September 5, 2018 | Authored by: Kevin Cancilla
Passive churn: Understanding the stakes
The subscription business model is taking off. Equal parts innovation and disruption, the subscription revolution has attracted the attention of ambitious startups and established businesses that want to diversify.
However, there is much more to maintaining a successful subscription-based business than continually adding new users. Customer retention and churn control are vital to the health of a subscription business. Without an adequate churn prevention strategy, and specifically a plan to address passive churn, companies may be neglecting a crucial stage in the subscription lifecycle.
Passive churn – an oft-hidden and damaging pitfall
Adding customers to subscription rolls is undoubtedly a priority, but too often, businesses end up with tunnel vision focused almost exclusively on acquisition. This can happen for many reasons: Investors use customer growth as a high-profile indicator, while internal goals may stress certain acquisition targets, for instance.
In any case, when such a narrow perspective exists, it's possible for churn to undermine company health. Churn can come in one of two forms: active churn and passive churn (also known as involuntary churn). For the most part, companies are well aware of active churn, or when customers choose on their own to leave a service. Yet many organizations underestimate the significance of passive churn, which is in many ways the more dangerous kind.
Passive churn occurs if a payment snag interrupts service for a customer who otherwise wants to continue their account. As a result of the payment failure, the merchant providing the service will need to reach out to the customer for a new payment method and eventually may be forced to cancel the subscription. Ignoring passive churn can:
- Undermine efforts to grow
- Upset otherwise happy customers
- Eventually, cause merchants to lose accounts and revenue
Given the specter passive churn presents, investment in churn prevention tools is likely to deliver benefits across the entire organization by reducing expenses, improving the customer experience, and sustaining growth initiatives.
Targeting churn means getting serious about retention
In subscription businesses, retention sometimes comes in low on the priority totem pole. However, lackluster retention can seriously damage acquisition and overall operations.
Each customer lost is one customer that the company needs to replace. That can be an incredible burden. In a Forrester research report, 68 percent of business respondents said replacing lost customers were either "very" or "extremely" difficult. In the same report, 91 percent said it costs twice as much to acquire a new customer than it does to retain one.
Subscription businesses may be aware of the phenomenon of passive churn, but don't always possess the time, tools, or expertise to remedy it. If they took the time to track, measure, and evaluate the extent of the damage to their business, they would get serious about fighting back.
Using Vindicia Select to address passive churn
When looking to add to their arsenal of churn-prevention tools, subscription businesses should consider using Vindicia Select.
At Vindicia, we call ourselves the Subscription People because we are totally devoted to the success of our clients' subscription business. Passive churn is one of the fundamental challenges to subscription business success, and Select is Vindicia's answer to passive churn. Vindicia utilizes techniques that help our clients retrieve more failed transactions, thereby reducing churn and increasing revenue. Vindicia Select is our secret sauce. In addition to Vindicia's ability to resolve transaction failures through smart retry, Select retrieves up to 30 percent of terminally failed payment transactions. How? By utilizing a mix of unique advanced techniques that make payments flow successfully, boosting customer lifetime value and revenues.
Select leverages Vindicia's Network Effect. Through advanced analytics and our experience processing billions of transactions across hundreds of millions of accounts and cards, Vindicia has created invaluable data that can be applied to help solve passive churn problems.
Containing churn can help subscription companies grow faster and at a lower cost – advantages that highlight the urgency in addressing passive churn. Contact Vindicia today for more information.
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