What is a subscriber? How to count subscribers?

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Summary

A subscriber is a paying customer with at least one subscription that has not expired. My number of subscribers being a quantity which varies daily and which I estimate by averaging the number of subscribers at the start and end of a given period.

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Along with Retention rate and average revenue per subscriber, the number of subscribers is one of the three macro KPIs of any subscription business. Knowing how to define, measure and influence this KPI is essential.

1. What Defines a Subscriber?

A subscriber is any customer who has a subscription:

• Active, i.e. with at least one day of subscription remaining,
• Paid, meaning there has been at least one financial transaction.

This definition excludes:

• Free 🆓 subscriptions, offered or free trials,
• Subscriptions with X days of free subscription as long as they are in their free phase,
• Subscriptions refunded.

This definition includes:

• New subscribers as soon as they have paid 💵 for something
• Renewed 🔄 subscribers
  

2. Counting my Subscribers

To count these subscribers, we apply the following rules:

• A new ⤴️ subscriber: +1
• A renewed 🔄 subscriber: no change
• One subscriber lost ⤵️: -1

Due to its daily changing nature, it is difficult to give an exact count. It is easier to give an annualized average. We then calculate the average of the number of subscribers on the 1st and last day of a reference period. The reference period can be a calendar or fiscal year for example.

Let’s consider this case:

On January 1st, I have 50,000 subscribers, on December 31st I have 52,000. So I have on average 51,000 subscribers over the year and growth of 2,000 subscribers.
As it is an average, this value reduces the growth, positive or negative, in the number of subscribers. This value can serve as an indicator for my investors but there’s no real interest in monitoring the total number on a daily basis. Better to look at the number of subscribers in Acquisition and Retention channels separately.

3. Should monthly and annual subscriptions be counted together?

Subscriptions paid monthly, including a one-year commitment, are no different from subscriptions paid annually. We can count them with annual subscriptions.

Monthly subscriptions that do not include any commitment will have very different retention rates from annual subscriptions, for the reasons explained in my previous article about Monthly subscriptions. It will be more judicious to count them separately.

4. Does it make sense to communicate the number of subscribers?

My partners and investors expect me to show growth on all my KPIs. However, as explained in another previous article, in a subscription business, the number of subscribers tends towards a maximum. The more mature my business becomes, the harder it is to show growth. If you think you have reached a plateau, it’s better to stop communicating about it.

In its 1st quarter 2024 financial results document, Netflix wrote “we stopped providing quarterly paid membership guidance in 2023 and, starting next year with our Q1’25 earnings, we will stop reporting quarterly membership numbers and ARM.”

5. How can I influence the number of my subscribers?

The counting rules tell us that there are only 2 options:

• Increase subscriber acquisition,
• Reduce churn, i.e. increase the Retention Rate (RR%).

⚠️ Not all positive actions for business necessarily have a positive effect on the number of subscribers.⚠️

What increases 👍 the number of subscribers:

• Acquiring new customers
• “Win-back” offers to recover customers who have not renewed before the end of the subscription
• Any action that tends to increase the Retention Rate (RR%) such as:
  • Ask the customer to update their bank card
  • Send renewal notifications
• …

What DOES NOT increase ⛔️ the number of subscribers:

• Sell a new subscription to an existing customer rather than a renewal (re-acquisition)
• Offer free subscription days
• Sell multi-year subscriptions
• Change subscription plan (upgrade or downgrade)
• Sell a subscription to another service to an existing customer (1 subscriber with 2 subscriptions = 1 subscriber)
• Renew a customer earlier (Early-Bird offer)
• Moving a customer from an indirect channel to a direct channel
• …

Key Takeaways

1. It may be wise to communicate on the number of subscribers in the growth phase. 📈 When the business is mature, there’s no point communicating on a KPI that is flat.
2. On a daily basis, I pay attention separately to the number of new subscriptions (Acquisition) and the number of subscriptions to be renewed (Retention). I make sure that the acquisition compensates for the churn.
3. Projects that increase sales do not necessarily increase the number of subscribers; before launching my actions, I check that they really influence this KPI.