Archive | 2012

Why You Need to Know the Lifetime Value of Customer Relationships

How do you manage profitability in a subscription business? The answer: Knowing and managing the breakeven point of your customer relationships. In the Subscription Economy, the longer the customer relationship, the more profitable the business model is. In fact, in the Subscription Economy, accelerating time to the breakeven point of a customer relationship is a critical imperative because of the high cost of customer acquisition, the deferral of revenues over time, and the risk of churn. Let’s dig deeper into software-as-a-service (SaaS) for an example. Using benchmark information from Bessemer Venture Partners, Opexengine, River Cities, and others, the breakeven point in a customer relationship is on average 3.1 years in SaaS. Does that seem like a long time? More than […]

How to Calculate the Breakeven Point for Digital Subscriptions

In subscription-based business models, maximizing customer lifetime value is understood to be a key success factor to a profitable business. But how do you know at what point a customer relationship turns profitable? While there are obvious differences between customers, it turns out you can calculate your average customer lifetime to reach the breakeven point using your existing operating metrics. So how is this done? Here are the standard operational metrics known by every online service: Customer Acquisition Ratio (CACR)  – the sales and marketing costs to sign up a new customer as a ratio to revenue acquired Customer Renewal Cost ratio (CRCR) – the sales and marketing costs of closing a renewal as a ratio to revenue renewed Research […]

Why Churn is a Problem for Digital Media

At what point does churn rate inhibit growth and profit in a digital media business model?  Both in the information services and SaaS industries, a churn rate over twenty percent is problematic for the business model. In both of these industries, sustainable profits exist at around ten percent churn. In controlled circulation of print media, a twenty percent churn rate would have been difficult to sustain. In digital media, the lifetime value of audience members is a key success factor to creating a profitable business model. This research note begins to explore the dynamics of the lifetime value of a digital audience. In September of 2011, Scout Research began tracking several audiences on B2B publisher sites to understand the lifetime value of the […]

Why Data Trumps Experience in Trial Conversions

Probably one of the biggest mistakes publishers can make on converting trials is relying on experience and intuition. The art of implementing and managing trials doesn’t match the science of new data-driven techniques. Using predictive analytics to qualify trial users and focus on those that are most likely to convert can double conversion rates. In a 2012 study, the Aberdeen Group published a finding that companies using predictive analytics have a 73% sales lift versus companies that did not. In a previous note on trials, loyalty was described as a good measure for predicting conversions. This post expands on the loyalty measure to demonstrate how to implement trials scoring that increases conversions. Trial users can be measured and scored any […]