Cost Per Subscription: CPS: Explore strategies to reduce churn and retain subscribers by analyzing CPS data

1. What is CPS and why is it important for subscription-based businesses?

subscription-based businesses rely on recurring revenue from their customers, who pay a fixed amount periodically to access a product or service. However, not all customers stay loyal and some may cancel their subscriptions, resulting in churn. Churn is the percentage of customers who stop subscribing to a business over a given time period. Churn can have a significant impact on the profitability and growth of a subscription-based business, as it reduces the customer lifetime value (CLV) and increases the customer acquisition cost (CAC).

To measure and optimize the performance of a subscription-based business, one of the key metrics to track is the cost per subscription (CPS). CPS is the average amount of money spent to acquire one new subscriber. It is calculated by dividing the total marketing and sales expenses by the number of new subscribers acquired in a given time period. CPS reflects how efficiently a business can attract and convert potential customers into paying subscribers.

CPS is important for subscription-based businesses for several reasons:

1. It helps to evaluate the return on investment (ROI) of marketing and sales campaigns. By comparing the CPS with the average revenue per user (ARPU) and the CLV, a business can determine whether its marketing and sales efforts are generating positive or negative returns. A low CPS indicates that a business is spending less to acquire more subscribers, while a high CPS indicates that a business is spending more to acquire fewer subscribers.

2. It helps to identify the most effective channels and strategies for customer acquisition. By tracking the CPS for different channels and campaigns, such as email, social media, webinars, referrals, etc., a business can discover which ones are delivering the best results and allocate its resources accordingly. A business can also test and optimize different aspects of its marketing and sales funnel, such as the landing page, the offer, the pricing, the payment method, etc., to lower the CPS and increase the conversion rate.

3. It helps to reduce churn and retain subscribers by analyzing the CPS data. By segmenting the subscribers based on their CPS, a business can identify which segments are more likely to churn and which ones are more loyal. A business can then tailor its retention strategies and tactics to each segment, such as offering incentives, discounts, rewards, feedback, support, etc., to increase the customer satisfaction and loyalty. A business can also use the CPS data to predict the future churn rate and take proactive measures to prevent it.

By tracking and optimizing the CPS, a subscription-based business can improve its customer acquisition and retention, increase its revenue and profitability, and achieve sustainable growth. CPS is a vital metric for any subscription-based business that wants to succeed in the competitive and dynamic market.

2. How to calculate CPS and benchmark it against industry standards?

One of the most important metrics for subscription-based businesses is the cost per subscription (CPS), which measures how much it costs to acquire and retain a customer for a given period of time. CPS can be calculated by dividing the total cost of acquisition and retention by the number of subscriptions in that period. For example, if a company spends $10,000 on marketing and customer service in a month and has 1,000 subscribers, its CPS is $10.

CPS can vary widely depending on the industry, the product, the customer segment, and the business model. Therefore, it is essential to benchmark CPS against industry standards and competitors to evaluate the performance and profitability of a subscription business. Benchmarking can help identify the strengths and weaknesses of a business, as well as the opportunities and threats in the market. Some of the benefits of benchmarking CPS are:

- It can help optimize the marketing and retention strategies by comparing the effectiveness and efficiency of different channels, campaigns, and tactics.

- It can help improve the customer experience and loyalty by understanding the needs, preferences, and behaviors of different customer segments and personas.

- It can help increase the revenue and profit margins by finding the optimal pricing and packaging for different products and services.

- It can help innovate and differentiate the value proposition by discovering the gaps and niches in the market and the customer expectations.

To benchmark CPS effectively, a subscription business should follow these steps:

1. Define the scope and objectives of the benchmarking process. For example, what is the purpose of the benchmarking, what are the key performance indicators (KPIs) to measure, what are the time frames and frequencies to compare, and what are the sources and methods to collect and analyze the data.

2. Identify the relevant industry standards and competitors to compare with. For example, what are the industry averages and ranges for CPS, what are the best practices and benchmarks for similar products and services, and who are the direct and indirect competitors in the market.

3. collect and analyze the data and information from various sources and methods. For example, what are the internal and external data sources to use, such as financial reports, customer surveys, web analytics, social media, etc., and what are the quantitative and qualitative methods to apply, such as descriptive statistics, trend analysis, SWOT analysis, etc.

4. Evaluate and interpret the results and findings from the data analysis. For example, what are the similarities and differences between the business and the industry standards and competitors, what are the strengths and weaknesses of the business, and what are the opportunities and threats in the market.

5. Implement and monitor the action plans and recommendations based on the benchmarking results and findings. For example, what are the specific and measurable goals and targets to achieve, what are the action steps and resources to allocate, and what are the feedback and evaluation mechanisms to track and measure the progress and outcomes.

By following these steps, a subscription business can calculate and benchmark its CPS and use the insights and learnings to reduce churn and retain subscribers by analyzing CPS data. For instance, a subscription business can use CPS data to:

- segment and target the customers based on their acquisition and retention costs, as well as their lifetime value and profitability.

- test and optimize the marketing and retention campaigns based on their return on investment and impact on CPS.

- Enhance and personalize the customer journey and touchpoints based on their satisfaction and loyalty levels and feedback.

- Adjust and optimize the pricing and packaging based on the customer willingness to pay and perceived value.

- Innovate and diversify the product and service offerings based on the customer needs and expectations.

By doing so, a subscription business can improve its performance and profitability, as well as its competitive advantage and customer value.

3. Common factors that influence CPS and how to measure them

One of the most important metrics for subscription-based businesses is the cost per subscription (CPS), which measures how much it costs to acquire and retain a customer. CPS can vary depending on the type, duration, and price of the subscription, as well as the marketing channels and strategies used to attract and retain customers. By analyzing CPS data, businesses can identify the common factors that influence cps and optimize their subscription models accordingly. Some of these factors are:

- Churn rate: This is the percentage of customers who cancel their subscription within a given period. A high churn rate indicates that customers are not satisfied with the value or quality of the subscription, or that they have found a better alternative. churn rate can be calculated by dividing the number of customers who canceled their subscription by the total number of customers at the beginning of the period. For example, if a business has 1000 customers at the start of the month and 50 of them cancel their subscription by the end of the month, the churn rate is 5%.

- Retention rate: This is the opposite of churn rate, and it measures the percentage of customers who renew their subscription within a given period. A high retention rate indicates that customers are loyal and engaged with the subscription, and that they perceive a high value from it. Retention rate can be calculated by subtracting the churn rate from 100%. For example, if the churn rate is 5%, the retention rate is 95%.

- Customer lifetime value (CLV): This is the total revenue that a customer generates for the business over the course of their relationship. CLV can be estimated by multiplying the average revenue per customer by the average customer lifespan. For example, if a customer pays $10 per month for a subscription and stays with the business for 12 months, their CLV is $120.

- Customer acquisition cost (CAC): This is the total cost of attracting and converting a customer, including marketing, sales, and operational expenses. CAC can be calculated by dividing the total cost of customer acquisition by the number of customers acquired. For example, if a business spends $5000 on marketing and sales and acquires 100 customers, their CAC is $50.

By comparing these factors, businesses can calculate their CPS and evaluate their profitability and sustainability. CPS can be calculated by dividing the CAC by the retention rate. For example, if the CAC is $50 and the retention rate is 95%, the CPS is $52.63. The lower the CPS, the more efficient and effective the subscription model is. Businesses can use CPS data to:

- reduce churn and increase retention: Businesses can analyze the reasons why customers cancel their subscription and address them accordingly. For example, they can improve the quality and variety of their products or services, offer discounts or incentives for renewing, provide better customer support, or create a sense of community and loyalty among customers.

- Optimize pricing and packaging: Businesses can experiment with different pricing and packaging options to find the optimal balance between customer satisfaction and revenue generation. For example, they can offer different tiers of subscription, such as basic, premium, or deluxe, with different features and benefits, or they can offer flexible payment plans, such as monthly, quarterly, or annual, with different discounts or bonuses.

- Enhance marketing and sales: Businesses can use CPS data to identify the most effective and efficient marketing and sales channels and strategies to reach and convert their target audience. For example, they can use social media, email, or webinars to showcase the value and benefits of their subscription, or they can use referrals, testimonials, or reviews to build trust and credibility among potential customers.

By exploring these strategies, businesses can reduce their CPS and increase their revenue and growth. CPS is a key indicator of the performance and potential of a subscription-based business, and by analyzing and optimizing it, businesses can gain a competitive edge and achieve long-term success.

4. Best practices to optimize CPS and increase customer lifetime value

One of the most important metrics for subscription-based businesses is the cost per subscription (CPS), which measures how much it costs to acquire and retain a subscriber. CPS can be calculated by dividing the total marketing and retention expenses by the number of subscribers in a given period. A lower CPS indicates a more efficient and profitable business model, while a higher CPS suggests a need for improvement. To optimize CPS and increase customer lifetime value, subscription businesses should adopt the following best practices:

- Analyze CPS data to identify patterns and trends. By tracking and comparing CPS across different channels, segments, and time periods, subscription businesses can gain valuable insights into their performance and customer behavior. For example, they can identify which channels are more effective and cost-efficient in acquiring new subscribers, which segments have higher or lower retention rates, and how seasonality or external factors affect CPS. These insights can help subscription businesses optimize their marketing and retention strategies, allocate their resources more wisely, and adjust their pricing and offers accordingly.

- Reduce churn and retain subscribers by providing value and satisfaction. Churn, or the rate at which subscribers cancel their subscriptions, is one of the main factors that increase CPS and decrease customer lifetime value. To reduce churn and retain subscribers, subscription businesses should focus on providing value and satisfaction to their customers throughout their lifecycle. This can be achieved by offering high-quality products or services, delivering personalized and relevant content, providing excellent customer service and support, soliciting feedback and acting on it, rewarding loyalty and referrals, and creating a sense of community and engagement among subscribers.

- Increase customer lifetime value by upselling and cross-selling. Another way to optimize CPS and increase customer lifetime value is to increase the revenue generated from each subscriber. This can be done by upselling and cross-selling additional products or services that complement or enhance the existing subscription. For example, a streaming service can upsell a higher-tier plan that offers more features or content, or cross-sell a bundle that includes other services such as music or gaming. To increase the chances of success, subscription businesses should use data and analytics to identify the most suitable and relevant offers for each subscriber, and present them at the right time and place.

5. Case studies of successful subscription businesses that have improved their CPS

One of the most important metrics for subscription businesses is the cost per subscription (CPS), which measures how much it costs to acquire and retain a customer for a given period of time. CPS can be calculated by dividing the total cost of acquisition and retention by the number of subscribers in that period. A lower CPS indicates a more efficient and profitable business model, while a higher CPS implies a higher risk of churn and loss of revenue. Therefore, subscription businesses should constantly monitor and optimize their CPS to ensure long-term growth and sustainability.

In this segment, we will look at some case studies of successful subscription businesses that have improved their CPS by implementing various strategies to reduce churn and retain subscribers. We will analyze how they used CPS data to identify and address the pain points of their customers, and how they leveraged their unique value propositions to create loyal and engaged subscribers. We will also discuss the benefits and challenges of each strategy, and the key takeaways for other subscription businesses.

Some of the case studies are:

1. Netflix: Netflix is one of the most popular and successful subscription businesses in the world, with over 200 million subscribers as of 2020. Netflix has a low CPS of around $3.50 per month, which is achieved by investing heavily in original and exclusive content, personalizing recommendations, and offering flexible plans and pricing. Netflix uses CPS data to measure the effectiveness of its content strategy, and to optimize its spending on content production and licensing. Netflix also uses CPS data to segment its customers based on their preferences, behavior, and demographics, and to tailor its marketing and retention campaigns accordingly. Netflix's main challenge is to maintain its competitive edge and differentiation in a crowded and dynamic market, where new entrants and rivals are constantly emerging and evolving.

2. Spotify: Spotify is the leading music streaming service in the world, with over 155 million subscribers as of 2020. Spotify has a low CPS of around $1.50 per month, which is achieved by offering a freemium model, where users can access a limited version of the service for free, and upgrade to a premium version for a monthly fee. Spotify uses CPS data to evaluate the conversion and retention rates of its free and paid users, and to design and test different features and incentives to increase them. Spotify also uses CPS data to understand the listening habits and preferences of its users, and to provide them with personalized playlists, recommendations, and podcasts. Spotify's main challenge is to balance its revenue and costs, as it pays a significant amount of royalties to the music labels and artists, and faces pressure from them to increase the rates.

3. Peloton: Peloton is a fitness company that sells connected exercise bikes and treadmills, and offers live and on-demand classes and coaching through its app and website. Peloton has a high CPS of around $40 per month, which is justified by its high-quality products and services, and its strong community and brand loyalty. Peloton uses CPS data to measure the satisfaction and engagement of its customers, and to provide them with feedback, motivation, and support. Peloton also uses CPS data to identify and target potential customers who are interested in fitness and wellness, and to offer them free trials, referrals, and discounts. Peloton's main challenge is to expand its customer base and market share, as it faces competition from other fitness companies and platforms, and from changing consumer preferences and behaviors.

6. Tools and resources to help you track and analyze your CPS data

To optimize your cost per subscription (CPS), you need to have a clear understanding of your subscription data and how it relates to your business goals. You need to track and analyze various metrics, such as acquisition cost, retention rate, churn rate, lifetime value, and revenue per subscriber. These metrics can help you identify the strengths and weaknesses of your subscription model, and guide you to make data-driven decisions to improve your performance.

There are many tools and resources that can help you with this process. Here are some of them:

1. Subscription analytics platforms: These are software solutions that integrate with your subscription billing system and provide you with comprehensive dashboards, reports, and insights on your subscription data. Some examples of these platforms are Baremetrics, ChartMogul, ProfitWell, and Recurly. They can help you measure and optimize your CPS by showing you key metrics, trends, benchmarks, and actionable recommendations.

2. customer feedback tools: These are tools that help you collect and analyze feedback from your subscribers, such as surveys, polls, reviews, ratings, and testimonials. Some examples of these tools are SurveyMonkey, Typeform, Trustpilot, and Delighted. They can help you understand your subscribers' needs, preferences, satisfaction, and loyalty, and use this information to reduce churn and increase retention.

3. customer relationship management (CRM) tools: These are tools that help you manage and communicate with your subscribers, such as email, chat, phone, and social media. Some examples of these tools are Mailchimp, Intercom, Zendesk, and HubSpot. They can help you engage and nurture your subscribers, provide them with value-added content, offers, and support, and encourage them to renew and upgrade their subscriptions.

4. A/B testing tools: These are tools that help you experiment and optimize different aspects of your subscription model, such as pricing, plans, features, design, and copy. Some examples of these tools are Optimizely, VWO, Google Optimize, and Unbounce. They can help you test and compare different variations of your subscription offer, and measure their impact on your CPS and other metrics.

These are some of the tools and resources that can help you track and analyze your CPS data. By using them, you can gain valuable insights into your subscription performance, and implement effective strategies to reduce churn and retain subscribers.

7. Challenges and limitations of using CPS as a metric

Cost per subscription (CPS) is a metric that measures how much it costs to acquire a new subscriber for a digital product or service. It is calculated by dividing the total marketing expenses by the number of new subscriptions in a given period. CPS can help businesses evaluate the effectiveness of their marketing campaigns and optimize their acquisition strategies. However, CPS is not a perfect metric and has some limitations and challenges that need to be considered. Some of these are:

1. CPS does not account for the lifetime value (LTV) of the subscribers. LTV is the estimated revenue that a subscriber will generate over their entire relationship with the business. It is influenced by factors such as retention rate, churn rate, average revenue per user (ARPU), and customer loyalty. A low CPS does not necessarily mean a high profit margin if the subscribers have a low LTV and vice versa. For example, a business may spend $10 to acquire a subscriber who pays $1 per month and stays for 6 months, resulting in a CPS of $10 and a LTV of $6. Another business may spend $20 to acquire a subscriber who pays $5 per month and stays for 24 months, resulting in a CPS of $20 and a LTV of $120. The second business has a higher CPS but also a higher LTV and profit margin. Therefore, CPS should be balanced with LTV to measure the true return on investment (ROI) of the marketing efforts.

2. CPS does not reflect the quality and satisfaction of the subscribers. Not all subscribers are equal in terms of their engagement, feedback, referrals, and loyalty. Some subscribers may be more active, satisfied, and loyal than others, and thus more valuable for the business. CPS does not capture these qualitative aspects of the subscriber base and may lead to a false sense of success or failure. For example, a business may have a low CPS but a high churn rate, indicating that the subscribers are not satisfied with the product or service and are leaving quickly. Another business may have a high CPS but a low churn rate, indicating that the subscribers are happy with the product or service and are staying longer. The second business may have a more sustainable and loyal subscriber base than the first one. Therefore, CPS should be complemented with other metrics such as churn rate, retention rate, net promoter score (NPS), and customer satisfaction score (CSAT) to measure the quality and satisfaction of the subscribers.

3. CPS is influenced by external factors that are beyond the control of the business. CPS is not a static metric and can vary depending on the market conditions, competition, seasonality, and other factors that affect the demand and supply of the product or service. For example, a business may have a high CPS during a peak season when the demand is high and the competition is fierce, and a low CPS during an off-season when the demand is low and the competition is relaxed. Another business may have a low CPS when it launches a new product or service that attracts a lot of attention and buzz, and a high CPS when the novelty wears off and the market becomes saturated. These external factors can make it difficult to compare CPS across different periods, products, services, and businesses. Therefore, CPS should be adjusted for these factors and benchmarked against the industry standards and best practices to make a fair and meaningful comparison.

8. Key takeaways and action steps for reducing your CPS and retaining more subscribers

Here is a possible segment that meets your criteria:

Reducing your cost per subscription (CPS) is not only beneficial for your bottom line, but also for your customer loyalty and retention. By analyzing your CPS data, you can identify the factors that influence your churn rate and take proactive steps to improve your subscriber experience and value proposition. Here are some key takeaways and action steps that you can implement to reduce your CPS and retain more subscribers:

- Segment your subscribers based on their behavior, preferences, and needs. This will help you tailor your content, offers, and communication to each segment and increase their engagement and satisfaction. For example, you can segment your subscribers by their usage frequency, content preferences, feedback, renewal date, etc. And send them personalized messages, recommendations, and incentives that match their interests and expectations.

- Monitor your subscriber churn rate and identify the reasons for attrition. This will help you understand the pain points and challenges that your subscribers face and address them before they decide to cancel. For example, you can use surveys, interviews, or analytics tools to collect feedback from your subscribers and analyze their behavior patterns, such as open rates, click-through rates, time spent, etc. You can also track the key metrics that indicate churn risk, such as inactive subscribers, low engagement, negative reviews, etc. And reach out to them with relevant solutions and offers.

- Offer flexible and attractive subscription plans and pricing options. This will help you cater to different customer segments and budgets and increase your conversion and retention rates. For example, you can offer different subscription tiers, such as basic, premium, or enterprise, with different features, benefits, and prices. You can also offer discounts, trials, or freemium models to attract new subscribers and upsell or cross-sell to existing ones. You can also experiment with different pricing strategies, such as value-based, dynamic, or subscription-based, to optimize your revenue and customer lifetime value.

- provide exceptional customer service and support. This will help you build trust and loyalty with your subscribers and reduce the likelihood of them leaving. For example, you can provide multiple channels of communication, such as email, phone, chat, or social media, and ensure that your subscribers can reach you easily and quickly. You can also provide self-service options, such as FAQs, tutorials, or forums, to help your subscribers solve their problems or learn more about your product or service. You can also create a community of subscribers who can share their experiences, feedback, and tips with each other and with you.

- Deliver high-quality and relevant content that adds value to your subscribers. This will help you retain your subscribers' interest and attention and increase their satisfaction and loyalty. For example, you can create content that is informative, entertaining, or educational, depending on your target audience and niche. You can also create content that is timely, fresh, and updated, to keep your subscribers engaged and curious. You can also create content that is interactive, personalized, or gamified, to increase your subscribers' participation and enjoyment.