Each year when I visit the doctor for my annual physical, the blood test results come back in a multi-page report detailing blood cells, cholesterol, liver enzymes, and more. A human body requires dozens of interconnecting systems to work properly and be healthy. Same with subscription programs.
Subscription programs often reach out to me when they’ve hit an invisible ceiling. They reach a barrier that prevents their subscription program from growing. Even though they may have enjoyed a fast growth rate for months or years, when their membership reaches a certain point, they never seem to be able to push through. At that point, when they add new members, it just seems to increase the rate at which members quit.
Often this ceiling is evident for many years before someone reaches out to me. It’s a shame anyone waits as long as they do — I could save them a lot of frustration.
Like a physician uses blood test results to guide his patient diagnosis, I use four subscription key performance indicators to diagnose the fastest ways to grow membership programs.
Phase 1: Generate leads
KPI: Cost per lead (CPL)
Your new member journey begins by creating leads. These are individuals who respond to your marketing by asking for more information. It could be by opting in to a web form for an email list, responding with a form by mail, or dialing into a call center. You calculate the cost per lead by taking the total amount of money you invest in generating leads divided by the number of leads.
There are two membership-limiting common mistakes in calculating the cost per lead. First is failing to factor people’s time and energy into the CPL. Sure, you can create an aggressive content marketing program to build relationships and generate leads. However, marketers seldom include the cost of article writing, speaking, and performing on webinars into the CPL calculation. Often, lead generation techniques that appear on the surface to be more expensive, such as direct mail or telemarketing for leads, are actually more efficient at generating leads when including the labor costs associated with other lead generation techniques such as social media publishing, speaking, and …networking.
Secondly, most marketers focus on lowering cost per lead, and there’s a visceral reaction to stop once the CPL increases to some physiological high point. As your subscription grows, you’ll need to invest more marketing to continue your lead flow. More of your prospects are becoming customers, and you’ve got to work harder to convince the non-members to join. Instead, consider how you can increase your retention to enable you to invest more in marketing, and freezing out your competition by dominating the market with your message.
Phase 2: Turn leads into buyers
KPI: Cost per acquired customer (CAC)
A close cousin of CPL is the cost per acquired customer or CAC. Again, too many marketers waste a lot of psychological energy trying to force CAC lower when their membership would grow faster, they’d eliminate competitors, and also be a lot happier if they were willing to allow marketing spend to increase the flow of customers.
CAC is calculated by adding your lead generation marketing with any sales conversion expenses, and dividing it by the number of new customers generated during a certain period.
Phase 3: Convert first-time buyers into a subscription renewal
KPI: First term member value
Once you acquire a new customer, the first renewal is the most difficult. For memberships with free trials, I prefer to calculate the first conversion period at 3–5 months. Calculate the average spend of all new members during the first renewal period to determine the first term member value. This helps you measure the money. The cancelation numbers or renewal rates can be deceptive. Always follow the dollars.
Phase 4: Retain subscribers to grow a vibrant tribe
KPI: Lifetime member value (LMV)
Finally, it’s important to measure how long your customers are keeping your subscription. The single most important factor is the lifetime member value. When this number grows, you are increasing the value each member generates for your membership. In the end, this is the number you get to put in your pocket.
For most growing subscription programs, lifetime member value must be three times CAC. This ensures you have enough margins to scale your subscription business and grow.
Use these numbers to determine the heath of your subscription program. If you need help calculating these numbers from your information, or would like me to review your numbers to identify quick win areas to bust through the membership ceiling to scale your membership, I’m happy to speak with you. Just reach out by requesting a complete assessment at www.RobertSkrob.com/membership.
And do yourself a favor, don’t wait too long. I can help you grow a lot faster if you call before you hit the ceiling. Helping subscriptions grow is what I do. Let’s make sure there’s no lid on your growth.
About Robert Skrob
