The subscription business model is a business model in which a customer incurs a recurring cost at regular interims for access to a product. The model was spearheaded by distributors of books and periodicals in the seventeenth century and is presently utilised by numerous businesses and websites. The slides give a basic understanding of the Subscription Business Model, and the key metrics which are involved with it. It also contains a case study of Netflix, which uses this Business Model, and it's related metrics.

1. SUBSCRIPTION
BUSINESS
MODEL
ADARSH SRIVASTAVA
Created By:

2. ORGANISATIONS USING SUBSCRIPTION MODEL

3. WHAT ?

4. WHAT IS SUBSCRIPTION MODEL?
• Charges customers a recurring fee — typically
monthly or yearly — to access a product or
service
• Focus on customer retention rather than
customer acquisition
• Revenue generated through recurring revenue
model
• According to a a research in 2019 for past five
years,
• CAC are up more than 50%
• Willingness to pay for software has
declined

5. PROS AND CONS
https://www.moonclerk.com/subscription-business-model-pros-vs-cons/
• Risk of High Churn
• Difficulty Maintaining Value
• Small Hiccups Become Big Problems
• Predictable Income
• Good Customer Relationships
• Good Vendor Relationships
• Potential for Untapped Markets
• Lower Budget for Customer Retention
ADVANTAGES DISADVANTAGES

6. TYPES OF
SUBSCRIPTION
BUSINESS
MODEL

7. STREAMING SERVICES
• Most well-known examples
• Monetise content and showcase their value through the entertainment experience
• Value-based pricing

8. SUBSCRIPTION BOXES
• Defines the process of shopping for consumer goods, like clothing and personal hygiene
products
• subscription pricing is combined with the strategic use of data and personalisation to develop
the strong customer relationships
• It monetises convenience for their customers

9. FOOD SERVICES
• Type of convenience-based subscription model
• Provides access to niche products like selections catered toward different types of diets, like
vegan meal, vegetarian meal, gluten free diet
• Eg: Blue Apron, HelloFresh

10. KEY
METRICS
https://docs.google.com/spreadsheets/d/1
-
0feNhO88SZHoy38ecoGh93SCTzNAhkTw4u
6Bm48hUg/edit?usp=sharing

11. CHURN RATE
• How many subscribers were lost due to voluntary churn?
• How many subscribers were lost involuntary churn?
• Given the different causes for these two types of churn, where do I need to focus my customer
retention efforts?
The percentage rate at which customers /
consumers stop subscribing to a service.

12. TYPES OF CHURN
Voluntary Churn
When the customers make the choice to
leave the product/service
Involuntary Churn
When the customers are forced to
discontinue product/service

13. CHURN RATE (contd.)
ExistingCustomers who churned by the end of a month + New Customers who churned
Customers at the beginning on the month

14. • Voluntary Churn
• Involuntary Churn
• Factors for Churn
• ReduceVoluntary Churn
• Reduce Involuntary Churn
https://docs.google.com/document/d/1
7ekfD6bY6ZxzrC4FxMUhTjvGu3kfxQa
3DwI-d2X_g5E/edit?usp=sharing
CHURN RATE (contd.)

15. KEY METRICS
MONTHLY RECURRING REVENUE (MRR)
MRR = Sum of all recurring revenue for the month, including gains and losses
• When compared to previous months, what is the growth trajectory of my business?
• How is customer acquisition or churn impacting my revenue?
AVERAGE REVENUE PER CUSTOMER (ARPC)
ARPC = Total revenue for the month / Subscribers contributing to that revenue
• If my ARPC is decreasing, are my customers likely to churn?
GROSS MARGIN PERCENTAGE (GMP)
GMP = (Subscription revenue - cost of goods or services) / Subscription revenue
• How much money do I have to reinvest back into my business?
• Are price points set appropriately based on costs?

16. KEY METRICS
CUSTOMER ACQUISITION COST (CAC)
CAC = Costs spent acquiring new customers / Customers acquired in the period the money was
spent
• How effective are my sales and marketing efforts?
• When combined with CLV, am I spending too much to acquire customers in relation to what
they’re worth?
• Can I monetise customers at a higher rate than it takes to acquire them?
• How long will it take to achieve payback and what are the implications to capital?
TRIAL CONVERSION RATE (TCR)
TCR = Subscription trials started in month X that convert to paying customers / Subscription
trials started in month X
• How effective is my free trial program at converting those users to paid customers?
• When combined with the LTV of trial subscribers that converted to paid, how successful is my
trial at producing valuable subscribers?

17. KEY METRICS
CUSTOMER LIFETIME VALUE (CLV)
CLV = (ARPC × GMP) / Churn rate
• Who are my most valuable customers and my least valuable customers?
• How much money should I spend to acquire new customers and still maintain profitability?
• How much money should I spend to support and retain a customer?
PAYBACK PERIOD
• How long it takes to recoup the costs of acquiring a new customer.
A general guideline is to keep payback at or under 12 months.
The longer the payback time, the more capital will be required to grow your business.
LEAD VELOCITY RATE (LVR)
Lead velocity rate indicates your effectiveness at attracting new customers.
LVR = (Difference in qualified leads between months / number of qualified leads in last month)
X 100

18. CASE
STUDY
https://medium.com/@NetflixTechBlog

19. BUSINESS MODEL CANVAS

20. HOW DOES NETFLIX MAKE MONEY?
https://fourweekmba.com/how-does-netflix-make-money/

21. HOW DOES NETFLIX MAKE MONEY?

22. CUSTOMER ACQUISITION METRICS

23. IMPORTANT FOR CUSTOMER ACQUISITION

24. AVERAGE REVENUE PER SUBSCRIBER METRICS

25. LIFETIME VALUE OF SUBSCRIBER METRICS

26. GROSS PROFIT PER SUBSCRIBER METRICS

27. ENHANCING
GROWTH

28. BUSINESS TIPS
• Determine Goals at Initial Stage
• Boost Acquisition with better Experience
• Streamline Billing Process
• Form strong bonds with Customer
• Plan for growth before it starts

29. THANK
YOU