Whether you are starting a gym where members pay monthly or if you are selling a product that gets shipped out each month, running a subscription based business has a unique set of planning. Subscriptions can be any product or service where the customer will keep getting billed until they cancel or the agreement is done.
Subscription based businesses need to focus on what is called the average customer lifespan. This refers to the amount of time the customer is billed. If on average your customers keep a membership for 5 months, then the average customer lifespan is 5 months.
The other focus is on the customer acquisition cost. This is the cost to get one new customer. Marketing expenses generally should be categorized in the expense section. However, with subscription sales, we made it easier to plan and forecast. These costs to acquire a new customer are added to your overall expenses in the same month that you acquire the new customer. This makes it so you don't have to keep editing your overall marketing expenses as you adjust the sliders for new customers.
Using a complex equation, the software calculates the customer lifespan, customer acquisition cost, sales income, and variable expenses to give you a clear depiction of how much you are making on average per customer. This is called the customer lifetime value.
With subscriptions, the software uses averages to forecast and plan your business. So if you enter 100 new customers and a customer lifespan of 5 months, you will notice that all of the sales revenue from those 100 customers doesn't just drop off in month 6. This is because the industry uses what is called a churn rate. The churn rate is calculated using the "average customer lifespan." This means with a 5 month average customer lifespan, realistically you will have some customers cancel after the 1st month, some the 2nd, and so on. You will also have some customers who stay for 10 months or more. This is why it is based on an average because not all customers are the same. This is why you will generally see the revenue from your subscription slowly declining month to month.