A military veteran who’s now a marketing director and his marketing manager from a fast-growing subscription business contacted me recently with an all-too-familiar problem: “We’re hitting our subscriber growth targets quarter after quarter, but our board keeps hammering us about unit economics. What are we missing?”
After digging into their numbers during my office hours, the problem became painfully obvious. While they were meticulously tracking obvious metrics like media spend CAC and ARPU, they were completely blind to the true, all-in costs of running their subscription business.
The Illusion of Subscription Profitability
I’ve seen this pattern repeatedly throughout my career, both in-house at major subscription companies and with dozens of consulting clients. Companies celebrate hitting surface-level acquisition and revenue targets while completely missing the underlying economic reality.
In the military, we don’t have the luxury of deluding ourselves.YOu have to face the facts, no matter how uncomfortable. The uncomfortable fact is that most subscription businesses are significantly less profitable than their dashboards suggest – sometimes to the tune of 40-60% less margin.
Why? Because they’re not accounting for the full picture.
The True Cost of Growing a Subscription Business
Let’s get specific about what most subscription businesses are missing when they calculate their unit economics:
1. True Customer Acquisition Costs
Most businesses track basic media spend divided by new subscribers. But that’s just one small slice of reality.
With one media subscription client, we discovered their true CAC was 38% higher than reported when we factored in:
- Creative production costs for all those Facebook and Google ads
- Development time for landing pages and conversion funnels
- Attribution software licensing fees
- Team salaries
- Content marketing expenses
- Agency management overhead
- Affiliate and partnership costs
For every $100 they thought they were spending to acquire a customer, they were actually spending $178. That’s not a rounding error – it’s the difference between profitability and slow-motion failure.
2. Support and Retention Team Costs
Your customer support team isn’t free. Neither is your retention marketing team. Yet most subscription businesses don’t allocate these costs when calculating unit economics.
With another client, we implemented a time-tracking system to understand how support and retention resources were allocated across subscriber segments. The revelation? Their enterprise tier, while generating the highest revenue, was also consuming a disproportionate 68% of support resources.
When we factored these costs into their unit economics, their supposedly “most profitable” segment became their least profitable.
3. Infrastructure Scaling Costs
As you grow, your infrastructure needs scale – sometimes exponentially. Server costs, database management, engineering resources, product team expansion – these aren’t just overhead; they’re directly tied to maintaining service for your subscribers.
One subscription software client was projecting 3x growth over 18 months but had budgeted for only a 6% increase in infrastructure costs. When we built a proper model accounting for their technical debt and scaling limitations, the true cost was nearly 4x their projection.
Growth looks great until your platform crashes because you didn’t budget for proper scaling.
4. Hidden Churn Impact on Lifetime Value
Churn isn’t just about lost revenue – it’s about wasted acquisition costs and support resources. When a subscriber leaves before reaching breakeven, you’ve essentially donated money to acquire them.
With one client, we discovered that 38% of their subscribers were churning before they reached profitability. They were effectively subsidizing a third of their user base, creating an unsustainable economic model that no amount of growth could fix.
The Military Precision Approach to Subscription Metrics
In the Marine Corps, we learned to assess situations with precision and rigor, facing the hard truths with no fluff or BS. That’s exactly what your subscription metrics need.
Here’s the framework I use with clients to build a complete profitability picture:
Step 1: Build a Comprehensive Acquisition Cost Model
Track every expense related to acquiring subscribers:
- Media spend by channel
- Creative development costs
- Landing page and funnel development
- Marketing team salaries (allocated properly)
- Agency and vendor fees
- Attribution and analytics tools
Step 2: Develop Support Cost Allocation
Implement systems to understand the true cost of supporting different subscriber segments:
- Track support tickets by subscriber cohort
- Allocate retention marketing costs by segment
- Understand onboarding costs for different tiers
- Map customer success resources to subscription value
Step 3: Create Infrastructure Scaling Models
Work with your tech team to build honest projections:
- Server and cloud service costs at different scale points
- Database management as subscribers grow
- Engineering resources needed to maintain performance
- Technical debt remediation timelines
- Security and compliance scaling costs
Step 4: Calculate True Lifetime Value
Move beyond simple revenue multipliers:
- Model cohort retention with statistical significance
- Factor in upgrade and downgrade behaviors
- Include support and infrastructure costs
- Analyze profitability timelines by acquisition source
Facing the Hard Truths: A Case Study
One of my subscription clients was celebrating hitting 100,000 subscribers, well ahead of their projections. Their executive team was planning a major expansion based on their apparent success.
When we applied the framework above, we discovered something alarming: they were actually losing $8.42 per subscriber on a fully-loaded basis. Their growth wasn’t just unprofitable – it was actively destroying value. Each new subscriber was accelerating their path to failure.
We immediately restructured their acquisition strategy to focus on higher-LTV segments, optimized their support operations, and rebuilt their infrastructure scaling plans. Six months later, they had fewer subscribers but were actually profitable on a unit economic basis.
The board that had been hammering them about unit economics became their biggest champion.
The Path Forward: Metrics with Military Precision
If you’re running a subscription business, it’s time to face your metrics with unblinking honesty:
- Stop celebrating vanity metrics. Subscriber counts and top-line revenue aren’t success metrics if your unit economics don’t work.
- Build a complete profitability model. Include every cost associated with acquiring, supporting, and retaining subscribers.
- Analyze profitability by segment. Not all subscribers are created equal. Understanding segment-level economics is critical.
- Create honest projections. Model your actual costs at scale, not your optimistic hopes.
- Face the hard truths. If your unit economics don’t work, no amount of growth will fix your business.
The Bottom Line
In the Marine Corps, false reporting gets people killed. In business, false metrics get companies killed.
Your subscription business is probably less profitable than you think. That’s not a criticism – it’s an opportunity to build a truly sustainable, profitable growth engine.
Do the hard math. Face the hard facts. Then develop your strategy and take action.
Your board – and your bank account – will thank you.
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I help subscription businesses with growth strategy and execution so they can grow in a predictable, repeatable way. After 20+ years of leading growth at companies from startups to major media brands, I’ve seen what actually works. Want to discuss your specific challenges? Let’s connect.
Want to stay up to date on all things growth/digital marketing? Subscribe to my Substack: https://substack.com/@chiefgrowthadvisor
Best,
Rob
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