June 18, 2019 | Authored by: Michael Isaacs
6 Lessons you can learn from customer cancellations to boost your business
Customer cancellations are a fact of life for subscription businesses. No matter how good your services are or how competitively you price them, you will have to contend with customer churn.
Cancellations don't need to be entirely negative experiences for subscription-based businesses, however. Every instance of customer churn can be a learning experience, an opportunity to better understand your customers and what drives formerly satisfied users to cancel their subscriptions. Those insights can help you improve your products and services; optimize your business; and predict, prevent and reduce customer churn in the future.
Here are six tips on how to derive insights from customer cancellations to improve your subscription business over the long run.
1. Make cancellation easy (yes, really)
It may seem counterintuitive, but it's in your best interest to make the cancellation process quick and easy. In the past, there were those who argued that making cancellation complex would discourage churn and keep retention rates high.
Well, it turns out that was shortsighted. The reality is that the customer relationship often continues after cancellation. Customers who canceled will often renew their subscriptions at a later date, especially if they left on good terms and with a positive experience.
For instance, let's say you're a customer who has a subscription with an online sports and entertainment media group to receive exclusive information, expert insights, and breaking news. If you become dissatisfied with that service, you would reasonably expect that you could cancel your subscription through the website, mobile app, or other digital portals.
However, the media group, despite being a wholly online entity, insists that all cancellations be submitted over the phone. Such a transparent move to discourage users from canceling may reduce churn rates in the short term, but it introduces customer friction and could sour the relationship over time. Consumer frustration with these kinds of tactics is widely reported, and the state of California even passed a law prohibiting them.
Customers who go through the arduous process of ending their subscription will be left with that frustration as their lasting impression of the service. Down the road, if former customers consider signing up again, they'll remember how difficult it was to cancel, which could dissuade them from coming back.
It's always a good business practice for subscription merchants to reach out to former customers as part of their marketing and outreach efforts. According to some estimates, you're 13 times more likely to bring back an old customer who had canceled their subscription than entice a brand-new customer to sign up for your services. They've already taken the plunge and subscribed once before, so clearly, there's something they like about your offerings. It's just a matter of fine-tuning the customer experience to boost retention.
2. Ask customers why they canceled
Churn data is a great source of insight into the customer experience and where your business has failed to live up to expectations, but nothing beats getting that feedback straight from the horse's mouth.
Even as your customer is walking out the door, don't miss the opportunity to ask about their experience, why they left, and how your business could improve. That could be something as simple as sending out an automated email at the point of cancellation asking why they canceled. The more direct and specific the information you gather, the more you learn how to improve your services.
3. Design your services for the long haul
Some subscription businesses just aren't set up to retain their target customer base for long.
For example, online gaming platforms that focus on educational software or children's games will find that their customers will outgrow their services at some point.
In that scenario, does it make sense to dedicate resources to winning back lost customers who just aren't interested in those services anymore? One way to handle such a situation could be to focus on customer acquisition rather than retention, since, in this case, the organization knows that long-term customer retention is impractical.
The shrewder move would be to understand the core problem and reach the realization that it is worthwhile to invest in expanding the platform's content and variety to continue to appeal to older children or a wider audience. Either way, the business can utilize the cancellation data to determine where to allocate its resources to maximize revenue and make the most of its customer base.
4. Find the right carrot to encourage retention
Promotional offers for new customers are routine for subscription businesses, but those deals should not be distributed arbitrarily. With the right insight, you can leverage introductory sales and offers to encourage customer retention.
"With the right insight, you can leverage introductory sales and offers to encourage customer retention."
Your customer churn data may show that many cancellations occur within the first three months of service. Retention rates increase significantly thereafter.
With that information in hand, you can improve customer retention rates by getting subscribers over that initial three-month hump. Constructing your introductory offer as 50% off for the first four months could achieve just that. You may sacrifice a little revenue upfront, but the long-term gains from increased customer retention will more than makeup for that.
5. Get smart about seasonal fluctuations
Customer churn data will tell you a lot about what transpired within your service leading up to a cancellation, but it's also important to look at external factors.
A flurry of six- or 12-month subscriptions around the holidays that lapse as soon as the initial period ends could be a good indication that those subscriptions were gifts paid for by other people. Maybe the recipients simply weren't interested in your services, to begin with, making retention extremely difficult.
Your data may show that cancellations tend to increase around certain seasons — the beginning or end of the academic year, for instance. If you can anticipate these upticks in cancellations, you can preemptively send subscribers retention offers, such as getting the next year's subscription for half the price. You'll get ahead of churn risks and improve customer retention rates.
6. Use data to predict and prevent cancellations
While there are instances where a single incident pushes a customer to cancel their subscription, in all likelihood, they arrived at that decision over the course of a longer period of time. Perhaps they no longer need your service or have found a cheaper one.
Looking over your data, you may find that across recent weeks or months a customer had been logging into their account less frequently, or spending less time in your app.
There are also external factors that could be encouraging churn, such as a new competitor entering your marketplace offering comparable or even superior services at a lower price point. Or maybe an existing competitor has launched an aggressive customer acquisition campaign to steal subscribers from other subscription services.
Once you have a picture of why customers are leaving or liable to leave, you can construct the retention offer that positions you best to retain the customers or even win them back.
Get more insight into your customer cancellations
The more information you can gather regarding customer cancellation, the better armed you'll be to combat churn and drive up retention rates. We are the Subscription People and we have worked in every corner of the subscription business market, helping companies of all sizes refine their services and platforms to leave the biggest impact on the customer experience. We've seen it all, and we've done it all. Let us help you make the most of your subscription platform data and increase the lifetime value of your customers. To learn more, contact Vindicia today.
Which billing platform is right for B2C subscriptions?Download