Andrew Harris, VP-Sales, EMEA, Synthesis Systems
E-commerce and subscription commerce are two different business models, and as a result, their revenue metrics differ in some ways. If you are planning to move from ecommerce to Subscription Model, here is a quick reference on the key differences between the two when it comes to revenue metrics.
One-Time Revenue Vs Recurring
Traditional e-commerce revenues are primarily generated through the one-time sale of products or services. Customers make individual purchases, and revenue is recognized at the time of the transaction. Subscription commerce, on the other hand, operates on a recurring revenue model, where customers pay a recurring fee for access to products or services over a specified period. Revenue is recognized on a regular basis (monthly, quarterly, annually, etc.) throughout the subscription period.
Monthly Recurring Revenue (MRR) vs. Revenue Per Transaction
MRR is a fundamental metric for subscription commerce, representing the predictable monthly revenue generated from active subscriptions. In e-commerce, revenue per transaction is a key metric that measures the average revenue generated from individual purchases.
Churn Rate vs. Repeat Purchase Rate
Churn rate is a critical metric in subscription commerce, measuring the percentage of subscribers who cancel their subscriptions within a specific period. It indicates the rate at which customers are leaving the subscription service. In e-commerce, the focus is often on the repeat purchase rate, which measures the percentage of customers who make multiple purchases over a given period. It indicates the loyalty and engagement of customers with the e-commerce platform.
Customer Acquisition Cost (CAC) vs. Cost Per Acquisition (CPA)
CAC is a metric commonly used in both e-commerce and subscription commerce, measuring the cost of acquiring a new customer. However, in e-commerce, the emphasis is often on the initial transaction, so the metric is referred to as CPA. In subscription commerce, CAC includes the cost of customer acquisition as well as the potential lifetime value of the customer.
Average Revenue Per User (ARPU) vs. Average Order Value (AOV)
ARPU is a key metric for subscription commerce, measuring the average monthly revenue generated per subscriber. The revenue potential of each customer can be derived from this metric. AOV, on the other hand, is a metric commonly used in e-commerce, measuring the average value of individual transactions. It helps understand the purchasing behavior and spending patterns of customers.
Expansion Revenue vs. Upsell/Cross-sell Revenue
Expansion revenue is specific to subscription commerce and refers to the additional revenue generated from existing subscribers through upselling, cross-selling, or offering premium plans. In e-commerce, the focus is on upsell and cross-sell revenue, which represents additional revenue generated by persuading customers to purchase higher-value or related products at the time of transaction.
While there are some overlapping metrics between e-commerce and subscription commerce, the emphasis and interpretation of these metrics may differ due to the unique nature of each business model. Understanding these differences can help businesses effectively track and optimize their revenue strategies based on their specific model.