March 8, 2018 | Authored by: Kevin Cancilla
Why your subscription business must make canceling easy
Pop quiz: How many of your customers churned this month? How many will churn by the end of the year?
As you're undoubtedly well aware, these metrics are very important to your company's bottom line. The reflex action for most subscription businesses is to make canceling their service as difficult as possible in order to prevent churn. Unfortunately, such a strategy often ends up doing more harm than good, souring the customer's experience and impacting the company's ability to improve its products.
Let's review why subscription business best practice can dictate an easy cancellation experience:
Cancellations are the last impressions customers have of you
Cancellations aren't always the end of the merchant-customer relationship. They're sometimes temporary - or can be, assuming the company handles the process correctly and provides a positive experience. Since you already have their contact information, you can retarget them with discounts and other offers after any number of months - three, six, 12 or 36, depending on what you've found works best for your business. Customers who cancel can often be easily persuaded to rejoin the service as long as they don't encounter any friction during either process.
Otherwise, a bad cancellation experience will distress departing customers and encourage them to turn to a competitor rather than reconsidering your organization should they need a similar service in the future.
If you're truly worried at the thought of customers ending their subscriptions, you can give them the option to suspend service instead. This way, they neither receive nor pay for the product for an extended period, but can return without having to complete the entire onboarding process. Furthermore, they may still have a more positive impression of your company.
Churn data is a benefit, not a curse
Though it may seem like bad news at first glance, data from customer churn can be the best way of showing you where and how to improve your product. Details like average usage duration, frequency of help desk calls prior to churn or average number of users (if applicable) can all lead you to various conclusions about your product. For example, after examining your churn data over a period of time, you may come to realize that:
- Your product is only useful for a certain duration
- Your product isn't intuitive enough for daily use
- Your product only benefits customers in a certain region
Your own judgments may be different, of course, but they can nevertheless help you improve your product.
Making cancellation easy reduces the risk of chargebacks
Customers looking to cancel their subscriptions will dispute any charges made after their decision, regardless of whether or not the cancellation was successful. While the customer may think of the situation in simple terms ("I didn't want this product and shouldn't have to pay for it"), the issuing bank will list a specific reason and associated code. Each code will require a different diagnostic effort on your part, and to make matters worse, each issuer has its own unique number of total possible reasons. This means that two customers could provide the same reason for chargebacks, but if their issuing banks differ, you may not be able to use the same diagnostic process for each.
In addition, acquiring banks may charge a fee or penalty for each chargeback they receive. This means if you have a high number of subscribers using a particular bank, and a significant portion of those customers initiate chargebacks, a chunk of your profit could go to paying back these fees.
Furthermore, the greater number of chargebacks your business incurs, the higher penalties you may have to pay. Visa and MasterCard will place large fines on merchant banks that have merchants who experience a high number of chargebacks. Banks usually pass these fees on to the merchant. If your bank sees a huge volume of chargebacks, it may even doubt the validity of your business and cease working with you.
Therefore, it's best to avoid this cumbersome process entirely by ensuring a smooth cancellation process and avoiding the possibility of chargebacks.
Utilizing cancellation best practices with Vindicia
Optimizing your cancellation procedure requires extensive customer data and knowledge of industry best practices. These strategies can vary between subscription businesses in different industries; what's best for an OTT company may not suit an online SaaS venture, and so on.
Vindicia gives businesses access to what we call the Network Effect, which is the culmination of business and data insights accumulated from years of serving as an industry-leading subscription billing service. We know how to design all aspects of the subscription lifecycle, including cancellation strategies, that are tuned for each industry, and we help our clients optimize their processes so their customers have a seamless, positive experience, even on cancellation.
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