Striking a balance between customer acquisition costs and customer retention efforts is a delicate dance that all ecommerce merchants have to play.
Finding the right ways to reduce churn and therefore increase customer retention are critical, especially for subscription companies. Promoting customer loyalty, providing proactive customer service, and other customer retention efforts will go a long way in helping you keep customers and grow your subscription business.
In this post, we’ll explore why retaining customers is so essential, how you can measure customer churn, and a few ways in which you can reduce it. Continue reading to learn more about customer retention and how you can stop accumulating churned customers.
- Customer retention should be a key focus for subscription companies, especially as customer acquisition costs grow.
- Businesses should work to prevent both passive and active churn with a variety of strategies.
Table of Contents
What is customer churn?
There are two types of customer churn—active and passive—meaning your efforts to reduce churn will need to take into consideration how churn happens. Improving your customer retention rate isn’t just about keeping customers happy; it also requires stopping churn due to expired credit cards and other reasons your subscribers might not even be aware of.
When a customer decides to stop a subscription, that’s considered active churn. There could be a myriad of reasons why a customer wants to cancel their subscription—some of which can be solved with some simple exit questions. Maybe they have too much product, and simply skipping their next shipment will keep them around. Regardless, putting surveys in place while customers are actively churning can help you stop the churn in the moment and in the future.
Unlike active churn, passive churn occurs without the customer knowing or choosing to unsubscribe. This type of churn is unfortunate because merchants can lose customers for preventable reasons. These reasons can include:
- An expired credit card
- A declined credit card
- Inventory issues
- Removed or out-of-stock products
Understanding passive churn can help your online store put measures in place to prevent it.
How to measure customer churn
So, you’ve learned that there are two types of churn. But how is churn rate—also called attrition rate—measured? Well, it’s simply the measure of the percentage of customers who cancel a subscription over a set period of time. Businesses could look at their annual churn rate, or the percentage of customers who cancel over a year-long period.
Why is customer retention so important?
As customer acquisition costs rise, merchants need to focus more on their customer retention efforts to keep their existing customers around. To reduce customer churn and increase monthly recurring revenue, subscription businesses must look at the customer journey and work on improving customer satisfaction wherever they can. Enacting anti-churn measures like the ones mentioned below will help keep churn rates low.
Impact of customer churn rate on subscription services
Subscription businesses rely on returning customers. When those customers churn, whether intentionally or not, merchants lose customers and therefore some of their recurring revenue. The value of subscriptions is in the stability they offer to both businesses and customers. Optimizing the customer journey for subscribers and identifying points of stress where churn might occur is vital to your subscription business’s success.
4 ways to reduce churn for subscription businesses
The following four tips can help you decrease both active and passive churn. For a successful customer retention strategy, you’ll need to address both types of churn and put measures in place to stop them. The strategies listed below can help you do this effectively.
1. Utilize transactional SMS
Not only can you increase customer lifetime value by up to 30% with transactional SMS, but you can also reduce both voluntary churn and involuntary churn. Think about how convenient it is for customers to edit an order via text messaging instead of logging into a customer portal, possibly forgetting their password, then trying to figure out how to change or update their next shipment.
Transactional SMS is a great tool for all subscription businesses, and especially those looking to decrease churn. It can be used to notify customers of upcoming payments (and encourage them to update their credit card on file, if it’s close to expiring), or to give subscribers the ability to swap products so they get the exact items they want. You can even give customers the option to skip or reschedule an order via SMS rather than churning out of your business to keep them with you for longer.
2. Take advantage of automated dunning features
One of the best ways to mitigate passive churn is by using automated dunning features that let customers know there is an issue in the first place—from there, you can help them fix it if needed. By reviewing charge errors in your merchant portal, you can stay informed on why customers are churning and then put measures in place to stop this involuntary churn.
Here are a few examples of built-in dunning features that merchants can set up:
- Alert customers to payment issues
- Automatically retry orders
- Automatically email customers if an order doesn’t go through
- Send a text message if a charge attempt fails
With these and other automated dunning features, you can drastically reduce passive churn and keep your customers around—even when payment issues arise.
3. Create a customer loyalty program
Another effective way to reduce customer churn—and one which many subscription companies have successfully adopted—is to create a customer loyalty program. If you’re worried about your churn rate, then finding a strategy that will keep your loyal customers happy is critical. There’s no better way to build customer loyalty and maintain it than with a rewards program.
Here are a few strategies of successful customer rewards programs that can help you increase customer loyalty and therefore decrease churn:
- Offer incentives, like exclusive discounts and free shipping
- Let customers collect points, then redeem them for rewards
- Engage users in an exclusive online space
- Give first access to new products
- Offer extra points for customers who share on their social media channels
- Create referral bonuses so subscribers can share your business with friends and family
By offering your loyalty program members competitive advantages, you’ll create buzz. Subscribers will want to be a part of your rewards program so they can keep collecting points and earning more incentives with your business, meaning they’ll continue making purchases.
4. Provide proactive customer service
Don’t let poor customer service hinder your retention efforts. Even if you have other measures in place to reduce customer churn, your churn rate will still rely heavily on great customer service.
To avoid overwhelming your customer support team, make sure you are being proactive about helping customers. Simple efforts like an FAQ page on your website or an informative social media channel can reduce the number of support tickets you’re dealing with and give customers easy access to the information they need.
Soliciting customer feedback is also a great way to see where your customers are struggling—helping your business identify common issues and find innovative ways to solve them. With exit surveys, you can pinpoint exactly why customers are churning, and figure out how to identify at-risk customers and the best ways to prevent your most common churn reasons. Creating a customer success team focused on churn prevention can help your business focus on retaining your existing customers.
Keep existing customers & boost customer satisfaction with these retention strategies
Customer retention extends beyond the four strategies listed above—overall customer success is all dependent on a stellar customer journey with your brand. Subscriptions make life easier for your customers, and exceeding customer expectations with a seamless customer experience means naturally reducing churn and keeping your valuable customers happy.