As a software subscription or SaaS business, there are various metrics worth keeping an eye on depending on your business model. Some businesses may need to pay more attention to their marketing efforts and customer satisfaction levels, while others might focus more on the number of customers that are converting from a free trial to long-term paid subscribers.
This article will guide you through the most essential subscription service metrics you should be tracking to increase your free trial sign-ups. It will also provide you with information on how to calculate them, as well as some ways to improve them.
6 Metrics You Should Track to Measure the Success of Your Free Trial Sign-ups
Free Trial Sign-ups
Free trials make it easy for potential customers to experience your software or service before committing. They allow them to try for themselves and determine whether it fits their needs before making a buying decision. This is always the first step of the sales cycle.
Free Trial Sign-up = (Number of Users who Signed up for Service after using the Free Trial / Total Number of Free Trials) x 100
Trial sign-ups allow you to measure how your first-touch marketing efforts are performing. That’s why you need to utilize a conversion funnel that tracks how many people convert into trial users and paying customers.
Trial Conversion Rates
Your trial conversion rate is the percentage of trial users that become paid customers after their free trial. This metric helps you determine if your product offers real value to your customers and if they would be willing to pay for it. The higher your trial conversion rate, the faster your growth, and the lower your customer acquisition cost.
Trial Conversion Rate = (Number of trial-to-paid users / Number of trial users) x 100
Keeping track of your conversion rate from trial users to customers lets you evaluate not just the success of your sales pitches, but also the software itself. If your trial conversion rate falls below the average, you should figure out the common conversion activities (CCA) i.e. the things that all or most paying customers do during their trial.
Email Click-through Rate (CTR)
The click-through rate is the number of times a link is clicked on from an email. The click-through rate for subscription services is an essential metric for your marketers to understand how subscribers engage with your emails. It can also help you improve your standing in search engine rankings.
Email CTR = Number of clicks / Total Number of Emails Delivered
According to MailChimp, the average email click-through rate across industries is 2.62%. The CTR for emails is determined by the subject line, the email content, and the sender’s name. The subject line should be short and concise, with a clear call to action. The content should be written in a professional tone and use persuasive language.
The percentage of visitors who left your site without performing any actions is called a bounce rate. A bounce rate above 56% to 70% may not necessarily mean your site is performing badly. However, it could be an indication of a problem that needs to be fixed.
Bounce Rate = (Total number of single-page visits (Bounces) / Total number of entries to a website (Sessions)) x 100
When a visitor leaves your site from what appears to be a “bounce” or one-page visit without action, it could simply mean that the person was not the target audience for your website. It could be because the website content wasn’t engaging. Another problem could be weak or irrelevant sources of traffic or landing pages that aren’t optimized for conversion. Some common problems include using poor design, low usability, or high load times.
Customer Acquisition Cost
Most subscription businesses depend on repeat customers, so they invest heavily in acquiring new customers. This high investment can be seen as a risky move because it is not clear how many of these new customers will become loyal and stay on past their trial period.
The customer acquisition cost (CAC) for subscription businesses is the total cost of acquiring a customer, including marketing and sales expenses. CAC is the most important metric when assessing if your marketing effort is working. The customer acquisition cost measures the amount of money spent to acquire a customer and shows you which campaigns are truly paying off.
Customer Acquisition Cost = All Marketing Expenses / Number of Customers Acquired
According to research done by Invesp, it costs 5 times more in marketing expenses to attract a new customer than it does to keep profitable ones. We all know the customer acquisition process is expensive. If you want to focus on getting more customers, it is important to make sure your CAC will allow for profit.
Return on Ad Spend (ROAS)
To determine the effectiveness of your advertising campaigns, you should track your return on ad spend (ROAS). It measures the success of specific marketing efforts and informs smart ways to manage your ad budget. If your ROAS is decreasing, that is a sign to start testing new channels and ads or invest in a UX audit. Having a high ROAS indicates that you should invest more in an ad or series of ads.
ROAS = Total Revenue Generation from Ad / Attributed Ad Spend
A good ROAS rate is influenced by your profit margin, expenses, and the overall health of your business. A common ROAS benchmark is 4:1 (e.g., $4 in revenue to $1 in ad spend). Start-ups without enough cash or those looking for revenue growth may need to invest in higher benchmark margins, while online eCommerce stores can afford advertising costs.
Other metrics you could consider tracking:
The key to building a great subscription business is retaining subscribers. The churn rate is the percentage of your customers or subscribers who cancel or don’t renew their subscriptions during a period of time, such as a month or a year. The churn rate is an essential metric for telecommunications, SaaS, or other subscription-based companies. Regardless of your MRR, if your typical customers do not stay around long enough for you to recover your average direct customer acquisition cost, you’re in trouble.
Customer Churn Rate = (Lost Customers for a Given Time / Total Number of Customers for that Period) x 100
Calculating your churn rate provides clarity on how well your business is retaining customers, which is a reflection of the quality of the service the business is providing, as well as its usefulness. It will also indicate that you need to understand why your clients are leaving and where to fix your business. For your business to experience growth, you must ensure that your new subscriptions are higher than the subscriptions lost in a particular period.
Monthly Recurring Revenue (MRR)
The monthly recurring revenue is an ROI-related metric. While the above metrics are conversion-improving, they do not accurately track your position in terms of revenue. Monthly recurring revenue (MRR) is your repeatedly-occurring monthly revenue amount, which is common with SaaS and subscription companies.
Monthly Recurring Revenue = Number of Monthly Subscribers x Average Revenue per User
By measuring how much revenue your company can muster, MRR provides tangible insights that help you decide what efforts you can put to grow your business. The MRR keeps track of periodic trends and insights on the financial performance of your business, which will help you determine your progress toward an annual revenue quota. By analyzing your monthly financial performance, you can predict the next month’s revenue and propose changes in your sales strategy to increase revenue.
What do your customers do after they’ve been using your software for a while? They may stop using it and increase the churn rate or they may choose to stay and upgrade. They may purchase a new license to use the premium version if they like your software. The upgrade rate is the percentage of people who have upgraded to a later version of a software product.
Upgrade Rate = Number of Subscription Upgrades or Renewals / Total number of Upgradable or Renewable Subscriptions
The upgrade rate is one of the most important metrics for a software company to track. This metric can help you understand how satisfied their customers are with the latest version of their product and what they need to focus on in future updates for more customer satisfaction. Upgrades are not just a source of revenue; they reveal how satisfied the customers are with your product.
Evaluating your subscription metrics in terms of acquisition, growth, and re-engagement will not only allow you to understand where your SaaS business is, and what it is doing but will also provide the opportunity for adjustments when needed.
Working with a CRO agency can your business increase its software trial sign-up rates and drive more recurring revenue.
At this point, you should schedule a free CRO discovery call to figure out the best ways to increase your subscriptions and generate more sign-ups.