Key Metrics for subscription businesses

- [Presenter] Carmen's Bakery had been doing extremely well until she began seeing more bakeries and coffee shops pop up in the areas nearby. To keep her customers loyal, Carmen decided to create a membership club that gave unlimited coffee to customers for a monthly fee. In order to keep customers from going to other coffee shops if Carmen offered them a membership club, she felt customers would be more inclined to buy coffee from the bakery. Since the membership only covered coffee, it's likely customers would buy their morning pastry from the bakery too. When measuring performance in a subscription business like Carmen's Coffee Membership Club, there are four main stages of the customer lifecycle to consider. Activation. This is where you offer a way for customers to experience your service. Retention. This is how you provide value to your customers to keep them coming back. Revenue. Eventually, you turn these customers into paying customers. Referral. Incentivizing your customers to share with their family and friends. Each of these stages requires management, so it's important to have an easy way to measure them. My recommendation is always one quantitative metric and one qualitative metric for each area at a minimum. For the activation stage, Carmen's goal is to have people become part of the membership club. For this, an offer that's too good to be true works very well. Carmen offered her customers the first week of unlimited coffee for only $5. After the first week, the cost would go up to $30 a month, which is still very reasonable. Customers were asked to register on Carmen's website to get access to the one-time promotion. A quantitative metric we could measure would be customer signups, but it doesn't tell us whether someone actually used their coffee membership. The activation stage is about making sure Carmen's customers experience the product, in this case, their coffee. A better quantitative metric for the activation stage is activated customers. This would be the customers that paid for the membership offer and actually consume their first cup of coffee. As a qualitative metric, I'd want to know if these customers enjoyed their experience. Were the cues okay for them, or did they enjoy the coffee service? I'd use a customer satisfaction survey where I could gather these insights. My qualitative measure would be the customer satisfaction rate for activation. The calculation for this would be the number of positive activation customer reviews over the number of survey responses. This would include everyone within the activation stage. The activation stage is all about Carmen's customers experiencing the service and building a habit in visiting the bakery. Now, let's consider another stage, retention. Retention is about bringing people back to the bakery, and in some ways, keeping them loyal to the bakery. Our objective in this stage is to make sure our user returns to the bakery and falls in love with our coffee. This is known as product stickiness. Great metrics to measure retention are DAU, WAU, and MAU. These stand for daily active users, weekly active users, and monthly active users. This is the count of engaged users that use your product daily, weekly, or monthly. In our case, these would be the customers that are part of the coffee club as opposed to the rest of clients that visit the bakery. Because our coffee membership was only valid for a week, Carmen chose to monitor DAU and WAU, or daily and weekly active users. For my qualitative measure for retention, we'd want feedback on the quality of our product. In this case, it would be Carmen's coffee and the experience with the coffee membership. If the bakery's coffee wasn't great, it's likely customers just wouldn't return. I'd measure a customer satisfaction rate as my qualitative metric. This would be calculated by dividing the positive reviews over all reviews, and this would give us a percentage like 90%. All right , we've covered the activation and retention customer life cycles. In the next video, let's talk about revenue and referral.