10 Factors To Consider When Evaluating Consumer Subscriptions

It’s much easier to build a subscription business that draws on an existing recurring consumer behavior, instead of trying to create a new recurring behavior. As a result, some categories of consumer spend just lend themselves more naturally to a subscription business than others.

Subscription gross profit: To calculate the annual subscription gross profit, take the annual revenue per subscriber and subtract the cost of goods sold (COGS). If the average monthly subscription for the business is $10 per month, for example, with $5 in monthly COGS, the annual subscription gross profit is $60.

Conversion from Free Tier or Trial to Paid Subscriber:

Many subscription businesses offer a free tier, or a free or paid trial, to enable consumers to try out the experience before becoming a paid subscriber. A critical factor for subscriptions therefore becomes the conversion rate from the free tier or trial to paid customer.

Payback Period on Customer Acquisition Costs

Attachment and Bundling Potential for Act II, III, and Beyond

Cohort retention: The first is customer retention, which shows the % of customers that remain subscribers in every cohort. The second is revenue retention, which shows the % of revenue in each cohort that remains the longer the cohort stays active. Ideally, revenue retention should be higher than customer retention, because subscribers that stick a... See more