One of the greatest challenges of having a business based on a subscription model is figuring out exactly what the business is worth.
The subscription business model is growing exponentially and, as a result, almost every industry is preparing for a different way of dealing with customers. Enormous advantages await those that get it right.
it provides the businesses with stable cash flow. What you get is a stable cash flow and a relatively stable set of customers.” What you also get is much greater familiarity with customers. This offers valuable, real-time insight into how your business is doing in the market.
With a subscription model, you can accurately track who the customers are. You can see who the repeat customers are and what they like to purchase. This is an incredibly important management tool
that subscription offers them more choice and freedom to consume goods and services on their own terms. A Netflix subscription can be set up to run for as long as the user likes and, at the same time, its AI function gets to know the viewer’s taste in TV shows and movies.
How does a business manager work out the lifetime subscriber value in a financial environment in which most accounting rules have been shaped around the ownership model?
measure the average duration for which a customer stays with your business in months. One over the monthly churn rate gives you the average duration. For a 2 per cent churn rate, the duration is 1/0.02 = 50 months. Next, measure the average monthly revenue per user (ARPU) and subtract direct operating cost, or average cost per user (ACPU), from it. This isn’t about all costs, including R&D and other forms of investment.
The rate at which subscription-based businesses grow revenue, compared with the S&P 500.
Companies that average one change per subscription per year, meaning a choice of pricing plans, and the ability to move between them to upgrade or downgrade to suit current needs, is a big driver of growth.