Customer acquisition and retention are two most debated topics when it comes to business revenue mix. The cost of both has an impact on the revenue and should be optimized, especially for business running on subscription billing model. Read to know why companies on a subscription billing model should shift their customer strategy.

1. 1
New vs. Existing:
Why Companies
on a Subscription
Billing Model
Should shift their
Customer Strategy
© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.

2. 2
New vs. Existing: Why Companies on a
Subscription Billing Model Should shift their
Customer Strategy
© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.
The matter of customer retention versus acquisition is one that's often debated. Studies
show it's more costly for a business to recruit new customers than to maintain healthy
relationships with older ones. However, every professional knows neither group can be
ignored, especially when the business runs on a subscription billing model. Older
customers sustain a company, and acquiring new ones helps it grow in terms of both
revenue and market share.
So what's the right balance? Optimove, a company that uses market data to help
businesses reach their customers, conducted a study on what it called the revenue mix –
that is, a business's revenue ratio of new to existing customers. The company studied
over 180 different brands in various growth stages. It wanted to determine if there was
such a thing as a perfect revenue mix and how that mix shifts as a business grows.
Brand ages and new customers
Optimove categorized the brands it studied into four groups: Running-in-Place, Rockets,
Healthy Grown-Ups and Old Cash Cows. Those in the first group were either stagnant or
declining in revenue during the last three to five years, and they averaged a five-year
compound annual growth rate of less than 2 percent. These companies also had a
dramatically high ratio of new-to-returning customers, acquiring about 90 percent of their
revenue from first-time individuals.

3. 3© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.
Young companies shouldn't wait too long before focusing on customer retention.

4. 4© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.
This also correlated with customer churn rates that were higher than the sample
average. Thus, Running-in-Place brands weren't successfully converting these new
customers into long-term subscribers and were unable to grow as a result.
Rockets are young brands experiencing a lot of success. They're less than seven years
old with a five-year CAGR of over 100 percent. Their revenue mix was less skewed
toward new customers, as all Rockets derived at least 30 percent of their profits from
current shoppers. About 80 percent of them had a revenue mix that was more evenly
split – about 50 percent new and old customers. Rockets also had churn rates 50
percent lower than the sample average. This indicates that in order to shift from a
Running-in-Place to a Rocket, companies mustn't spend all of their energy on customer
acquisition but put some of it toward retention instead.
Healthy Grown-Ups are older than Rockets with a five-year CAGR between 20 and 60
percent. These companies had a significant share in their markets and a large, dedicated
user base. They committed their efforts to reducing their churn rates, which were 60
percent lower than the sample average. Existing customers accounted for 60 to 80
percent of a Healthy Grown-Ups' revenue.
The final group, Old Cash Cows, shared similar CAGRs to Running-in-Place companies.
However, 90 percent of their revenue came from existing customers and they saw lower
churn rates.

5. 5© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.
While Old Cash Cows had operated for years, Optimove warned these businesses are in
danger of not innovating, and their small number of new customers could quickly lead to
reduced profits.
Shifting strategies based on age
Based on this research, one can understand that the decision to focus on retention
versus acquisition varies depending on the stage of a business. Startups should
obviously focus on acquiring new subscribers, but not switching focus to retention early
enough places them in the Running-in-Place category. What started off as a successful
business quickly stops growing.
The best way to find success is to gradually switch strategies from one completely
focused on acquisition to one that blends retention into the mix. Viewing these two as
parts of a whole as opposed to isolated policies helps businesses on a subscription
billing model maximize their average customer lifetime value. Maintaining a healthy ratio
of new and old customers creates a stable base of profits while driving growth and
innovation.

6. 6© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.
About the Author: Bryta Schulz
Bryta joined Vindicia in 2013 and serves as Senior Vice
President of Marketing. She is responsible for building brand
awareness, creating go-to-market strategy and promotion, and
driving growth. With over a decade of executive level marketing,
product management and PR experience, Bryta has led
marketing teams in enterprise technology and SaaS companies.
Her experience includes heading product marketing at GoGrid,
PGP, RSA and Symantec and business development and
product management positions at Xcert, Thales, and
Persistence Software. Bryta holds a MA in Translation from the
Johannes Gutenberg University Mainz and an MBA from the
University of Reutlingen.
Visit our Blog for more information.

7. 7
Like us on Facebook
facebook.com/vindicia
Follow us on Twitter
@Vindicia
Connect with us on Linkedin
linkedin.com/company/vindicia
Thank You
© 2015 Vindicia, Inc. All rights reserved. Vindicia Confidential.