Abstract:
This blog explores the critical metric of churn in subscription businesses, delving into its types, contributing factors, and actionable strategies for reduction.
Key Points:
Understanding Churn: Voluntary (dissatisfaction-driven) vs. involuntary (technical/payment) churn and their impact on revenue.
Industry Benchmarks: Average churn rates across SaaS, e-commerce, and subscription box models, along with B2B vs. B2C differences.
Root Causes of Churn: Unveiling the most common reasons for both voluntary and involuntary churn, including dissatisfaction, pricing, competition, changing needs, poor service, outdated payment information, inactivity, and non-payment.
Tracking and Mitigation: Highlighting the importance of tracking both churn types and offering actionable strategies to combat them.
Effective Strategies: Providing excellent customer service, personalization, discounts, easy cancellation/downgrade options, efficient payment processing with clear billing, and timely reminders for inactivity and payments.
Call to Action: Encouraging readers to seek expert guidance for tackling churn challenges and achieving long-term subscription success.
Target Audience:
Business owners and professionals within subscription models seeking to understand and mitigate churn for improved customer retention and revenue growth.
Ah— so you’ve joined the exhilarating world of subscriptions in hope of delighting your customers and earning plentiful recurring revenue in return, but now you’re facing high customer churn. What gives? Before we get into possible reasons and quick-fix tips, let’s go over a few basics:
Churn, the term used to describe the rate at which customers cancel their subscriptions to a product or service, is a critical metric that can have a significant impact on revenue.
There are 2 types of churn in subscription businesses: voluntary and involuntary.
o Voluntary churn occurs when a customer actively decides to end their subscription and is typically caused by customer dissatisfaction with the product or service.
o Involuntary churn occurs when a customer's subscription is canceled without their approval and is typically caused by technical issues or lack of payment.
The average churn rate for subscription businesses is around 6-8%, with different industries holding slightly different averages across the board, for example:
o SaaS ~5-7%
o E-commerce ~7-10%
o Subscription boxes ~3-5%
Churn rates also differ between B2B and B2C subscription businesses, with B2B being slightly lower on average than B2C (~5% and ~7.69% respectively).
While the actual churn rate for a particular business will vary depending on several factors, if you find your churn rate to be 10% or higher, there is cause for concern. The most common factors for churn are:
Voluntary Churn
o Customer Dissatisfaction: If customers are dissatisfied with your product or service, they are more likely to cancel their subscription.
o Steep Price: If your subscription offering is too expensive, customers may be more likely to cancel.
o Impressive Competition: If there are other subscription businesses offering similar products or services at a lower price, customers may switch to those businesses.
o Changing Needs: If a customer's needs change and the product or service no longer meets those needs, they will likely cancel their subscription.
o Poor Customer Service: If customers have a bad experience with your customer service, they may be more likely to cancel their subscription altogether.
Involuntary Churn
o Outdated Payment Information: If a customer's credit card or other payment method expires, and they do not update their payment information, this may result in involuntary churn.
o Insufficient Funds: If a customer’s bank rejects a payment due to insufficient funds or a billing error, they may churn.
o Inactivity: If there is inactivity on a customer’s account, this may trigger their cancellation of their subscription.
o Non-Payment: Once a certain number of payments have been missed, subscription businesses may terminate the service.
It is worth mentioning that voluntary churn is more controllable and easier to track, whereas involuntary churn is less controllable and more challenging to track; yet, it is critical to track both types of churn so that you can identify any trends and take steps to reduce it. There are a number of strategies subscription businesses can employ to reduce churn. Some of the most effective strategies include:
Providing excellent customer service: This is one of the most important things that subscription businesses can do to reduce churn. Make sure that your customer service team is responsive and helpful, and that they go above and beyond to resolve customer issues as quickly as possible. Your business should then also use these cases to make further improvements to your offerings for the betterment of other customers’ experiences.
Personalizing and elevating the customer experience: This can help to make customers feel valued and appreciated, and it can also help to identify potential problems before they arise and lead to churn.
Offering discounts and promotions: This can be a great way to reward loyal customers and attract new subscribers to grow your customer base.
Making it easy to cancel: If customers find it difficult to cancel their subscription, they are more likely to simply stop paying. Make sure that the cancellation process is clear and easy to follow. Alternatively, if you make it easier to downgrade, customers may opt for choosing a lower service offering instead of cancelling altogether.
Improving payment processing and providing clear billing information: If your payment processing system is fast, efficient, and convenient, customers are less likely to churn. Also, clear bills ensure customers feel confident in what they’re paying, so they’re more likely to remain subscribed.
Sending out reminders: Automatically sending out reminders for inactivity, upcoming or missed/overdue payments can help alleviate the involuntary churn from forgotten accounts or rejected payments.
By tracking churn and taking appropriate steps to reduce it, your subscription business can improve your bottom line and ensure long-term success. Reach out to our experts today to discuss any churn issues your business may be facing, and we’ll get you back on track to delighting your customers and earning plentiful recurring revenue for years to come!