Break-even renewals that ignore churn

The mistake

A subscription often loses money on its first order. The intro discount, the welcome gift and the cost of acquiring the subscriber all land there. The sheet answers the obvious question, how many renewals until that is paid back, by dividing the loss by one renewal's margin.

That division assumes every subscriber takes every renewal. In a real cohort some cancel before each order, so each renewal earns less per original subscriber than the one before. The sheet's count is too low. It never says in which month the money comes back, and it can't see the case where it never does.

A worked example

A bag of coffee at $40.00 on a monthly subscription: 20% off the first order with a mug as a welcome gift, 10% off renewals, shipped free. The first order keeps $0.20 and each renewal $8.37. Acquiring the subscriber costs $35.00, so the first order leaves $34.80 to recover.

The sheet divides $34.80 by $8.37 and rounds up to 5 renewals.

With 85.0% of subscribers taking each next order, the first renewal earns $7.11 per subscriber acquired, the second $6.05, the third $5.14. The cohort has earned the $34.80 back at renewal 9, in month 9.

At 60.0%, a subscriber takes 1.5 renewals over a whole lifetime, worth $12.56 in all. The loss is never recovered, and the sheet still says 5.

The order's figures are computed by the margin engine in Offer Suite's own code, in whole cents. The sheet's are the same order with the mistake applied.

What it does to the decision

The sheet's answer sets how much the team will pay for a subscriber and how long it expects to wait for the money. 5 months of cash to float become 9. At the weaker retention the same CAC buys subscribers who never pay it back, and no cell says so. Over 24 months that cohort ends $22.25 down per subscriber.

It also makes the richest intro offer look best. A deeper first-order discount raises the loss by a known amount, and the sheet adds a fraction of a renewal. With churn counted, every extra dollar of loss has to be earned from the subscribers who are still there, and the later it is earned the fewer of them remain.

What prevents it

Offer Suite's subscription projection runs month by month on a renewal curve: the share of subscribers who take each next order. It reports the payback month, profit per customer after CAC and the share still subscribed, and it says when a subscription can't pay back at any horizon. A renewing option with no curve is refused rather than given an invented one.

The subscription payback calculator on this site runs the same engine and shows both answers side by side: the count a spreadsheet gives when everyone renews, and the count with churn.

A spreadsheet is still the right tool for some of this. Where it is, and where it stops: Offer Suite vs a spreadsheet.

Where the numbers come from

The example is not a real brand's offer. The acquisition cost of $35.00 and both retention rates are made up. Every other input is sourced below, or marked there as an assumption.