When you’ve done all the work of acquiring a subscriber, you now have a new, arguably more difficult task—retaining that subscriber. Subscription businesses need a stream of recurring revenue to thrive, which only comes when subscribers consistently demonstrate loyalty.
The reality of a subscription-based business is that 100% customer retention is simply not possible. Each month, you’re going to encounter some degree of churn, which has an impact on your monthly recurring revenue. The severity of that impact depends entirely on your ability to anticipate the reasons for churn and take steps to reduce it.
Churn, sometimes referred to as customer churn or subscriber churn, refers to the percentage of customers who stopped using your product or service during a given time period. Churn is typically calculated on a monthly basis, but it can be calculated to match any given reporting period or subscription period. For instance, if you have a 90-day renewal period, it can be helpful to measure churn at 90-day intervals to see how many subscribers canceled before their renewal or after a single renewal.
While a 0% churn rate would be ideal, it simply isn’t realistic. You can expect some degree of churn each month. As long as you’re within a reasonable benchmark there’s nothing to worry about. Churn rates vary widely across industries and types of products—on average, B2B businesses experience a 5% churn rate, while B2C companies see a 7% average churn rate.
Recommended reading: Recurly Research: Churn rate industry benchmarks
There’s no single type of customer, and there’s no single reason for customer churn. If you want to know how to reduce churn, you first need to understand the two main types of churn and the most common reasons behind them.
Involuntary churn occurs when a subscriber’s payment doesn’t go through. This most often occurs because of an expired credit card, a change in bank information, a server error, or insufficient funds. The customer didn’t make a decision to cancel their subscription, which is what makes it involuntary.
Voluntary churn occurs when a customer makes a decision to cancel their subscription. This can be for any number of reasons. In some cases, the customer may have had a change in their budget or a change in their lifestyle that means they no longer require your product.
In other cases, they may have had a negative service experience, difficulty using the product, or other frustration or dissatisfaction that caused them to cancel. Voluntary churn tends to overlap with common sales objections. With an effective churn management strategy, you can work to overcome these objections before they occur.
While there isn’t much you can do about a customer having insufficient funds, there are ways you can reduce involuntary churn. Dunning is the process of communicating with customers to collect funds that are due to your business. In the subscription business model, dunning is specific to reducing churn because of failed payments.
Mastercard, Visa, American Express, and Discover cards all offer an automated service that monitors customers’ credit cards for changes and makes updates to the records whenever necessary so that recurring transactions can be processed successfully. In this way, a subscription business processing payments can avoid a failed payment before it even occurs.
Recommended reading: Maximizing subscription revenue recovery infographic
Along with the dunning process, credit card transactions that fail can automatically be retried using a subscription billing and management platform. The reason for the failure determines the frequency and timing of the retries. For example, if a customer has insufficient funds, this may take longer to rectify than other failure types. This kind of “intelligent” retry logic means that retry attempts are set at a schedule that will most likely lead to success.
The goal is to maximize revenue gained through retry attempts, while also being mindful of the fees related to these transactions to make sure they stay within reason.
Top subscription management platforms, like Recurly, take advantage of billions of data points and machine learning to attempt retries at just the right time, thereby minimizing retry costs for merchants.
Recommended reading: Strategies to minimize churn & maximize revenue
Dunning is the process of communicating with customers (usually by email) to try to collect payments due. Most involuntary churn in subscription businesses happens because of an expired payment card. Because you know when your customers’ cards expire, you can easily send them reminders to update their card information.
We recommend sending multiple emails during the dunning process as this gives customers multiple reminders to update their payment information. We do not recommend dunning cycles longer than 28 days for monthly plans. A dunning period longer than 28 days can cause invoices to get into a “loop” state where a new invoice is issued even though the prior invoice was not collected.
This is by far the simplest way to reduce involuntary churn—understand that your customers are busy, and give them a reminder to update their card information. Be sure to make it as convenient as possible to do so by offering a direct link to log in and update payment information.
Reducing voluntary churn can feel like trying to hit a moving target. There are so many reasons a customer might voluntarily churn, and you need to understand their needs and objections in order to overcome them. Here are a few ways to reduce voluntary subscriber churn:
If you want to know something, sometimes the best thing to do is just ask. At every opportunity, you should invite and welcome customer feedback, both from your most loyal customers and from those who have decided to churn. While you might be the expert at marketing and selling your product, your customers may have a completely different perspective.
Conduct regular surveys of your subscriber base to get an understanding of how people are using your product, features they’d like to see, and challenges they’re experiencing. This kind of engagement can help mitigate voluntary churn before it happens.
You should also ask canceled subscribers for feedback immediately after they cancel. This will give you their reasons for cancellation in concrete terms, helping you potentially overcome the objection and reduce future churn in other customers.
For instance, if you survey your churned customers and two out three say that the price was too high, it’s probably the right moment to take a look at your pricing structure. In this type of survey, you should make it as simple as possible to respond—think checkboxes instead of required comment fields.
In the SaaS space, early subscriber churn is common when customers feel like they’re not sure how to navigate a product or use it effectively. If you’re seeing a high churn rate after the first few subscription periods, you might need to take a hard look at your onboarding process.
Make sure that you have documentation, email, and tutorial content that helps your customers navigate and set up your product. If you’re a higher priced B2B product, you might consider making a significant investment in a customer success team to personally walk your new customers through the setup and onboarding process. This ensures that all of their questions are answered as clearly and quickly as possible.
Recommended reading: MarketMuse Uses Smart Promotions to Fuel Subscriber Growth
Think about the last time you stayed in a hotel. You paid for your night in the room with the expectation of a bed to sleep in and a clean bathroom. You arrive at check-in and receive a warm chocolate chip cookie with your room key, get to your room and find mints on your pillow. After a good night’s sleep (with a complimentary sleep mask) you enjoy a free continental breakfast. All of these little add-ons make you feel welcome and appreciated. Next time you take a trip you’re likely to book with the same hotel.
The same concept applies to your subscription business. Value-added services such as member-only content, premium support access, and additional features make your product more attractive to paying customers. While you might only see a marginal increase in your operating costs with these offerings, you’ll see an exponential increase in brand loyalty and reduced churn.
If you have a good sense of your customer lifecycle and key conversion points, you’ll be able to identify the actions and behaviors that occur before a cancellation. This might include reduced usage, decreased login frequency, or an increase in support tickets. If you’re aware of these signals, you can implement tactics to mitigate the risk of churn.
For example, if a customer hasn’t logged in for a few weeks after regular usage, you can shoot them a quick “we miss you” or a “what’s new in our product” email. If they’re repeatedly reaching out for support, you can proactively have a customer success agent get in touch to schedule a conversation. Taking the time to identify these behaviors and react appropriately can dramatically reduce churn before it happens.
If you’re wondering how to reduce customer churn, the answer is you must communicate with your customers, anticipate their needs, and establish your value in their day-to-day life. When it comes to involuntary churn, you can use an automation tool like Recurly’s Revenue Optimization Engine to take the hard work out of the dunning process.