SaaS platforms use subscriber growth rate as a vital metric to analyze the platform’s period-over-period momentum. Calculating the growth rate metrics gives a benchmark to understand how your SaaS business is doing and what adjustments are needed. It plays a key role in predicting future revenue generation for SaaS businesses depending on current momentum. Thus, it becomes more important for a new business that is yet to earn revenue.
Subscriber growth rate measures the growth of the account base of an application. The value is expressed in percentages with 2 decimal numbers. The measurement compares the increase in growth rate in a particular period to the previous period. Here, the period can be any of the following:
If the value of the growth rate is positive, it indicates increasing application traction in the marketplace. But, a declining or flat rate indicates the possibility of application decline or stagnation. When the value of the monthly subscriber growth rate varies, it shows seasonal trends. Usually, the compound growth rate is calculated along with the subscriber growth rate for more useful results.
Businesses can easily calculate growth rates using the below-given formula:
For subscribers, the same formula can be written as:
ƒ Sum (Current period subscribers’ number – previous period subscribers’ number) / Previous subscribers’ number
ƒ Sum (Number of newly added subscribers – Number of canceled subscribers) / Count( Subscribers’ numbers at the previous period’s end)
Suppose a SaaS business wants to calculate its monthly subscriber growth rate. The business had 5500 subscribers on 1st November and 6000 subscribers on 30th November. Let us calculate the subscriber growth rate of the business in the month of November.
Subscriber on the month’s first day = 5500
Subscribe on the month’s last day = 6000
The Growth Rate for the month of November will be calculated as follows:
6000 minus 5500 = 500
500 divided by 5500 = 0.09090
0.09090 multiplied by 100 = 9.09%
We multiply the obtained result to get the growth rate in percentage. In general, the subscriber growth rate is expressed in 2 decimal places.
Below is given the basic instructions that you need to follow while measuring your subscriber growth rate:
You can use obtained data to measure several other growth rate metrics for your SaaS platform. Some of the most valuable growth rate metrics for SaaS are as follows:
Customer Lifetime Value or CLV = (Customer Value x Average Customer Lifespan)
Customer Acquisition Cost or CAC = Sales and Marketing cost / Total count of New Customers
Monthly Recurring Revenue or MRR = subscribers’ number under a monthly plan x average revenue/user (ARPU)
Suppose a software company has 1000 subscribers at the end of last month. However, by the end of the current month, its subscriber count has reached 1500.
Thus, it gained a 50% monthly account growth rate.
Growth rate formula = (1500 – 1000)/ 1000
As the Subscriber growth rate value is always expressed in percentage, we will multiply the obtained value by 100.
= .5 x 100
The best way to represent subscriber growth rate is with line charts. It helps you to detect where the value of your subscriber growth rate has inclined or declined. This type of data helps SaaS businesses act on discrepancies on time.