What is cart abandonment rate?
Cart abandonment rate is the percentage of digital shopping carts that are abandoned by customers prior to completing the checkout process. This metric is calculated by dividing a business’s total number of completed purchases by its total number of created online shopping carts. Cart abandonment statistics can provide key insights into the health of an ecommerce business, particularly around issues with the checkout process.
What causes a high shopping cart abandonment rate?
Cart abandonment can occur for many reasons. Depending on the ecommerce site, a confusing checkout flow, unclear return policy, lack of payment options or discount codes, unexpected shipping costs, and requiring customers to create an account to check out can all contribute to digital shopping cart abandonment stats.
Marketing strategies for improving conversions
Through data analysis studies and A/B testing, businesses can collect information on the causes of abandonment, then optimize the user experience accordingly. Depending on the issue, solutions like providing a guest checkout option, clearly communicating shipping costs and return policies, and offering discount codes can all improve checkout flows, optimize the ecommerce experience, and reduce abandonment rates.
Additionally, when shoppers provide their email address prior to abandoning their shopping cart, marketers can send cart abandonment emails to increase their number of completed purchases. These emails contain a direct link to the customer’s shopping cart and checkout page as they left it, and often further incentivize the completion of the purchase through promo codes and shipping discounts. Cart recovery emails can reduce cart abandonment rates, improving conversion rates and increasing customer lifetime value.
What is MRR (monthly recurring revenue)?
MRR is an acronym for monthly recurring revenue, a key business metric that calculates the total amount of revenue a business generates from recurring purchases over a one-month period. Along with other key performance indicators, such as annual recurring revenue (ARR), customer lifetime value (LTV), and churn, MRR is one of several key subscription business metrics.
How does MRR growth benefit a subscription business?
MRR helps measure predictable revenue on a month-to-month basis. By increasing their MRR steadily over time, companies with a subscription business model can benefit from a steady, reliable stream of recurring revenue. And by tracking MRR over time, subscription businesses can more accurately predict their subscription revenue, more effectively identify customer pain points, and retain their subscribers.
What types of businesses should track MRR?
Any business operating under the recurring revenue model should track their MRR. This includes both B2B companies (such as SaaS businesses) and DTC operations.
Recurring revenue can not only take the form of subscriptions, but also paid membership programs. We recommend that businesses who offer either of these product offerings track their MRR to identify any patterns in customer behavior and continually hone your efforts.
Strategies to increase MRR for your subscription model business
To increase monthly recurring revenue, focus on making your subscriptions as flexible, convenient, and compelling as possible for your customers. Let them easily make updates to their subscriptions, like skipping a delivery or swapping a product. Empower them to easily search your site by product type or name, price, category, and more. Provide them with multiple choices for their billing interval, and implement strategies like cross-selling and upselling with personalized product recommendations.
By centering your customers’ needs and preferences in these ways, you can increase satisfaction for your customer base while bringing in a steady stream of recurring revenue for your company.
What is ecommerce conversion rate?
Ecommerce conversion rate is the percentage of visitors to your ecommerce website or landing page that convert, or complete a desired action. Your business can define conversion actions in numerous ways, including clicking a link on your site, completing a form or survey, adding products to an online shopping cart, signing up for an email newsletter, or subscribing to a service. Dividing your total number of conversions by your total number of website visitors, then multiplying that figure by 100, will determine the conversion rate percentage for your ecommerce business. You can also calculate your average conversion rate by the number of visitor sessions rather than visitors to your ecommerce websites.
Website conversion rate optimization
There is no one-size-fits-all approach to conversion optimization—average ecommerce conversion rate benchmarks depend upon your industry, and are always changing over time. Instead, the most effective tactic for improving conversions is to research and learn as much as possible about your target customers and current site visitors.
Collect data and customer feedback on the traffic sources and acquisition channels to your sites or landing pages, what platforms and devices your visitors use, how many return visits they make to your ecommerce store, etc. Conducting A/B testing is another helpful tool for identifying the design features and copy styles (such as wording of CTAs) your target customers find most compelling. Collecting these insights will allow you to pivot your approach to meet your customers where they are, refining your approach to product offerings.
What is annual recurring revenue (ARR)?
Annual recurring revenue (ARR) is an essential momentum metric for measuring year-over-year growth for SaaS companies and other recurring revenue businesses. ARR calculates the total amount of income generated from recurring sales over a year-long period.
How does ARR differ from MRR?
ARR is the annual equivalent of monthly recurring revenue (MRR), helping predict revenue for the year based on current monthly revenue for your company. These metrics are both crucial to understand the profitability and growth of businesses following a subscription model.
While ARR is important for understanding the growth of subscriptions with contracts of 1 year or longer, MRR is helpful for understanding the success of shorter-term subscriptions with a contract of less than 1 year. Typically, both metrics should be considered to most effectively forecast revenue.
How to calculate ARR for your subscription business
There are a variety of ways to calculate ARR for businesses following a subscription revenue model. Generally, the simplest way to make an ARR calculation is to annualize your monthly recurring revenue, or multiply your MRR by 12.
For some subscription business model companies, revenue may vary greatly from month to month during busier seasons. To account for this, these businesses may prefer to calculate annual recurring revenue by multiplying their quarterly recurring revenue by four.
How to calculate customer lifetime value (LTV)
Lifetime value (LTV) is a crucial metric that measures the amount of revenue a company can expect from the average shopper across their customer lifespan. Factors that impact LTV include purchase frequency rate, purchase value, and average order value. When compared to customer acquisition cost and other marketing costs, LTV can help companies assess the health of their business and refine their approaches to customer acquisition, retention, and even product development.
At Recharge, lifetime value is calculated based on the past occurrences for customers who have already left the platform. Recharge’s LTV calculation breaks down to annual revenue per user / customer churn.
What is lifetime value?
Lifetime value (LTV; also referred to as customer lifetime value/CLV) is a key metric that measures the average amount a person spends with a business throughout their customer lifespan, or the amount of revenue a business can expect from the average customer. To better understand gross margin and net profit, this metric should always be considered as it relates to customer acquisition costs (CAC). Tracking LTV can help merchants identify high-value customers and help refine their approaches to both acquisition and retention. At Recharge, LTV is calculated by dividing the annual revenue per user by churn.
Strategies for increasing customer lifetime value (CLV)
Strategies to boost customer retention are key for increasing the average value of a customer. For example, creating a customer loyalty program or using a loyalty platform offering users special perks like discount codes and early product releases can keep them around longer. Strategies for boosting average order value, like cross-sells and upsells, can boost CLV. Additionally, properly setting customer expectations with the digital experience in mind and making offerings as flexible as possible can boost retention and strengthen customer loyalty.
In the ecommerce subscription industry, research shows that LTV is on the rise. In Recharge’s latest State of Subscription Commerce report, we found that customer LTV grew an average of 11% across verticals.
What is average order value (AOV)?
Average order value, or AOV, is a key metric and performance indicator for ecommerce businesses that measures the average dollar amount customers spend per order. It is often used—along with the metrics of lifetime value (LTV), customer acquisition cost (CAC), and churn rate—as a critical indicator of a business’s overall health. The higher a company’s average order value, the more money its customer base is typically spending per transaction.
How to calculate average order value (AOV)
The formula for AOV is to divide a company’s revenue by its total number of orders. Monitoring this metric frequently provides insights into gross profit by shedding light on trends in customer behavior and purchasing habits. This influences many business decisions, including pricing strategy and marketing efforts.
What are strategies to increase average order value (AOV)?
Cross-selling and upselling are frequently-used sales tactics companies use for increasing AOV. Other strategies include incentivizing higher order values through discount codes associated with certain purchase minimums, creating discounted product bundles, honing the personalization of product recommendations through data analytics and customer surveys, and the creation of customer loyalty programs that offer customers benefits for continued purchasing. Studying changes in average order value over time, and segmenting customers into different groups based on their purchasing behavior, can also help improve AOV. This allows companies to target high-spending customers with marketing and advertising strategies tailored to their preferences.
What is churn rate?
Churn rate (also referred to as attrition rate) is a key metric for subscription businesses that calculates the percentage of customers who cancel their subscription (or “churn out”) over a set period of time. For example, annual churn rate calculates the percentage of customers who churn over a year period. Churn rate is a crucial tool for assessing customer satisfaction and planning for company growth. For example, if your customers churn out of your business soon after taking advantage of a discount, it’s worth taking another look at your marketing efforts and retention strategies to keep your customer base engaged and reduce churn.
Strategies for reducing customer churn rate
There are many best practices for businesses to boost customer retention rate and customer lifetime value, reducing churn. Offering your subscribers as much flexibility as possible—in terms of product offerings, communication, and checkout options—can help your brand shift to a relational commerce model, increasing active engagement and reducing the possibility of a churn event. Clear communication to accurately set customer expectations is also crucial. Finally, empowering your customers to manage their own subscriptions and accounts can build trust in your brand and reduce churn rates.
What is MRR (monthly recurring revenue)?
MRR is an acronym for monthly recurring revenue, a key momentum metric that calculates the total amount of income a business generates from subscription sales over a one-month period. For companies operating under a subscription business model, including SaaS companies, this metric helps measure predictable revenue on a month-to-month basis.
To calculate top-level monthly recurring revenue for your business, multiply your total number of active subscribers in a given month by the average revenue generated per subscriber. As your business grows, it can also be helpful to monitor your changes in MRR over previous months, or your net new MRR, for additional context into the health of your business.
Increasing MRR for your subscription business
In Recharge’s latest State of Subscription Commerce Report, we found that the top-tier subscription merchants had an average MRR of $56,096, compared to $1,271 for the middle-tier merchants and $316 for the bottom tier. We found that these top merchants outperformed their competitors in three key areas: cultivating customer loyalty and strong communities, leveraging integrations, and offering flexible checkout options, such as cross-selling and upselling. Tracking this metric over time to monitor MRR growth and changes in customer behavior is important for providing insights into your customer base and business strategy.
What is ARR (annual recurring revenue)?
ARR is an acronym for annual recurring revenue, a momentum metric that calculates the total income generated from subscription sales over a one-year period. It is a key performance indicator for subscription businesses, including SaaS businesses and other subscription model companies. ARR is often thought of as a valuation metric, and frequently referenced by companies with minimum term subscriptions of one year or more.
What’s the difference between ARR and MRR?
ARR is the annual equivalent of monthly recurring revenue (MRR). In other words, while ARR measures annual revenue growth, MRR measures monthly revenue growth. Both metrics are important for assessing the health of subscription businesses.
Though there are several ways recurring revenue businesses can calculate ARR, often, the simplest way to calculate this metric is to annualize your monthly recurring revenue, or multiply your MRR by 12. For some businesses whose revenue varies more from month to month depending on the season, it may be more helpful to calculate ARR by multiplying their quarterly recurring revenue by four.
Why your subscription business should track annual recurring revenue
Tracking annual recurring revenue is key for measuring growth and assessing profitability for subscription business model companies. Tracking and analyzing ARR data can provide key insights into your customers’ needs and preferences, helping you pivot your offerings to meet them where they are and increase brand loyalty, average order value, and lifetime value.