This has become the engine that has grown much of the world in some sense. Monthly subscriptions are now a factor of nearly everyone's life as well as many businesses. Let's look at this metric a bit more deeply and see what we can see.
One of the most important SaaS (Software-as-a-Service) metrics is Monthly Recurring Revenue (MRR), which is the total amount of recurring revenue that a SaaS business generates each month from its subscription-based customers.
MRR is important because it provides a clear and consistent view of a SaaS business's revenue streams, allowing the company to track its growth over time and make informed decisions about investments in product development, sales, and marketing. By measuring MRR, a SaaS business can identify trends and patterns in its revenue and customer base, allowing it to identify potential areas of growth or areas where it needs to improve its offerings to retain customers.
In addition to MRR, there are other important SaaS metrics such as Customer Acquisition Cost (CAC), Customer Lifetime Value (CLTV), and Churn Rate, which all play a crucial role in understanding and managing the growth of a SaaS business. However, MRR is often seen as the foundational metric for SaaS businesses, as it reflects the recurring revenue that drives the long-term success and sustainability of the business.
This SaaS pricing and margin model does a great job at letting you configure various subscription-based customer attributes and test the IRR of a given configuration when adjusting key CaC / pricing / retention variables while holding all else equal.
If you run a SaaS business, you will need to understand how to do a cohort analysis.
What is Monthly Negative Churn
This is sort of a new metric for SaaS companies. All it means is the business earns more money from retained customers over a given period then the money you lose from those that cancel in the same period. This is primarily done via upsells and existing customers spending more over time on average.
For example, let's say a SaaS company has 100 customers who each pay $100 per month, generating $10,000 in monthly recurring revenue (MRR). In the next month, 5 customers churn and cancel their subscriptions, reducing the company's MRR to $9,500. However, in the same month, the remaining 95 customers upgrade their plans or purchase additional products, generating an additional $600 in revenue. In this scenario, the company has negative churn, as the revenue generated by the existing customers who upgraded or added products is more than enough to offset the lost revenue from the churned customers.
Negative churn is a sign of a healthy and growing business, as it indicates that the company's existing customers are finding value in the product and are willing to spend more money to get additional benefits. Companies that are able to achieve negative churn often have a high customer lifetime value (CLTV) and are able to sustain long-term growth and profitability.
What Was the First Subscription Business in History?
It's difficult to pinpoint the exact first subscription service business in history, as there have been many examples of businesses using subscription models throughout history. However, one of the earliest and most well-known subscription-based businesses was the book lending library, which began to emerge in the 17th and 18th centuries.
In these libraries, customers would pay a subscription fee to borrow books on a regular basis. For example, in 1731, the first lending library in the United States was established by Benjamin Franklin in Philadelphia. Members paid an annual subscription fee to borrow books from the library's collection.
While book lending libraries are often cited as early examples of subscription-based businesses, there were likely other subscription-based models in various industries throughout history. Today, subscription-based businesses are commonplace and can be found in industries such as entertainment, software, and retail.
Primary Types of Monthly Subscription Businesses
- SaaS (Software-as-a-Service) subscriptions: This model provides access to cloud-based software applications on a subscription basis. Customers pay a recurring fee to access the software, which is typically updated and improved over time. SaaS subscriptions are popular in industries such as project management, customer relationship management, and accounting.
- Media subscriptions: This model provides access to digital content such as news, music, and video on a subscription basis. Customers pay a recurring fee for access to the content, which is typically updated on a regular basis. Examples of media subscriptions include Netflix, Spotify, and The New York Times.
- Product subscriptions: This model provides access to physical products on a subscription basis (Product-as-a-Service). Customers pay a recurring fee to receive a regular shipment of products such as cosmetics, snacks, or razors. Examples of product subscriptions include Birchbox, Dollar Shave Club, and Blue Apron.
- Membership subscriptions: This model provides ongoing entry to things like clubs or entertainment areas such as a private golf course, fitness center, car wash, or even access to perks or discounts on a subscription basis. Customers pay a recurring fee to access benefits such as free shipping, early access to sales, or exclusive content. Actual examples of membership subscriptions include Amazon Prime, Costco, Planet Fitness and Patreon.
