Guide

Maximizing growth with subscription customer acquisition

Introduction

Subscriber acquisition impacts your bottom line in numerous ways–revenue growth, scale, and opportunities to improve subscriber loyalty and lifetime value. 

Alongside churn, acquisition is one of the most important and difficult strategies to master. It requires a deep understanding of your core offerings, target audience, subscriber preferences, and consumer loyalty. But with the right information, you’ll grow your business like never before–we’ll show you how. 

Our goal with this guide is to help you master subscriber acquisition for your business specifically. You’ll learn how to price, package, and promote your subscription business strategically to optimize for acquisition and growth. 

In this guide, you’ll uncover:

  • A fundamental understanding of subscriber acquisition: What it is, how it impacts your business, and the key customer acquisition metrics 

  • Key acquisition benchmarks to help you gauge the health of your techniques, plus comprehensive best practices about important topics like segmentation, payments, experimentation, and more

  • How to optimize pricing, packaging, and promotions for your product or service with the right tools designed to help you succeed

What is subscriber acquisition & why is it important?

Simply put, subscriber acquisition refers to the process of bringing new customers to your business. For subscription businesses, customer acquisition means bringing on new subscribers. As you acquire more customers, your recurring revenue business grows, but that’s only touching the tip of the iceberg when it comes to understanding subscriber acquisition. 

Acquisition is important for subscription businesses that want to gauge the overall growth and health of their brand. While acquiring new subscribers means business growth, it’s important to understand how it truly impacts your business to create the most fool-proof acquisition plan. 

To start, let’s define some additional acquisition terms:

  • Acquisition channel: The method by which you promote your product or service to attract new customers. Identifying your top-performing acquisition channels helps you hone in on where your most valuable subscribers are coming from and teaches you where to invest your marketing dollars.

  • Acquisition campaign: These campaigns can be inbound or outbound and usually have a specific theme, focus, or offer with a defined start and end date. Look at new signups by acquisition campaign to assess the campaign’s immediate impact on subscription customer acquisition. Remember: new signups don’t always mean quality, long-term subscribers, although a high number of signups gives you a better chance at valuable subscribers. 

For most businesses, acquiring new customers costs money. An effective acquisition campaign is twofold: 

  1. It ensures a return on investment on acquisition costs.

  2. It ensures revenue growth after you break even on acquisition costs.

Acquisition efforts must do more than just provide an influx of newly activated subscriptions–they must also attract qualified, loyal subscribers and generate predictable recurring revenue. One of the ways to measure the success of subscription customer acquisition campaigns is to analyze the lifetime value (LTV) to customer acquisition cost (CAC) ratio and its impact. 

It’s also important to note the distinction between acquisition and retention, which can also be interpreted as reducing churn. Acquisition starts with gaining a new customer and eventually becomes retention, which is the process of retaining that customer for as long as possible to maximize LTV.

Key subscription customer acquisition metrics

Measuring the success of acquisition efforts requires understanding how to calculate and analyze the correct metrics. Each metric plays an important role in your customer acquisition strategy and your attempts to maximize revenue. 

Customer acquisition cost (CAC): One of the most important acquisition metrics, CAC measures the total costs associated with acquiring a new customer, including marketing, sales, and related efforts. This metric shows the efficacy of your sales and marketing efforts and how long it will take to recoup the costs of acquiring a subscriber before starting to profit from them.

cac formula

Lifetime value (LTV): A value or estimate of the profit accrued from the average subscriber over the period they remain with your subscription business. In relation to subscriber acquisition, subscriber LTV can be viewed as the maximum amount on how much you should spend to acquire a new subscriber to maintain profitability. It can help you filter your most valuable and your least valuable subscribers.

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LTV:CAC ratio: Measures the relationship between the lifetime value of a subscriber and the cost of acquiring that subscriber. When these two metrics are evaluated together, you’ll know if you’re spending too much to acquire a subscriber based on what they’re worth. Recurring revenue businesses should aim for an LTV that exceeds CAC, which also helps to identify what acquisition campaigns are most profitable. Aim for a 3:1 ratio as your standard. A 5:1 ratio, for example, means you could be growing faster and should invest more in your marketing efforts.

ltv cac ratio

Monthly recurring revenue (MRR): The sum of all recurring revenue normalized into a monthly amount, including gains and losses. While MRR is not specific to acquisition, this metric measures how much revenue a subscription business can expect every month based on the total of all recurring revenue. You can better understand MRR growth (or lack thereof) to answer questions regarding the growth trajectory of your business or how subscriber acquisition impacts your revenue.

mrr-formula

Annual recurring revenue (ARR): The annualized version of MRR, ARR shows how much recurring revenue your business can expect in a year. ARR offers better insights for the long term, which is a great benefit to financial planning. When you analyze ARR in parts–such as ARR from upgrades and ARR from new subscribers–you can see what factors are impacting your revenue the most.

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Trial conversion rate: If you offer a free trial, this formula will help you track your trial conversion rate. Calculating this metric will help you understand the effectiveness of your free trial in converting users to paying subscribers. You can also learn why people aren’t converting and what you can do to improve. Pro tip: Look at the retention rate and LTV of subscribers who started with a free trial versus those who did not.

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Subscriber acquisition benchmarks & best practices

The key to knowing if your customer acquisition efforts are effective is identifying acquisition benchmarks for subscription businesses and calculating the right metrics for your industry. While several things contribute to benchmark data, such as business seasonality, annual versus monthly subscriptions, the use of promotions, and the like, it’s still important to have a general idea of what benchmark numbers are standard. With acquisition benchmarks, you’ll want to look at a few different components, such as free trials, coupons and promotions, and gifting. 

See more: Subscription metrics cheat sheets for Digital Media & Entertainment, Digital Publishing, eLearning, and Consumer Goods & Retail

Generally, your customer acquisition strategy can be grouped into three buckets: pricing, packaging, and promotion. These are essential pillars in subscription acquisition, and, together, they create the ultimate acquisition plan. We analyzed over 2,300 subscription businesses and more than 50 million active monthly subscribers to gather acquisition benchmark data. Keep reading to learn more.

Trials 

Trial periods give cautious customers the opportunity to try your product or service before they commit to a recurring subscription. Our research found that 748 Recurly customers offered trials, and the average subscription trial length lasted 33 days across all industries with an average trial conversion rate of 42%. 

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A few important questions are associated with trials–should you offer trials? Should you offer free trials? Should you require a credit card? Recurly Research found that 65.8% of all B2B and B2C subscription businesses offer free trials, with Education and Digital Media and Entertainment businesses offering the most free trials. To answer the question of whether or not you should offer trials, compare the retention rate and LTV of subscribers to those who were acquired via a trial versus those who did not have a trial. 

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While requiring a credit card makes the transition from trial to recurring subscription easier, cardless trials help with increasing signup numbers as requiring payment information can create unnecessary friction. Cardless free trials improve your prospects’ trial signup experience, paving the way for new customer acquisition. However, our research found that 87.4% of our customers required billing information at signup–a tactic you may want to reconsider. 

Coupons, promotions & discounts

Consumers love saving money, and you can contribute to their happiness by offering coupons, promotions, and discounts. While you will mostly find these offers in the direct-to-consumer (DTC) space, it’s not uncommon for all businesses to use them as incentives for acquisition and retention. It may seem counterintuitive to give discounts, but coupons and promotions are a great way to drive revenue.

In 2021, subscribers redeemed 18.8 million coupons. The most common discount percentages were 20%, 50%, and 10% off, while the most common discount dollars were $10, $25, and $5 off. Coupons are a great way to supplement all of your marketing efforts, whether to enhance ongoing promotions, stop cart abandonment, or reward loyal customers. 

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Upsells and cross-sells are other types of promotions and both are effective ways to increase revenue from both new and existing subscribers. Also known as suggestive selling, upsells and cross-sells tell your customers that there are other subscription plan options that better suit their needs or add-ons that would improve their experience. A great upsell opportunity happens at the end of a trial period. If a customer tried the most basic plan, for example, you can upsell them with a more premium plan at the time of conversion. Cross-sells happen similarly at checkout or conversion points with an item that complements the plan being purchased.

Gift cards & gift subscriptions

The best advocates for your business are your most loyal subscribers, so these consumers should be the ones purchasing and giving your gift cards and gift subscriptions—subscriptions given as gifts that normally have an end date. These are great subscriber acquisition strategies because the gifts are given by people the recipients already know and trust. 

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The top reasons consumers like receiving subscriptions as a gift are the chance to experience something new and getting to choose from a variety of carefully-selected options. So, are you taking advantage of gift cards and gift subscriptions?

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In 2021, shoppers redeemed a total of 55,108 gift cards from Recurly’s merchants. The most purchased gift cards ranged from $15 to $80, with the average gift card amount being $30. Out of Recurly’s 59 merchants offering gift subscriptions, 222,636 of those turned into regular recurring subscriptions. 

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Nearly 70% of consumers surveyed by Recurly want to give and receive subscriptions. Based on the numbers above, if you’re not promoting your gift cards and gift subscriptions, you’re losing out on easy revenue and the potential to generate new signups throughout the year and especially during the gift-giving holiday season. 

Critical components to high-performing subscription customer acquisition strategies

While the above tactics are more pertinent to DTC subscription businesses than to B2B subscription businesses, the following techniques contribute to every strong subscriber acquisition strategy. They take into account a thoughtful member journey, business seasonality, annual versus monthly subscription plans, and more to maximize revenue growth. 

Read more: The five must-dos to master subscription customer acquisition

Segmentation

Segmentation involves identifying your ideal subscriber to amplify acquisition and LTV through higher-value subscriptions. Avoid serving the wrong content to the wrong audience by segmenting your audience. In doing so, you can achieve long-term growth, optimize the user experience throughout the member journey, understand where your subscribers fit in your customer ecosystem, and create dynamic programs for acquisition. The possibilities are endless for segmentation–plans, acquisition channels, location, demographic, interests, behaviors, churn likelihood, and more. Once you’ve identified your ideal subscriber profile or ICP, build personas based on your key buyers and their values.

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A branch of segmentation is personalization. Forrester found that 77% of consumers prefer brands that offer tailored services and experiences, and 66% expect companies to understand their unique needs. In subscriptions, personalization lies at the heart of flexibility and choice with plans, pricing, and communications–all essential elements in creating the right acquisition campaign to convert customers.

Payments

One of the most straightforward–and often forgotten–ways to catalyze growth is through payments. Don’t think about payments as another one-dimensional component in your infrastructure. Payments are fundamental to a memorable member journey from trial to sign-up to conversion to a paid subscription and renewal.

The most important part of any payment strategy is creating a convenient, frictionless, and flexible experience. Create a checkout experience that focuses on ease of use and quickness–remember, this is where conversions happen. To be convenient, offer a wide variety of payment options such as credit card, direct debit, and digital wallets to cater to every subscriber’s payment preference.  Offering the right payment options based on your ideal subscriber profile can drive ease of expansion and increased conversion. For example, on average, Recurly merchants who enable PayPal see a revenue lift as high as 25%, and those who enable SEPA see a revenue lift as high as 154%.

Test, learn & iterate

Discover your most successful acquisition campaign strategies through experimentation. While there are dozens of things you can test within subscriptions and the acquisition journey, some quick wins include changing pricing, plans, and trials. Every test you run should have a great end goal, whether to create greater value add or be more competitive–in most cases, it boils down to improving your bottom line.

Before you draft your hypotheses, there are a few things to consider and some action items to complete. Think about business seasonality and how that may impact your testing audience and the results. Create reports to track plan performance by cohort to identify your ideal subscriber and test results. A cohort analysis is a powerful method to view how your subscriptions change over time and identify key trends.

How to achieve 20x revenue growth with Recurly

Above all else, Recurly is a subscriber growth engine. We understand that every business wants to grow, which contributes to the bottom line of more subscribers and more revenue. Since Recurly started over a decade ago, we’ve helped our customers achieve, on average:

  • 13% revenue lift (MoM)

  • 98% retention rate

  • 12.3x return on investment

  • 20x revenue growth with more than 130 of our customers

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Keep reading to see why it takes the right subscription management and recurring billing partner to reach your fullest potential.

Grow faster

In an ever-changing environment like subscriptions, which varies even more among industries, one of the most important things a business needs to be able to do is adapt quickly. Recurly’s unique, comprehensive, and scalable subscription plan management tools help keep you agile and ahead as you supercharge your growth.

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To create the most optimized subscription plans to attract new subscribers, you must test and iterate across key areas, including plans, pricing, and promotions. With Recurly, you’re able to experiment with each to identify ways to balance and create more to enhance the subscriber journey, from trials and coupons to gift cards, gift subscriptions, and more. 

“Not having to worry about managing subscription billing because Recurly handles that for us has been huge. It has enabled us to focus on the elements that are core to our business—the customer experience and the box.”

Becky Segal, Vice President of Platform Engineering at BARK

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Remaining flexible and offering options are important in subscription customer acquisition strategies. Payments as a growth strategy is often neglected but crucial: Providing consumers with a variety of billing models–prepaid, usage-based, fixed, quantity-based, and hybrid models–keeps your offerings differentiated and attractive.  

Grow smarter

At Recurly, we’re all about working smarter–not harder. Too many recurring revenue businesses are handling operations inefficiently, losing out on hard-earned business because they can’t scale. With Recurly, streamlined integrations are part of our backbone. 

We chose to switch to Recurly for three reasons: First, they have the cleanest most well-thought-out API in existence. Second, they are very responsive. Third, we chose them after getting an overview of their scaling technology, which convinced us that they were up to the task no matter what we threw at them.

Joseph Wecker, Senior Engineer at Twitch

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Modern businesses need modern solutions that cater to front and back-end systems. You have an existing architecture that powers your day-to-day, such as CRM, accounting, and ERP tools. You need a subscription management platform that integrates seamlessly with every component; otherwise, you’ll be wasting your engineering resources on integration work

Read now: The journey to Recurly: How Scentbird CTO chose a payment partner

For every cumbersome task that subscription businesses must face, Recurly has created a streamlined, easy-to-invoice, manage, and scale solution. As your business grows, it’s inevitable that you will encounter growing complexities. Partner with a subscription management and recurring billing platform that prioritizes your success to realize revenue faster, create a frictionless experience, scale with ease, and discover more and better growth opportunities. 

Grow stronger

In an ideal world, the bigger your business grows, the stronger you become. You know your ideal subscriber profile, the best acquisition channels and campaigns to bring in quality, long-term customers, and the most effective tactics to grow incremental revenue. If you don’t know this information, you need Recurly.

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Unlike traditional transactional billing models, recurring revenue businesses rely on predictable revenue and customer loyalty to stay afloat. The cost to acquire subscribers is significantly greater, and payback on these acquisition costs happens over a subscriber’s lifetime. The chart above is a great visualization of the importance of subscriber loyalty and recurring revenue for subscription businesses.

We don’t want to waste money on a plethora of tools that are only used by a handful of people—we’d rather spend on things that drive value for our customers and employees.

Waifa Chau, Chief Financial Officer at Birdeye

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Smarter subscription analytics aids strategic decision-making to put your business at the forefront of your industry. Recurly Analytics provides actionable data about your business, your subscribers, and the industry every day, making it easy to analyze and activate new programs. Dig deep into Recurly’s specialized reports to learn about subscriber insights, plan and revenue data, as well as KPIs and trends to catalyze business growth intelligently. 

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The bottom line: Ensure your subscription management and recurring billing partner has it all, from the ability to test and learn to the ability to seamlessly integrate with your existing tech stack to the ability to report on your most important metrics. Ensure your partner is Recurly. 

Final thoughts

You’re done! You have the fundamental knowledge to create your own robust subscriber acquisition strategy.

When done correctly, acquisition is only the beginning of a loyal relationship with your subscribers and sustainable business growth. The key to growth is the right subscription management and recurring billing platform that is built to support a variety of acquisition campaigns, subscriber and industry insights, robust retention efforts, and churn mitigation. 

It’s now or never–kick off your subscriber acquisition strategy today. 

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