Some metrics complement each other.
In our previous blog article, we made a brief introduction to the subscription business model to share a general perspective and understanding of it. After discovering its main elements, examples, and why it’s valuable for companies and apps; let’s dive a bit deeper into this business model. In this post, we will discover the main dynamics and terms of the subscription business, how they create a deeper understanding and a structured business perspective for companies.
The subscription business has two main components. One of them is the Acquisition Cost and the other one is Lifetime Value.
Customer Acquisition Cost (CAC)
CAC simply states the cost of getting new customers or users for your service… It is basically calculated by dividing the total amount of money spent on gathering new customers (or users) to new customers acquired during the same period.
“Any action requires rigorous testing, comparison optimization according to your results.”
CAC varies depending on the marketing channels you spend your money on, as well as countries, demographics, etc. and this is where you need marketing expertise the most.
Any action requires rigorous testing, comparison optimization according to your results. This series of actions need focus and expertise which is only possible with a highly skilled and dedicated team, which might be difficult to put together if you are only starting with your activity and not generating enough revenue to cover these costs.
Knowing what you spend and how you spend is a great place to start but there’s another metric you need. And you guessed it, it is your revenue; or in subscription business lingo: lifetime value.
Lifetime Value (LTV)
This term means basically what it says: it represents the value that a user brings through his/her time with your app. As you might have guessed, the longer the user stays with you, the bigger the value.
“The only reason Netflix spends billions of dollars for new content is…”
For example, a Netflix user’s average lifetime value is around $290, which means an average Netflix user stays around a year... The only reason Netflix spends billions of dollars on new content is to convince its users that there will always be great content on the platform, and therefore they should stick around just a bit longer to access it.
LTV shows you the revenue of a single customer and helps you project the revenue of the entire company for any given period, which is very handy for making on-point predictions, and knowing where you’re standing in terms of business. Just like the CAC, your LTV will depend on the country you are marketing your product in; as well as the socio-economic status of your users which can be guessed from the acquisition channels, and devices, etc.
“iPhone users are more ready to spend than Android users…”
A basic example is that iPhone user are more ready to spend than Android users: Android has 2.5 billion users worldwide against IOS’s 1 billion users but IOS generates almost x2 revenue overall…
If you break down your payment process and analyze it with these two metrics; it will be very easy to form a marketing roadmap and find the way to profitability.
Thankfully you are not alone in this journey. This is exactly what Cherry does: we perform a very deep and thorough analysis from both perspectives, uncover improvement areas both for CAC and LTV, and then deploy both our expertise and war chest to unlock the full potential of your app.
A very recent example is about LTV: after reviewing the app and its pricing, we have deployed new packages and were able to double the LTV in just a month.
We believe in numbers, optimization, and monetization strategies, and our efforts pay off, thanks to the apps that came from brilliant ideas built by app developers.
There are still great apps out there, waiting to be discovered. And your app may be the next one.
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So, if you are interested and would like to know more,
please drop us an email: “hello@getcherry.app”
Unlock The Full Potential Of Your App