Subscribers leave — it’s inevitable. But if you don’t know why they left, you run the risk that more of your customer base could become equally dissatisfied or disinterested and follow these departures to your competitors. That’s why effective churn management is so critical for subscription-based businesses.
But what does that even look like? Which changes should you make? And which ones will have the most impact on customer retention? In this article, we’ll explore what causes churn, how to monitor its impact, and what you can do to protect your business and bottom line better.
What is churn management?
Simply put, churn management reflects any measures that your business takes to monitor, manage, mitigate, or prevent customer loss. These efforts can be indirect, such as collecting data analytics focused on sales or customer satisfaction records, or they might rely on direct actions, such as introducing loyalty programs or assigning account managers.
Why is churn management important for subscription businesses?
Customer churn can disproportionately impact financials for businesses with a subscription pricing model. These organizations typically net the bulk of their revenue from existing subscribers, relying on a high customer lifetime value to offset the setup and registration costs for new users.
Further, retaining customers typically has a much more substantial impact on the bottom than acquiring new buyers. In fact, according to research compiled by Paddle, among the 1,432 software-as-a-service (SaaS) companies surveyed, a 1% improvement in customer acquisition only netted a 3.32% increase in revenue. However, a corresponding 1% improvement in customer retention bumped income levels by 6.71%.
What factors contribute to customer churn?
As previously stated, knowing why your subscribers are leaving is critical for managing churn. Routinely, these departures manifest in one of two forms. Voluntary churn occurs when a subscriber intentionally ends the business relationship. Involuntary churn doesn’t involve a direct act and is instead often the result of a communication failure tied to renewing the service contract. In these cases, the customer would commonly be more than happy to continue the relationship but may not be willing to put forth the effort to go through a new subscription registration — at least, not without exploring what else is in the market.
To stay ahead of either potential loss and prevent your customers from canceling, you’d be wise to monitor a broad cross-section of metrics, such as those tied to:
- Quality: If your service or product frequently fails, don’t be surprised if subscribers don’t stick around
- Customer service: Just one bad interaction can sour a user on an entire brand
- Onboarding timelines: You only get a single chance to make a first impression, so don’t make it challenging to start working with your business
- Pricing: When your competitors offer a cheaper option, retention will be challenging
- Payment failures: Customers rarely try to pay more than once, and if they don’t realize their transaction wasn’t finalized, they won’t renew on time
- Subscription lapses: Weak, reactive dunning can easily result in users aging out of their current service agreement, even when they don’t want to
How to calculate customer churn
Of course, the most important metric you’ll want to monitor is your churn rate, targeting a low single-digit value. Fortunately, it’s relatively easy to calculate:
Churn Rate = (# of customers lost in a given period ÷ # of customers at the start) x 100
For those businesses with a subscription billing scheme, you’ll likely want to keep an eye on your revenue churn — the amount of money that you lose due to customer churn. After all, if you offer subscription tiers, not every customer retention or loss will affect your bottom line the same.
To determine your revenue churn rate, you’ll need to put in a little more work, particularly identifying the monthly recurring revenue (MRR) at the beginning and end of the evaluated period. You’ll also need to break out the upgrade MRR, namely the additional revenue generated by tier upgrades during that time frame. With this information in hand, you can calculate your revenue churn rate:
Revenue Churn Rate | = | (Beginning MRR – Ending MRR) – Upgrade MRR |
Beginning MRR |
9 churn management strategies for subscription billing
Unfortunately, there is no clearly defined, easily-repeated list of policies every business can enact to achieve complete customer satisfaction. Some of the specific measures you take to make sure buyers are happy will likely alienate entire market segments.
As such, you’ll want to customize your customer churn and retention efforts to meet your subscriber base’s unique needs, expectations, and biases. And you’ll need to adjust these efforts over time as existing tastes evolve, and new market segments open up. Fortunately, there are some general churn management strategies you can employ to help you find the right path.
1. Watch the numbers
We’ve already discussed the importance of monitoring key performance indicators (KPIs) related to your customer retention efforts. By tracking these figures over time, you’ll not only be in a better position to identify any patterns that emerge, but you can also directly analyze the success—or lack thereof—of any process changes or new strategies you employ.
2. Target your marketing
Don’t treat every subscriber the same. Leveraging the insight gathered from your analytics efforts, you should instead develop specific marketing and retention campaigns based on the documented behavioral models of known customer demographics. This more personalized messaging can prove a useful tool in building loyalty.
3. Respond to feedback
A registered complaint doesn’t necessarily mean that churn is imminent. In fact, customers often show heightened loyalty to businesses where any past issues were quickly and satisfactorily resolved. So, you should prioritize the timeliness and efficiency of your customer service efforts. At the same time, make it simple and easy for subscribers to raise a concern.
4. Protect your image
Monitor third-party review sites relevant to your offering and industry. Given their heightened visibility, complaints in these venues can disproportionately impact your reputation and subscriber base. But when you respond to and offer the means to resolve these issues directly and equally publicly, you’re much more likely to retain the complaining customer and others.
5. Communicate regularly
Don’t wait for a problem before reaching out to your subscribers. Instead, keep the lines of communication open with them, actively solicit feedback through performance surveys and regularly inform them about the status of their account, potential changes or improvements that are in development, and even tips to take fuller advantage of their subscription. After all, an engaged subscriber is more likely to be a retained subscriber.
6. Offer bribes
There’s a reason why an entire industry has been built up surrounding customer loyalty programs. It’s because they work. So, you’d be wise to consider putting together some incentive plans or reward schemes for your subscriber base — or at least for the high-risk, high-value ones.
7. Improve your offering
Don’t rest on your laurels. Instead, constantly look for ways to improve the performance and quality of your goods or services. The more value you can offer, especially without raising prices, the longer your current — and potential — subscribers will want to use your solution. You might also consider introducing more subscription tiers, allowing users to customize what they do and don’t want from your service more easily.
8. Simplify subscription management
If your signup process is overly complicated, don’t be surprised when users give up midway. At the same time, make canceling a subscription equally simple. In this subscription model, repeat business is fairly common, but if you make ending your service a chore, departing customers will likely never return. Depending on your plan structure, you can also offer the option to suspend or put an active subscription on hold for a period of time.
9. Explore your failures
When a subscriber leaves, find out why. Either integrate a brief departure survey into the actual cancellation process or follow up with an email or some other touch. This information can prove invaluable to protecting your remaining subscriber base.
How Invoiced can help your business manage and reduce churn
Subscription billing models are very common, influencing how we listen to music, go to the gym, do our work, or even buy groceries. Invoiced (a Flywire company) has long seen this trend coming, designing our Accounts Receivable Automation software to make subscription billing as hassle-free as possible.
In this article, we’ve repeatedly established the importance of leveraging performance data in limiting the impact of churn. Our Advanced Reporting add-on simplifies compiling this information, allowing you to create and save virtually limitless custom reports built using hundreds of objects and field types.
At the same time, we’ve automated subscription billing, while offering the flexibility to readily accommodate whatever trials, prorations, and upgrade tiers you have in place. Our integrated self-service payment portal empowers your customers to manage their subscriptions, set up AutoPay, and update their billing information with zero demand on your staff. Even better, our Smart Chasing function will streamline and automate your dunning efforts, reducing the risk of involuntary churn.
Convert your subscriptions to cash with Invoiced
So whether you operate under a subscription billing model or lean on a more traditional invoicing strategy, our Accounts Receivable Automation software is primed to help you get paid quickly while limiting the opportunities for churn. We’ve also made it easier for you to support a broader cross-section of subscribers, as our solution now leverages Flywire’s broad integration capabilities and global payment support to facilitate transactions in over 140 currencies.
Ready to make your subscription billing efforts less complicated? Schedule a demo with us today to see how it works.
