Recurly Report Analyzes Trends in Customer Retention Metrics for Booming Subscription Industry
Subscription Snapshot Reviews Sample Set of 25 Million Transactions to Identify Keys to Revenue Growth
San Francisco, CA – June 29, 2016 – Recurly Inc., the enterprise-class subscription management platform, today released the Recurly Subscription Snapshot, an extensive report examining a sample set of 25 million subscription transactions to identify key metrics for customer retention. As more businesses embrace the subscription model, these customer retention metrics are essential to optimize revenue and maintain healthy growth.
“Companies of all sizes, from start-ups to global businesses, are turning to the subscription model to build healthy and loyal relationships with their customers over long periods of time,” said Dan Burkhart, CEO of Recurly. “The metrics identified in our analysis provide guidance for product, promotions, and operations to help subscription businesses better understand how to maximize customer loyalty, leading to increased growth rates and revenue.”
The report categorized the sample of 25 million recurring transactions generated throughout 2015 as either business-to business (B2B) or business-to-consumer (B2C). Ninety percent of transactions involving physical goods fell in the B2C category, reflecting the popularity—and wide variety—of box-of-the month offerings, as well as consumers embracing monthly deliveries. The digital goods category displayed more variety, with 25 percent of transactions actually originating with B2B companies—underlining the rise of software-as-a-service (SaaS) and cloud-based platforms.
Since customer retention rates ultimately determine whether a recurring revenue business is growing profitably or not, the report analyzed three key metrics for subscription businesses. Churn, or customer attrition, reflects how well products and services satisfy customers over a period of time. Churn can be voluntary, as dissatisfied customers cancel their subscriptions, or 'involuntary,' due to invalid credit card information on file. The latter case is especially important for recurring revenue businesses as otherwise satisfied customers can be lost in this scenario.
Credit card declines is the second key metric. Whenever a credit card is used, the risk of failed transactions, or ‘declines,’ is present, requiring careful management to ensure the transaction proceeds smoothly and the customer is retained. While most transactions are successful, the nature of subscription businesses provides opportunities to 'recover' revenue that might otherwise have been lost to credit card declines or churn. This is especially important at renewal time for subscriptions. Proactive management for these metrics results in increased revenue, higher rates of customer retention, and greater customer lifetime value.
- Churn Rates Decreased Over Time: Churn, or customer attrition, averaged 9.9 percent in 2015, with the highest levels in Q1, followed by steady decreases throughout the year. The B2C category experienced a higher rate of churn than B2B with an 11.21 percent average and decreased as the year progressed, indicating increasing rates of customer satisfaction.
- Credit Card Declines Rates May be Affected by Seasonality: The rate of credit card declines, or failed transactions, averaged 12.21 percent quarterly, but increased slightly over the course of the year, indicating seasonality may play a role. However, 2015 saw the rollout of EMV, or chip-and-pin, cards with new information which could impact completing a transaction.
- Revenue Recovery Increased Over Time: The businesses in our sample were able to recover almost 11 percent of revenue that would have been lost due to credit card declines or ‘involuntary’ churn. Recovering this revenue requires specialized logic which can vary based upon why a transaction fails. This may include re-submitting the transaction programmatically, or ‘re-trying’ the transaction at defined intervals.
“Each billing cycle offers an opportunity to create and enforce customer loyalty by reinforcing value,” Burkhart added. “Retention is vital to the success of subscription-based companies, creating economic loyalty and granting companies predictable revenue streams. Understanding and managing the metrics we have identified in our report, especially churn, will help businesses form closer relationships with their customers and deliver predictable revenue.”
For more information and analysis on these metrics download the Recurly Subscription Snapshot.
The study examined a sample set of 25 million aggregated and anonymized subscription transactions generated throughout 2015. Transactions were categorized by market—either B2B or B2C—and by whether the product or service was digital or physical, in order to identify trends, including seasonality. Sample transactions were segmented into five clusters of price points and identified whether the transactions originated with a B2B or a B2C company, in order to examine the impact of price. The sample set included paid recurring transactions only and did not include the initial subscribing transaction.
Recurly, Inc. delivers agile enterprise-class subscription management to thousands of SaaS, media, mobile, consumer goods, productivity and publishing businesses worldwide. Businesses depend on Recurly's ability to cut through the complexity of subscription management to drive recurring revenue growth. Since its launch in 2010, Recurly has deployed subscription billing for thousands of companies in 32 countries, making it the most trusted pure play provider of subscription management services. Recurly, Inc. is PCI-DSS Level 1, SAS 70 / SSAE 16 Compliant, and operates in compliance with the data protection practices outlined in the E.U. Safe Harbor agreement. For more information, visit https://recurly.com.