2 things that matter most for a subscription business

A founder of a successful consumer subscription app shared this succinct nugget of wisdom about subscription businesses: only two things really matter - the cost of acquiring customers (CAC) and the lifetime value per customer (LTV). I'll throw in a third one - total addressable market (TAM).

If LTV > CAC now and in the foreseeable future, you likely have a healthy business. When you are evaluating a business, evaluate if this is achievable. When you are optimizing a business, focus on how you’ll decrease CAC and increase LTV.

Here are some examples of tactics that I have seen work well. What will work for you depends on the specifics of your business.

Some tactics for reducing CAC
  • Leverage existing customer base to attract new customers with referrals and organic virality. 
  • Try multiple acquisition channels, messages, and offerings (deals, discounts, prices etc.). Different mixes can work out at different stages of the product and market penetration. 
  • Invest in free acquisition channels like content/SEO. 
  • Resurrect old churned users and leads.

Some tactics for increasing LTV
  • Increase average revenue per customer (ARPU) by offering more services for a higher tier plan or price. 
  • Convert free users to paid more effectively. Try multiple channels, messages, and offerings. 
  • Increase customer lifetime by building a product that's effective and engaging. Don't take existing users for granted - earn them every week and month. Auto-renewal and employing ethical and non-annoying ways to avoid cancellations can help too.