The Importance of Churn
Every e-commerce site should be aware of the importance of churn, and how devastating it can be on a business. Measuring and reducing churn is paramount to successfully scaling your company. While reducing churn is easier said than done, there are standard measures you can take to help reduce it. Fundamentally, churn boils down to your product - how sticky it is and how robust your offering is compared to others in the space. It also has to do with your industry. Some segments, like box of the month, experience higher churn 10.54% than SaaS, which hovers around 4.79%.
Some important churn metrics to keep in mind:
Business to Business B2B: 5%
Business to Customer B2C: 7.05%
It’s important to understand involuntary vs. voluntary churn. Involuntary means customer churn is due to payment failure, or some other method not related to your business. Voluntary churn is the act of customers initiating the exit. Maybe they’re not happy with the product, or not receiving the value they thought they would. Curious how your company churn stacks up against the rest? Here are a couple of benchmarks:
Voluntary Churn: 4.21%
Involuntary Churn: 1.39%
With this in mind, let’s look at a couple of use cases for both voluntary and involuntary.
Use Case - Voluntary Churn
You’re looking at your Recurly dashboard, specifically the ‘Subscriber Retention’ report and notice high churn around month two.
Recurly Subscriber Retention Dashboard
The team executes an evaluation and you find that customers are concerned with pricing, tending to cancel just two months into their subscription. What kind of proactive measures can you take to fight this? During the cancellation process, check that you provide incentives to stay, such as an incentive or discounted rate for a longer-term billing cycle. Offering a ‘pause’ option instead of cancellation is becoming increasingly popular, especially in light of COVID-19. Research by PYMNTS.com and Recurly suggests that roughly 25% of consumers very likely to cancel would use a pause feature if given the option. Offer a ‘pause’ option instead of cancellation. You could even offer the option to ‘skip a month’. All Recurly merchants have the ability to do this.
You can pause a subscription directly from the Recurly dashboard or via the API
You might incentivize longer-term plans at checkout. Discounted rates are attractive to customers, and fewer transactions/renewal cycles reduce churn opportunities. Make sure your subscribers understand that they have options beyond simply cancelling their subscriptions. Often, subscribers are simply looking for a short-term break from their subscription due to circumstances like financial constraints or travel.
Use Case - Involuntary Churn
Let’s look at another example, this time around involuntary churn. Your company is seeing an incredibly high failed transaction rate. Because of this, many invoices fail, enter dunning (the processing of attempting to receive payment after a transaction fails) and never get collected. Fortunately, this typically doesn’t mean there’s an issue with your product. What it does mean, though, is that your customers are experiencing issues with billing. They may not have the funds to pay, or maybe they don’t know how to update their payment information.
Using Recurly, both of these issues can be solved via the Account Updater and an effective dunning strategy. The Account Updater allows you to access the most up to date credit card information, identifying cards at risk of failure and processing a successful transaction. A simple on/off switch in your account. Your dunning strategy consists of two parts. First, the ability to send customers communication based on failed transactions. Second, Recurly’s ability to try the card again, after the initial failure.
Sending customers emails during the dunning cycle is an important measure to get them to update card information. Linking directly to an in-app ‘manage subscription’ page is a best practice, as it ensures there’s no friction in the update process. As long as the subscription is past due, never go more than a few days without providing guidance on how to update card information. During dunning, Recurly is also trying the customer card to reach a successful transaction. One of the most common decline reasons is insufficient funds, and using Recurly machine learning we can leverage different days and different times of day to retry cards, providing merchants with a much higher percentage of recovered invoices. This unique feature, only available to Pro and Elite level customers, outperforms simple retry logic. Combined, this helps Recurly merchants:
Recover up to 70% of failed transactions
Experience a 12% increase in overall revenue
Interested in analyzing your own churn? Professional and Elite level customers can access this data by heading to your Recurly dashboard > Analytics > Churn Analysis. To learn more about these reports, contact us.