February 14, 2022
Reading Time: 12 minutes
Move over, ROI—Subscriber LTV has entered the chat.
For years, the ROI of SMS was all the rage among ecommerce marketers. And we’ve been hyped on it here at Postscript, too. There’s no denying the revenue-generating power of text marketing, and numbers like 99X, 100X, and even 113X ROI are pretty darn impressive.
The problem with ROI is that it’s a lagging, short-sighted metric. You’re looking at dollars in and dollars out for a defined window of time in the past—but that ratio doesn’t tell you much about the future.
As more ecommerce merchants adopt SMS as a marketing channel—and as consumers start receiving a greater volume of messages from a wider variety of brands—the future value of your brand’s SMS program will be the best indicator of its overall strength.
So, how do you measure that future value? You guessed it: Subscriber Lifetime Value (LTV).
In this article (click to navigate to a particular section):
What is Subscriber LTV?
Before we get into the nuts and bolts of Subscriber LTV, let’s clarify one very important distinction: Subscriber LTV is not the same as customer LTV. The average lifetime value of a customer does not take into account whether or not that customer subscribes to your brand's text messages.
When we talk about Subscriber LTV, we’re talking specifically about the revenue potential of each individual who subscribes to your SMS marketing. This average encompasses customers as well as non-customers. (But obviously, the more subscribers you convert to customers, the higher your Subscriber LTV.)
So, a formal definition of SMS Subscriber LTV would be the average dollar amount each subscriber spends over the life of their subscription (assuming that the life of their subscription begins the moment they opt-in to your SMS list and ends the moment they unsubscribe from that list).
Subscriber LTV is calculated based on a combination of two main factors: total subscriber revenue and list retention. Postscript handles this calculation automatically and displays Subscriber LTV in real time on the Dashboard.
The longer you retain your subscribers—and the more purchases those subscribers make—the higher your Subscriber LTV. This indicates that you’re:
Doing a good job engaging your list
Providing relevant information and offers to each subscriber (thus boosting conversion rates and staving off unsubscribes)
Sending frequently enough to produce a healthy amount of attributed revenue
On the flip side, a low Subscriber LTV may indicate that:
Subscribers are churning out of your list too early to produce much attributed revenue.
You’re not providing relevant information and offers (which is dragging down your conversion rates and pushing people to unsubscribe).
You’re not sending enough messages to realize the full value of the channel (which may be the case if your retention rate is high, but you’re still not seeing the LTV you want).
We analyzed data across our user base of more than 7,000 shops to come up with the following benchmarks for low, medium, and high Subscriber LTV (denoted by “Room for Improvement,” “Intermediate,” and “Textpert,” respectively). If you’re in the low range, then we suggest taking immediate action based on the recommendations we’ve laid out below.
Why is SMS Subscriber LTV important for ecommerce brands?
We’ll dig into the merits of Subscriber LTV in a moment, but first, let’s return to ROI—and its cousins, acquisition cost and attributed revenue. To really grasp the importance of LTV, you must understand the limitations of these other, more commonly cited key performance indicators (KPIs).
Acquisition Cost and Attributed Revenue are One-Dimensional
Sure, it’s good to know how much you’re spending to acquire a subscriber or a customer—but your average cost of acquisition doesn’t tell you anything about the value of that subscriber or customer to your business.
And while monthly or weekly attributed revenue gives you some insight into the value of your subscriber list, it’s only providing a snapshot of the past. It doesn’t say much about the value of your list next week, next month, or next year. It also doesn’t provide any insight into the effectiveness of your messaging strategy (i.e., whether you’re sending at the right frequency, targeting the right segments, serving up the right offers and creative, and converting at the highest possible rate).
Additionally, by the time you notice a change in revenue—positive or negative—the triggers of that change have already been set in motion. In other words, similar to ROI, revenue is a lagging metric—not one that delivers the type of intelligence you can use to take proactive, strategic action.
ROI is Short-Sighted
Speaking of ROI: While it starts to connect effort and strategy with overall performance, it also is not very forward-looking. Achieving a great ROI with one SMS campaign doesn’t necessarily mean your next one will generate the same results. Similarly, your overall ROI on SMS one month isn’t a reliable predictor of ROI for future months.
Retention is a Forward-Looking Metric
Retention, on the other hand, is inherently forward-looking. Your actions today will impact subscriber retention tomorrow. This is perhaps the most distinguishing feature of Subscriber LTV. It’s a revenue metric that also factors in retention.
This is incredibly important, because whether directly or indirectly, you’ve invested time and money into acquiring every single one of your opt-ins. And as time goes on, the investment required to grow your list is only going to increase. So, it’s critical that you retain and maximize every subscriber you’ve already collected. Think of them as a limited and precious resource. If it is possible to drive multiple transactions per customer, then that should be one of your top goals.
Subscriber LTV is Foundational to the Total Value of SMS for Your Brand
That’s not to say list growth isn’t still incredibly important, because it is. In fact, list size is the first half of the total value equation (more on that below).
Once you get a subscriber, though, your focus should immediately turn to keeping them—and whereas ROI tells you nothing about how well your retention efforts are working, Subscriber LTV does.
Retention is inherently a long-term, future-looking goal. You cannot maximize your Subscriber LTV if your messaging is missing the mark and thus, causing subscribers to churn out of your list. So, using LTV as a guiding metric forces you to balance send volume with messaging quality and relevancy—which is the only way to truly get the most out of your messaging in the long term.
And that brings us to the crux of the argument for Subscriber LTV: It’s the key to quantifying the total value of your SMS program to your business. Not just the value over the last month or the last quarter—but the total potential revenue impact for the life of your business.
Going back to the point above, when combined with your list size, your Subscriber LTV can tell you the exact dollar value of that revenue impact. Here’s the formula:
Total Dollar Value of SMS = [Total Number of Subscribers] x [Average Subscriber LTV in Dollars]
By focusing on these metrics—rather than ROI alone—you can set your brand up for steady, predictable, healthy SMS revenue growth in the long term.
Which factors feed into Subscriber LTV?
On the surface, the three main factors that influence Subscriber LTV are engagement, retention, and conversion:
Engagement means you’re sending the right messages to the right people at the right time. It also means you’ve found your sweet spot in terms of messaging frequency—your subscribers aren’t overwhelmed by constant outreach, but they haven’t forgotten about you, either. You’re meeting your subscribers where they are with messaging they actually want to consume. You’re delivering a great experience and nurturing a positive brand perception.
Retention means all of those engagement efforts are working their magic. You’re giving people a reason to stay subscribed to your brand—even when opting out is as easy as replying “stop.”
Conversion means you’re successfully aligning your offers and CTAs with your engaging messaging. You’re using subscriber data and segmentation to make those offers as targeted and personalized as possible. You’re testing different offers and CTAs against each other to determine which ones work best for which segments.
Now, let’s go one layer deeper and talk about the levers brands can pull to impact all of the above.
Which metrics influence Subscriber LTV, and how do you optimize them?
ARMR: The Value Lever Metrics
Here’s where the rubber really meets the road. Through extensive data analysis of the 8,000-plus brands on the Postscript platform, we’ve identified four core metrics that are essential to driving Subscriber LTV and, ultimately, maximizing the total value of your SMS marketing strategy. They are Acquisition Rate, Revenue per Message, Messages per Subscriber, and Retention Rate (ARMR).
Returning to our formula for the total dollar value of your SMS program, you’ll recall that the first variable is the number of subscribers (a.k.a. list size). Acquisition Rate is the most important metric that keeps this variable healthy over the long term. Acquisition Rate focuses on both list size and health. To keep increasing the potential value of your SMS strategy and maximizing long term revenue, you foundationally must keep growing your list and adding subscribers at a consistent rate.
At Postscript, we calculate Acquisition Rate by dividing the total number of new subscribers over the last 30 days by the total number of orders over the last 30 days.
Levers to Pull
List growth is not a one-and-done sort of endeavor. It’s important to consistently add to, refresh, and optimize your efforts in the following areas:
Look at the opt-in popups you currently have enabled for your site. Is it time to test a new, more engaging design or a stronger, more creative CTA? If you also have a popup for email collection, could you test displaying your SMS popup first—particularly on mobile? How often does your collection popup show—and could you display it more often (e.g., every third visit for non-subscribers)? Explore all the popup configurations Postscript has to offer here—including our integrations with popular popup builders.
This is an easy one. Make sure there’s an SMS opt-in at Shopify checkout. (Here’s how to enable this in Postscript.)
Back in Stock Collection (Coming Soon to Postscript!)
As we announced during our first product launch event of 2022, we’re currently in beta testing for a Back in Stock opt-in and automation. As explained in the event recap, “Shoppers simply click the option indicating that they would like to be notified when a sold out item is back in stock. Then, they enter their information in a popup form, which automatically adds them to the waitlist for that product. Once inventory levels reach a certain threshold, they’ll automatically receive a text letting them know they are able to purchase the product.”
Other Website Opt-Ins
Think about other places on your site where you might be able to drive opt-ins. Perhaps you could test adding a banner or slide-in to certain pages (product pages, for example). Or, you could try linking to your opt-in landing page from your footer.
This is another super easy one! Send periodic email campaigns aimed at getting current email-only subscribers to opt into your SMS messaging as well. Be sure to emphasize the unique value prop of joining your SMS list (e.g., first access to new products, exclusive discounts and sales, the opportunity to participate in fun events and giveaways, etc.). Learn more about growing your list via email here.
Could you add an opt-in QR code to product packaging or tags? Some brands also display QR codes on physical ads and brand signage. Learn more about growing your list with QR codes here.
Social Media Collection
There are tons of ways to grow your list with social media—both paid and organic. For example, you could run a Facebook ad with a CTA inviting people to subscribe via a unique keyword. Or, you could create an Instagram story featuring a sticker link that routes to an opt-in short link you create within Postscript—which is a quick way to turn your most engaged followers into SMS subscribers. Follow the links below for more detailed instructions on how to leverage each platform for subscriber collection:
Revenue per Message
Okay, on to the R, M, and U of ARMU (a.k.a. the Subscriber LTV metrics). These are the sub-metrics that influence the total lifetime value of each subscriber on your list—which, when multiplied by the total number of subscribers, reveals the total value of your entire SMS program.
The first one, Revenue per Message, is pretty straightforward. Many of you know this metric as EPM, or earnings per message. It’s the average dollar amount of attributed revenue for each text message you send. Investing in a more contextual SMS strategy leads to a higher average Revenue per Message. That means focusing on great creative as well as meaningful segmentation (versus sending the same templatized 15% discount and burning out your list).
At Postscript, we calculate Revenue per Message by dividing the total SMS-attributed revenue over the last 30 days by the total number of messages sent over the last 30 days.
Levers to Pull
Looking at the ratio of automation messages to large-batch campaign messages is a good place to start. Automations are triggered by subscriber action, which inherently makes them more contextual. So, it’s no surprise that they yield a much higher average Revenue per Message.
Next, focus on optimizing your most valuable automations, including your abandonment automations (e.g., browse abandonment and cart abandonment) and your welcome series.
When looking at your SMS program as a whole, think about how you can further segment every automation and campaign send to deliver more relevant, personalized messages to subscribers. Can you send different versions of a campaign based on past purchases or keyword replies? Can you set up slightly different versions of your post-purchase automation based on product SKU or time since last purchase?
Perhaps your message creative could use a mini-makeover. Try leveling up your copywriting or testing MMS versions of certain messages. (These can be especially effective when showcasing new products.)
Finally, be sure you’re testing out different offers and CTAs for different segments. If you’re using the same type of offer (e.g., 15% off) over and over again—across multiple campaigns and automations—then that should be a red flag. Think about other incentives that might drive conversions—free shipping or returns, a bonus gift, or even positive reviews from current customers.
Messages per Subscriber
Next comes Messages per Subscriber. The goal here isn’t blasting out as many messages as possible in the name of revenue generation—but it isn’t being overly cautious with your send frequency, either. It’s about finding the right sending cadence for your brand—rather than seeking and sticking to a blanket recommendation. (Actual blankets are great—blanket recommendations, not so much.)
Some brands—like DailySale—do send daily, because that’s what their subscribers expect and signed up for. Others may send five or six times a month through automations, detailed segments, and drip campaigns. The key is increasing sends (assuming they check the contextual messaging boxes discussed above) as long as you continue to see Subscriber LTV moving in a positive direction—and then letting up if that changes.
The great thing about a platform like Postscript is that we have built-in guardrails to combat messaging fatigue. Specifically, our Safe Send functionality automatically blocks sends to subscribers who have received any messages from your brand in the last 16 hours. So, no matter how many campaigns or automations you have running, you can rest assured that you’re not bombarding subscribers with one message after another in rapid succession.
At Postscript, we calculate Messages per Subscriber by dividing the total number of messages sent over the last 30 days by the total number of subscribers.
Levers to Pull
Again, we recommend leaning more heavily into automations here, because they are triggered by subscriber action. In fact, you should have as many automations running as you possibly can (assuming they make sense for your subscribers and your customer journey). These include:
Learn more about setting up all of these automations—and more—within Postscript here.
That’s not to say you shouldn’t be sending campaigns, because you should. Large-scale campaigns are a fantastic way to promote a big sale, hype a new product drop, or send a holiday-focused (or other timely/seasonal) message. Campaigns can also be solely engagement- or education-focused (and we actually recommend peppering in these sorts of messages to make your SMS program feel more conversational to subscribers). Check out this resource for some great conversational campaign ideas.
Now, while many brands equate “campaign” with “full-list send,” that isn’t necessarily always the case. In fact, it shouldn’t always be the case. The brands that get the most out of their campaigns segment their audience and tailor their campaign messaging accordingly. So while you may send the same total number of messages that you would with a full-list blast, you’re sending different messages to different groups of people.
For example, say you’re a sports nutrition brand and you’re launching a new flavor of a popular protein shake mix. You might send subscribers who have bought one of your existing flavors of this product something like: If you liked this shake in [INSERT PREVIOUSLY PURCHASED FLAVOR], then we know you’re gonna love it in [INSERT NEW FLAVOR]. Let us prove it to you with 15% off your order. Shop now: [INSERT DISCOUNT LINK].
Subscribers who have not previously purchased an existing flavor of this product, on the other hand, might receive a message like: We just dropped a brand-new flavor of our most popular protein shake: [INSERT NEW FLAVOR]. People are loving it even more than our other flavors, so we know it won’t last long! Get yours now and snag 15% off: [INSERT DISCOUNT LINK].
On the conversational side, you could use a keyword campaign to bucket subscribers into different segments—and then send a follow-up message with an offer specific to the keyword they replied with. Here’s an example from natural soap brand Dr. Squatch (keep in mind that this first message went to a large group of subscribers):
And here’s an example of one of the follow-up messages subscribers received after replying with their chosen keyword:
The more targeted and segmented your messages are, the more they will be welcomed by your subscribers. So, as you evaluate your current campaigns, look for opportunities to tailor and segment. This resource explains the how and why of segmentation in Postscript, and this one provides some ideas for elevating your creative game with images, GIFs, emojis, and custom links.
Finally, Retention Rate provides an indicator of list churn—something you must keep to a minimum in order to drive loyalty and repeat sales. Every subscriber who leaves your list is a lost sales opportunity. A leaky bucket does not lead to long-term revenue.
At Postscript, we focus on how many subscribers stay on your list for at least 30 days after subscribing. (That’s because subscribers are more than five times as likely to opt out during the first 30 days than they are at any other point in the subscriber lifecycle.) By examining unsubscribe behavior during the first 30 days, we can much more accurately predict Subscriber LTV than we can looking at an arbitrary period of time.
To calculate Retention Rate, we divide the number of subscribers who remained on your list for their entire first 30 days by the total number of subscribers on your SMS list that opted in during that period.
Levers to Pull
If your Retention Rate is lower than normal, first look at when the majority of unsubscribes are happening. Is it in response to a particular type of campaign or automation? If so, it could be a sign that you’re fatiguing subscribers with too many messages or too much repetition (i.e., the same offer over and over).
While many brands assume frequency is the culprit, the true problem often isn’t the quantity of messages, but the quality. Going back to some of the points we made about campaigns, it’s important to capitalize on opportunities for segmentation and customization—both of which ensure subscribers are receiving messages that align with their interests, behavior, and place in the customer journey.
And again, make sure you’re leaning into automations as well—these messages are tied to subscriber action, making them inherently more contextual than campaigns. Already have several automations up and running? Follow these recommendations for making each automated message even more targeted and personalized. After all, when you’re sending subscribers messages they actually want and expect, you’ll significantly reduce their chances of unsubscribing.
When you use Subscriber LTV as your North Star for SMS strategy and performance, you set your brand up to harness the full power of text marketing for the entire life of your business. Here at Postscript, we’re 100% dedicated to helping every single customer maximize Subscriber LTV—whether they’re just getting started with SMS or they want to unlock the full potential of their existing SMS program.
Senior Content Marketing Manager
Brooke Andrus is a Senior Content Marketing Manager at Postscript. A journalist by trade, Brooke now uses her nose for news to keep ecommerce merchants informed on industry trends and business best practices.