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April 22, 2016 | Authored by: Vindicia Team

3 tips for using a subscription billing model to increase customer retention

Keeping a healthy number of customers carries more weight for businesses in recent years. B2B International, a market research firm, polled B2B marketers across the U.S. and Western Europe and found companies were more attuned to customer retention in 2015 than in 2014, eMarketer reported. The study was conducted during October and November 2015 and spanned businesses in a variety of industries. In 2014, 44 percent of businesses said customer retention was one of their top business challenges. That number increased to 54 percent in 2015.

For content and software providers using a subscription billing model, customer retention is essential for staying in business. Many businesses turn to marketing and promotions to keep customers coming back, but certain billing practices make subscribers more likely to stay as well. Below are three tips for using the right subscription model to increase retention and reduce churn:

1. Reduce the hurdles between the customer and the product
Customers want their daily experiences to be as smooth as possible. The more action they have to take to access a service, the less likely they are to use it. 

"The right subscription billing model reduces the number of hurdles between a customer and the product at hand."

The right subscription billing model reduces the number of hurdles between a customer and the product at hand. Many providers offer a free trial month so consumers can explore before they decide to commit to monthly payments. Asking for credit or debit card info before this complimentary month makes the transition from free to paying customer completely seamless, meaning the customer doesn't have to do anything after the trial for service to continue. However, businesses should be sure to clearly explain to customers if and when their card will be automatically charged. Not doing so risks an increase in chargebacks and cancelations from unhappy subscribers.

Similarly, auto-renewal reduces the amount of customer involvement necessary to keep service up and running. Instead of having users log in and pay each billing cycle, a subscription management service can automatically charge a credit card on file. Users only have to update their accounts if their personal or payment information changes.

2. Reduce churn by avoiding and fixing failed transactions
One of the side effects to a frictionless approach to providing content is the existence of failed transactions. Essentially, these missteps are an accident and not the result of a deliberate action. Failed transactions usually happen when a customer's payment information expires and the person fails to update their records.  Unfortunately, many models cancel service and automatically suspend the recurring billing process at the first sign of payment failure. Instead, businesses need a subscription billing solution that works to avoid failed transactions and fix them when they happen - without requiring the customer, if possible.

3. Don't be afraid of customers who want to leave
Many businesses make their cancelation process as difficult as possible to forcibly retain customers and reduce churn. They lock customers into long-lasting commitments, either keeping them with complicated terms of service or making the method to cancel a subscription so difficult that customers stop trying. These tactics might make numbers look positive, but they're definitely not good business practices. People are afraid of commitment, so a difficult cancelation process does more to turn away new customers than it does to keep existing ones. It also encourages current subscribers to make public, negative comments about the business if they have a bad experience. These unfavorable impressions risk going viral through word of mouth and negatively impact acquisition rates.

Customer retention isn't just a goal delegated to marketers. A company's billing practices go a long way to reducing cancelations and keeping subscribers coming back.

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Vindicia Team

Vindicia Team

We value our subject matter experts and the insights each of them brings to the table. We want to encourage more thought leaders to come together and share their industry knowledge through our blog. Think you have something interesting to contribute as a guest blogger? Contact us at info@vindicia.com