4 Steps To Get Started with Performance Metrics
Subscription model eCommerce requires an analytical approach. This is often the biggest challenge facing people starting out in the business. Understanding your business’ performance metrics is the key to success in this space.
Adam Pivko, Lime Light ’s Director of Client Management & Anti-fraud Specialist has put together the four key performance metric steps for getting started in the eCommerce subscription business.
Our most successful clients spend the majority of their time looking at their performance metrics. In the subscription eCommerce business, you’re not really interacting with your customers, you’re not even interacting with many of your partners or vendors. You’re spending the majority of your time watching specific statistical trends. For example, you may analyze retention rates of your customers, your average billing cycles, or your quick cancel rates by an Affiliate. All of this different analytics determine if your business is successful or immediately flawed.
Step One: Determine Your Important Goal Metrics
There are a number of foundational Metrics & KPI’s you should understand to run a successful subscription eCommerce business. Understanding these concepts will ensure you have a good handle on what is driving your business and revenue. These four are a good starting place.
Top 4 subscription eCommerce metrics to get you started:
- Affiliate traffic quality – This metric is not only ultra-important when getting started, it is pivotal to the on-going success of your subscription business. Buying traffic from various sources, or an Ad Network with many affiliates is a great way to get started. Ensuring you know the traffic quality you are receiving over time is the key to success. Make sure you are monitoring this traffic not only for fraud rates, but stickiness, up-sell ability, and proper demographics/targeting. You can also try multiple ad-networks and/or get a referral for ones in the vertical you are targeting.
- Rebill conversion rate: This is the rate of conversion after initial bill, calculated by dividing Rebill Orders / Initial Order. This is also referred to as Trial Conversion Rate or Trial Stick Rate. This metric is also indicative of the quality of the traffic you are getting. When first getting started, you’ll want over 50% to rebill, but the best campaigns are over 70%.
- Speed refunds / Quick Cancels / Churn Rate – This is a general term for how fast your customers decide they don’t want a trial or cancel prior to the first rebill. If this number starts to skyrocket, there could be issues within your business or with your product/service. Additionally, keeping an eye on your Refund Rate overall is important. As a ballpark figure, under 12% is ideal.
- Call Center KPIs – Monitoring your customer service key performance indicators are an important driver of success or failure. Call pick-up time length could be the difference between a save, refund or a chargeback. Be sure to stay on top of things with this vendor or in-house team and speak up when not happy.
Step Two: Analyze Your Numbers
Now that you’ve figured out your goal metrics, it’s time to optimize how you’re making money. Where is the money coming from? Where is it being spent? In this industry every single partner chips away at your margins. You’ll want to get a good handle on all the details and what’s affecting your profit margins.
After a month or two you’ll understand where your costs are and what your actual profit margin is. This is the ultimate ‘proof in the pudding’, are you making money or not? The details will also tell you how much risk you’re taking to make money. Successful subscription model business owners understand you must spend money to be successful in this space. The key is knowing enough about your business to balance the risk versus the reward.
Balancing risk versus reward is a vital part of success in this industry. Continuously analyzing performance metrics is the key to unlocking the right balance for you.
Spending the first month or two learning the nuts and bolts of your business metrics will pay dividends as you move forward.
Step Three: Watch & Learn
Once you are sailing along smoothly, and the ball is rolling down the hill, the risk/reward balancing gets bigger and bigger and bigger. You are likely now coming around to your third month of being in business. The key to making it past this stage is ensuring all your bills, vendors, banks and partners are being paid. The worst thing you could do at this point would be to strain the relationships which have gotten you this far. Let the business flow without making any major changes. This will give you the statistically significant data you need to move to the next stage of optimizing your business for the long term.
Step Four: Optimize Your Business
Once you’ve collected your business data for a few months, it’s time to analyze your business metrics. All along your value chain, there are partners eating away at your profit share. You’ll want to tweak your numbers to specifically enhance better margins through all of your different partners.
Most businesses in this space don’t have the kind of resources you find in retail or restaurant based business, where your most expensive costs are your labor. When it comes to the subscription model business, your most expensive costs are actually the partners and services you use to run your business. For example, if you partner with ad networks, spending money on your CPAs is very expensive. Additionally, fighting chargebacks is extremely expensive. Now is also a great time to investigate anti-fraud providers or chargeback fighting services. Some chargebacks can take as long as 90-days from initial transaction to being reported. Signing on one of these services now means you will have time to proactively address any growing trends. Having your important business data on hand and understanding how your margins are impacted, ensures you are budgeting correctly.
Now that your business is cruising, there are a lot of additional key metrics you can start to track and monitor. For example, knowing your processing costs and the processing amount you need in your bank account, guarantees you have the funds to ensure your processing fees don’t bounce and your MID(s) don’t get shut down. It’s a balancing act of having just enough money where it needs to be so you’re prepared to keep your business running smoothly.
Remember, the key to ongoing performance metrics success is setting you up right from the start. You cannot improve on what you cannot track or report on. Lime Light’s robust analytics platform is a great place to start. Don’t waste time doing those calculations yourself, leverage our experience, knowledge and existing reports to keep a pulse on your numbers and find areas for improvement in your continuity business.
Four Steps for Performance Metrics Success
Step One: Determine Your Critical Metrics
Spend the first month understanding your critical numbers and setting goal metrics
Step Two: Analyze Your Numbers
Understand where you are leaking money and where you can find additional efficiency to increase margins
Step Three: Watch & Learn
Once you have everything set up, spend a month or two letting your business run so you gather the necessary data needed for good analysis and optimization.
Step Four: Optimize, optimize, optimize
Understanding your margins, monitoring your supply chain costs and being vigilant on your cash flow is a vital practice that direct impacts your profits and ensures you are getting the most out of your business.