‘pillars’ shows different facets of a subscription business’s finances. Reports break that information down even further.
Sales, for example, can be looked at many different ways:
- Sales by customer breaks your customers down by their purchases. This helps identify your top customers, and forecast results if one or more of these customers churns out.
- Sales by product/plan helps businesses identify their most popular products, as well as which are slow movers. After identifying these components, a business can boost sales on a sluggish product by bundling it with a more popular one.
- Sales by GL (General Ledger) code is similar to the sales by product report, but it helps group products into different categories to give businesses another perspective on successful or struggling products.
- Sales by month looks at when your business invoices customers. Some businesses opt to invoice on the first day or middle of the month, but this can get complicated if customers chose to upgrade or downgrade their subscription during the billing cycle. Focusing on select days to bill can also create a nightmare scenario for billing clerks.
- Sales by year examines annual sales, broken down by month, including the average price paid for subscriptions.
- Long-term sales lengthens the time period you are looking at sales to identify specific trends.
- Sales by activation cohort examines groups of clients who become customers in the same billing period. This can help determine key components such as how much a customer purchases after their initial purchase. It also helps determine specific trends that can help a business address churn.
- Net sales summary reports can be broken into months, quarters, or years. These reports can be examined to look at trends over certain amounts of time, which is useful for forecasting results.
Using data to support your business decisions
In addition to the above reports, other pieces of subscription-related data can help drive critical business decisions, such as:
MRR, or monthly recurring revenue, measures all revenue in a subscription business. Identifying and tracking MRR gives a business confidence regarding predictable future revenue.
There are three facets of MRR:
- New customers. Customers who came aboard after the last subscription period
- MRR expansion. Customers upgrading their subscription plan after the last subscription period
- MRR contraction. Customers who churned out or who downgraded their plan after the last subscription period
Combining these three components yields MRR.
The customer churn rate identifies the dollar value by customers who churned out, whether voluntarily (when they elect to cancel a subscription) or involuntarily (when the subscription is terminated by non-payment). Churn is calculated by dividing the number of churned customers within a billing period by the number of customers at the start of that same period.
This is a critical metric, not only to see the cost of customers who left, but also because a growing business needs to have a growth rate that exceeds churn rate.
Average Revenue Per Account (ARPA)
In some situations, there may be more than one account per customer. In this case, relying on revenue generated by singular customers may be misleading. As an alternative, the ARPA monitors the revenue by account. The ARPA is determined by dividing the MRR by the number of accounts.
By looking at different cohorts within the ARPA, a business can determine critical trends and make necessary changes, such as switching up pricing strategies.
These data sets can be so mission-critical that many subscription businesses use them as KPIs, or Key Performance Indicators. As essential indicators for some of the most important aspects of business performance, they are generally monitored by assigned C-suite personnel. Consequently, the subscription data that is derived from reports has to be spot-on to give leaders the best, most accurate information.
Getting the numbers right when analyzing subscription data
A business needs to have absolute confidence in their data. After all, it underscores the information and insights derived from analysis, ultimately driving decisions.
For example, if you pull your data from a CRM (Customer Relationship Management) platform, it’s important to know that this information can be easily manipulated by different departments. Because it operates in real-time, various people are able to make changes. This can compromise the validity of the data.
Businesses need to have a solid foundation of data. They need to know without question that this information will provide a reliable guidepost for future decisions.
A solid recurring billing system houses the most up-to-date information on both customers and the financial state of a business. Because it operates automatically, the information (e.g. payments received) can be relied upon as a business’s financial record of truth. That information is updated immediately and provides the most accurate, here-and-now snapshot of your subscription business.
This is the data a business can trust, and use as a single source of truth. With this, they can construct a viable roadmap to future projections.
The future of subscription data measurement: predictive analytics
At some point, your subscription business may want to push past metrics and standard reporting to better understand your current business health and how to ensure it in the future.
Predictive analytics takes traditional data mining to a whole new level. Suffusing historical data with statistical algorithms enables predictive modeling to anticipate future results.
While an exciting venture, it’s important to keep in mind that predictive analytics will not tell you what will happen in the future, but what might happen.
Predictive analytics leverages data mining, predictive modeling, and machine learning. When these elements are correctly incorporated, it generates informed assumptions about future states of your business, such as how long a customer will use your services before they churn out.
Four primary steps of predictive analytics include:
- Importing data
- Cleaning the data
- Developing a solid predictive model
- Integrating the model into a forecasting system
When incorporating predictive analytics into your business, its best to use a disciplined approach. You want to avoid unintentionally driving the data to an assumption. It’s important to do the homework; it can be costly to get predictive analytics going, and even costlier if you get it wrong.
When starting out, use what you know and rely on reports that have been proven winners for your business. Put controls in place to ensure your model is one you can trust. If you don’t trust your data, or have confidence in the methods you’re using, you’re more likely to ignore the results generated from predictive analytics.
Whether your business is just starting to grasp subscription data analysis, or is delving into the use of predictive analytics, keep in mind that solid data is the essential foundation of your analytical structure. When the subscription data is accurate, and your reporting methods are solid, analytics are a powerful tool to drive growth and lead your business to success.