Subscriber churn management
Subscriber churn management
Customer churn is a major problem for any business, but companies with a recurring revenue or subscription-based business model are especially at risk for its harmful effects. It is well known that gaining new customers is more costly than retaining existing ones. Some estimates claim that customer acquisition is five times more expensive than customer retention. Effective churn management that increases customer retention rates is vital to sustainable market growth and ensuring the long-term health of any subscription business.
Beyond the clear financial problems associated with subscriber churn, there are product and service development ramifications to consider as well. Subscriber churn can have a paralyzing effect on business innovation. Many subscription stakeholders believe the threat of high churn rates stifles the pursuit of more dynamic and disruptive service models.
At Vindicia, we work with you to understand your subscriber churn, and we provide subscription management and subscription retention solutions to help you lower your churn rate. The key to successful churn management is to understand what's causing your subscriber churn rate to increase or decrease, and then utilizing that information to improve your business model in a way that positively improves your ongoing revenue streams.
What is churn?
Churn is the number of subscriptions that have been canceled over a certain period of time. Usually, the churn rate is calculated via the following formula:
(total cancellations for a given period/total number of customers during the same time) x 100
When you understand your churn rate and implement effective churn management strategies, you gain insight into what is and is not working in your subscription business. Subscriber churn rates can be indicative of many different issues that are negatively affecting your recurring revenue stream.
Slight fluctuations in subscription numbers are a fact of life for any recurring revenue business, and there is no reason to stress over every cancellation or failed payment. However, it is important to look at your subscriber churn rate as a whole, over a period of time, to learn about what your business can do better to keep customers happy.
What are the different types of churn?
There are two broad categories of churn: voluntary churn and involuntary churn. Voluntary churn refers to subscribers who choose to cancel their subscriptions in a given period of time. Voluntary churn rates can vary greatly from business to business. For example, the voluntary churn for subscription box services tends to be higher than the churn for video streaming services.
Involuntary churn, on the other hand, happens when a customer's payment fails and the subscription is then canceled without them reaching out to you to cancel the service. Causes of payment failure involuntary churn include:
- Outdated credit cards. From time to time, banks update credit card numbers, sending a new card in the mail. Customers often forget to update the card on all of their subscription services until they notice that some of the services have been cut off.
- Insufficient funds. When your service attempts to charge a credit or debit card and you are met with an insufficient funds message, it may prevent you from keeping the customer's service up and running. Insufficient funds can be due to a customer not having enough money in their account, having their direct deposit routed to another account, or switching banks. It is not necessarily a sign that they are no longer able to afford your subscription service.
- Improperly entered credit card information. This is often a problem when it comes to free trials. Customers sign up for the trial but make a mistake entering a digit in their credit card number. This translates to them getting the free trial, but your business being unable to charge their card at the end of the trial.
Active churn management techniques
When it comes to the first type of churn – active churn– here are some tips to help your subscription business combat churn and increase retention:
Make cancellation easy
This may seem counterintuitive, but it is 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. 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.
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.
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.
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.
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.
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.
Passive churn management techniques
While subscription businesses typically focus on active churn management, they often do very little to prevent passive churn. Most simply take a few steps to reduce the outward flow of customers who could be lost through passive churn. Rudimentary passive churn management techniques include:
Robotic retry logic
When a transaction fails, subscription companies simply try again some number of days later. Most billing platforms employ some sort of retry logic for failed transactions. But there’s rarely much insight informing the logic. One billing platform might retry every day until the end of the month, even though card issuer guidelines call for no more than four attempts. Another platform might retry four times at weekly intervals. It’s the same retry strategy no matter the cause of the failed transaction—with the hope of a different result. The smarter approach is to optimize retry logic to get the best results.
Basic account updating
Many subscription businesses use account updater services. That’s smart. But they don’t really pay much attention to when and how often to query the services for updates. Not so smart. Updates can take more than a week to reach an updater service. Some businesses fail to take this into account, leading them to cancel service to customers too soon.
Building a “saves” team
Some subscription businesses have a dedicated team reaching out to customers in hopes of manually resolving payment issues by contacting the customers. This will save some customer relationships, but at what cost? Returns on investments in saves teams can be quite low. This is especially true for B2C subscription services, where the prices of services are relatively low.
Take real action on passive churn
There is a much better way to combat passive churn and boost customer retention. Vindicia Retain fights passive churn by automatically evaluating failed payment transactions and applying proprietary business rules and logic to optimize the transaction so the payment can be processed successfully. In most cases, the issue will not recur in future billing cycles.
The result: a dramatic reduction in passive churn. The subscription business retains the revenues from both the current billing and all future billings because the customer stays with the service. Better still, when you fix failed transactions with Vindicia Retain, your customer won’t even know that there was a problem. There is no disruption in service and no need for an intrusive email or phone call.
Harness the “Network Effect”
The unique analysis that Vindicia Retain applies to failed transactions is derived from what we call the Vindicia “Network Effect.” Over the past 15 years, Vindicia has accumulated a massive set of payment and subscription-related data. This data is 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 Retain can automatically recover up to 15% to 30% of terminally failed transactions, immediately increase revenue by 3% to 6%, and dramatically increase lifetime subscriber value.
Deploy in days and see immediate benefits
Vindicia Retain is a noninvasive, automated SaaS solution that you can rapidly deploy. Vindicia Retain requires little IT involvement and minimal modification of existing billing systems. And Vindicia Retain complements existing billing workflows without disruption.
