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This article is for you if:
- You want a better understanding of subscription churn
- You are looking for practical ways to reduce your subscription churn rate
- You are shopping for a robust subscription management solution to help bring your subscription churn rate down
- You want to take advantage of a free strategy session with an e-commerce expert
Subscription churn is a term that describes the number of recurring customers that stop doing business with your brand during a given time period. To calculate your churn rate, simply divide the number of churned customers in a time period by the number of total customers you had when the same time period started.
Why subscription churn matters
Why is it important for subscription merchants to continually monitor churn metrics? For one thing, it impacts your bottom line. At the end of the day, retaining existing customers is less expensive than acquiring new ones. If your business has a high subscription churn rate, it’s like you’re constantly striving to fill a leaky bucket.
Another reason you must pay attention to subscription churn is if you’re trying to secure outside funding. According to Solvvy CEO Mahesh Ram, a churn rate below 5% is the “magic number” for investors.
2 types of subscription churn you should be tracking
There are two types of subscription churn that provide insight to the overall business impact.
- Customer churn: The number of customers that cancel in a given time period
- Revenue churn: The percentage of revenue lost as a result of canceled or downgraded subscriptions in a given time period.
It is important to track both of these metrics separately because one is not always a good predictor of the other. For example, your customer churn rate may be low, but if you are losing your high-paying customers, your revenue churn would be higher. The opposite could also be true – you could be losing customers at a higher rate than your revenue. This could happen if your best customers spent several times more than your low- or even average-paying customers.
Keeping a pulse on both metrics can lead to more informed and effective decision-making. It also allows you to gain better insight into where you stand with customer retention as well as your upselling efforts.
7 Ways to Reduce Subscription Churn Now
7. Alert customers of failed payments immediately
While some churn is voluntary (meaning a customer purposely canceled), some is involuntary. Involuntary churn is related to the payment process. That means the subscription lapsed because of expired payment details, lost or stolen credit/debit cards, or exceeded credit limits.
One of the best things you can do to stop involuntary churn is to have an automated process in place that immediately alerts customers of billing issues. If the customer finds value in what you offer, they will update their billing information to avoid an interruption of service.
6. Identify why subscription churn occurs
Voluntary churn is often related to customer experience, but not always. Sometimes, a customer may have a life circumstance that forces them to pause recurring payments. If that’s the case, they will return when possible if your product or service added value to their lives.
However, if they have had a poor experience, there could be issues you need to address. That’s why customer feedback is so important when it comes to reducing subscription churn.
Believe it or not, customer complaints are actually a good thing! Analyzing customer data and feedback is key to understanding subscription churn. Research by analyst Esteban Kolsky reveals that 13% of unhappy customers will share their complaint with 15 or more people. Ouch! But unfortunately, only one out of 25 dissatisfied customers will complain directly to you.
So, how are you supposed to know why a customer canceled their subscription voluntarily if they don’t come out and tell you? The best way to get them to share why they canceled is to invite them to share their feedback. Request feedback as part of your cancellation process, or send a follow-up email survey.
Also, consider sending churned customers the potential undiscovered value your product or service offers. Rather than simply saying, “Thanks for your feedback,” send them a list of things they can do to get more out of your subscription should they return.
5. Create a movement
As part of his SubSummit presentation, Top 3 Churn-Busting Tips, Ram talked about Casper Mattress. Although their advertisements were prominent on subways and other high-trafficked spots, they never outright tried to sell mattresses and pillows. Rather, the company focused on the lifestyle surrounding getting a good night’s rest. On its blog, you’ll find topics like:
- How to Find Your Chronotype to Improve Your Sleep and Productivity
- Healthy Late Night Snacks: 28 Ideas to Curb Your Cravings
- How to Fall Asleep Fast: 20 Tips to Beat Insomnia
Casper Mattress is a good example of a company that emphasizes its purpose over its product. Furthermore, by positioning itself as a lifestyle brand, they open the opportunity to capitalize on an adjacent market, such as wellness products or meditation apps.
4. Be mindful of your billing cycles
Ram’s company, Solvvy, created a chatbot that helps businesses automatically resolve customer issues before a support team ticket is needed. The nature of his business provides insight into customer complaints. During his SubSummit talk, Ram divulged that a high number of customers complain when they are billed at the first of the month when they do not receive products until the 15th.
The takeaway here is obvious — focus on narrowing the gap between the payment and shipping dates if you sell physical products. In addition, consider sending a courtesy email to customers reminding them that they will soon be charged each time their payment is about to go through. This will earn you some major cx brownie points.
3. Provide the option to downgrade or pause the subscription
We discussed this point in a previous blog post, and it’s worth mentioning again. Providing an option for a customer to downgrade or pause their subscriptions can help reduce subscription churn.
Everyone’s situation is different, and while your product or service may not be in the budget this month, that could change in the future. In fact, according to the Subscription Commerce Conversion Index, 44% of consumers who are likely to cancel would instead pause their subscription if given the option. By not offering the choice to postpone, you are potentially leaving money on the table.
2. Create an effortless experience for customers
One thing we already know about subscription customers is that they value convenience. Automation and self-service are your friends, and reducing subscription churn is directly tied to faster, more flexible experiences.
Ram shares that you should do everything you can to “help customers help themselves.” It drives subscribers crazy when they are unable to opt-out of a subscription. If it’s a nightmare for them to cancel, don’t count on them ever coming back.
Implementing a quick and easy sign-up process is another thing your business should strive for. The Subscription Commerce Conversion Index reveals that 61% of merchants had a faster sign-up process in Q4 of 2020 than in Q3. In fact, 70% of top 20 subscription performers and B2B merchants have reduced their sign-up times (as compared to only 45% of the bottom 20 subscription performers and 57.3% of B2C service providers).
1. Implement robust subscription management software
Adopting subscription management software that meets the complex needs of recurring revenue merchants is the No. 1 way to reduce subscription churn. That’s because it’s a single solution that can combat many of the above hurdles. The right solution will help you:
- Fine-tune your billing cycles
- Provide the option for customers to downgrade and postpone orders
- Automatically alert customers of failed payments
- Let customers know when they are about to be charged
- Give customers the flexibility to purchase multiple products with various billing types
- Allow customers the ability to manage their own subscription orders
PowerSync’s products, mPower for Magento and Recurrex for Salesforce, are great examples of this. If you want to see our powerful and dynamic subscription management solutions for Magento and Salesforce in action, watch the demos below. We also invite you to schedule a complimentary call with one of our e-commerce experts to get subscription business advice and discuss a potential fit.