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Churn calculation

Subscriber churn calculation

Business-to-consumer (B2C) subscription companies focus on two key areas as growth drivers: customer acquisition and customer retention. Businesses win customers with advertising, promotions, free trials, and so on. But true growth and profit come from reducing subscriber churn and increasing customer retention.

Even small monthly increases in retention can lead to huge gains in subscribers and revenue over time – boosting average customer lifetime value (ACLV). But churn is the enemy of ACLV. It is an often misunderstood concept that is frequently neglected, resulting in unnecessary loss of customers and long-term revenue.

Churn calculation and prevention are vital to the health of any subscription-based business. Without adequate customer retention and churn prevention strategy, companies may be neglecting a crucial stage in the subscription business lifecycle.

Customer churn calculation defined

Subscriber churn rate is defined as the number of subscriptions that have been canceled over a certain period of time. Churn rate is calculated via the following basic formula:

(total cancellations for a given period/total number of customers during the same time) x 100

Customer churn can be insidious, driving companies to invest more in acquisition to sustain growth targets, and ultimately damaging to brand value. When churn rises, internal value metrics fall. Subscription companies must constantly calculate churn rates, analyze the causes, measure the economic impact, and take proactive, corrective action to minimize churn through a data-based cost-benefit prism.

How to reduce passive churn

For the most part, subscription businesses are well aware of active churn (also called voluntary churn). Active churn is when customers choose on their own to leave a subscription service. Yet many organizations underestimate the significance of passive churn (also called involuntary churn), which is in many ways the more dangerous kind. Passive churn occurs when a customer who has no intention of leaving your service is disconnected from it, most often due to a failed (declined) payment transaction.

Subscription businesses can follow one of two approaches to manage passive churn caused by declined payment transactions: the “do-it-yourself” approach or work with a payment expert like Vindicia.

The do-it-yourself approach to passive churn reduction

Knowing how to recover failed transactions and reduce passive churn is a science that requires a substantial learning curve, experimentation, and expertise. Start with these steps:

  • Study retry successes and failures. What works and what does not work? Analyze the credit card issuer error response codes. Experiment. Look for patterns. Repeat the analysis every month to isolate uncharacteristic and exceptional results. This activity will help you get the most from the four retries that credit card issuers prefer you not exceed.
  • Experiment with retry patterns. Look for the best days of the week and the best date in the month to retry cards. Hint: it’s not Thursdays in countries where payday is usually Friday or the 31st of the month when payday is usually the 1st. Instead, explore overtime to find a pattern that delivers better results for your customer base.
  • Know when to try harder. Some subscription businesses routinely retry cards more times than card issuers recommend, which may raise issues with payment processors. But it can be smart to retry more than four times for some cards, as long as you keep your eyes on the cost and the success rates. As you learn more about response codes, you may gain the insight needed to know when it makes sense to retry a transaction more than the recommended four times.

The do-it-yourself approach to passive churn reduction can be difficult and time-consuming. And success may be limited. Fortunately, there is a better alternative.

The Vindicia Retain approach to passive churn reduction

Vindicia Retain is a mature, proven solution that fights passive churn by optimizing the capture of failed payment transactions. It reduces churn, increases revenue, and keeps happy customers connected to their services. In a single year, Retain recovered over 1,200,000 terminally failed transactions that our clients could not recover, generating over $65 million added revenue.

How does Vindicia Retain work? 

Over the last 15 years, Vindicia has accumulated a massive set of payment and subscription-related data based on $38 billion processed during 940 million transactions involving 351 million digital accounts and 273 million payment accounts. By combining our big data analytics and subscription intelligence with expertise in the banking and payment card industry, Vindicia has developed patented strategies that can automatically recover up to 15 to 30% of terminally failed payment transactions  – that is, transactions that merchants have not been able to recover after exhausting their retry schemes.

Retain analyzes why each individual payment transaction failed, and then resolves the issue that led to the failure in the first place. That includes making the most of the information in response codes, optimized retries, and intelligent account updating, as well as other more advanced techniques. Retain also makes use of partial authorizations to gain an understanding of the best potential route to full transaction success.

Churn calculation using the Vindicia Retain ROI Calculator

Check out our Vindicia Retain ROI Calculator and get your complimentary ROI report. You’ll see for yourself how Vindicia Retain fights passive churn. And you’ll instantly see just how much revenue Vindicia Retain can recover from your failed payment transactions.

Churn calculation

Vindicia Subscribe

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Churn calculation

Vindicia Retain

Increase retention and grow recurrent revenue

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