As subscription brands look for best practices to grow their member base and strengthen relationships with their customers, they should consider fighting churn as a key component of their strategy that will help them meet their revenue goals.
Subscription businesses rely on their long-term engagement with members to provide predictable growth and deep insights into customer behavior to personalize the experience. Churn can painfully undermine that approach—the cost of replacing lost subscribers not only makes it difficult to meet growth objectives but also quickly drains cash reserves.
It’s a metric that is vital to analyze, as Bold Commerce wrote last year: “Brands that aren’t tracking customer churn may find it difficult to know if their subscription program is healthy. Getting top-of-funnel acquisitions is exciting, but if it costs more to acquire those customers than what they provide in customer lifetime value (LTV) a subscription business could be in trouble.”
To help subscription brands map out a successful strategy to stave off churn, we’re including advice shared by Patrick Campbell, CEO and founder of ProfitWell, a Boston-based business offering SaaS solutions for subscription businesses across the world.
While we may have heard the term often, it’s important to fully understand the two main types of churn that affect subscription brands.
Involuntary vs voluntary churn
Not every departing customer looks alike.
Voluntary churn occurs when someone actively decides to end their subscription, perhaps due to not being satisfied with the product, or realizing they aren’t getting the value they expected.
Involuntary churn happens when a customer leaves the ecommerce site as a result of an unavoidable reason such as payment failure. That failure comes about for several factors, such as outdated payment information, credit card issues, server errors, and insufficient funds.
Up to 40% of lost customers are due to payment failures, says Campbell, citing ProfitWell’s figures. “The onus is on the brand to make sure they do everything possible to make sure they have something in place to help with these kinds of issues,” he adds.
Also worth noting is that involuntary churn isn’t just affecting new members, but also current customers. As ProfitWell writes in a blog post: “Involuntary churn doesn't discriminate by customer size or plan. It targets every customer you have and hits you right in the revenue… Solving involuntary churn is all about keeping customers who don't want to leave from leaving. You can accomplish that by guiding your customers through a seamless experience to update their billing info. Tailored customer outreach makes it easier to stay than to leave.”
As integral as rooting out involuntary churn is, what is more top-of-mind for subscription brands is lowering their voluntary churn rate, and Campbell suggests several best practices to keep customers loyal and engaged.
Term optimization, add-ons and bundles
“Churn doesn’t happen for one overall reason,” Campbell notes. “Rather, it’s death by 1,000 paper cuts.”
To stem the bleeding, subscription brands can experiment with tweaking their delivery terms. “With term optimization, you recognize that someone on a monthly subscription has more opportunity to cancel than someone with a quarterly subscription,” says Campbell. After all, a monthly member has 12 chances to cancel in a year compared to the four chances a quarterly member will have.
Customers on quarterly subscription plans tend to have an explosively higher LTV than customers on monthly plans, sometimes reaching 250% higher, Campbell says.
When brands allow fewer chances to cancel, churn is lowered, so term optimization could be one option for brands seeking to play around with delivery cycles and determine which selection reaps the most benefits.
He also considers add-ons at checkout an under-utilized feature to combat churn. “There are things brands can do during the cancellation flow to help keep members sticking around, and that includes offering an add-on product or service that would go well with their purchase,” Campbell says.
Complementing add-ons, bundling a different product or service from a partner business can also appeal to subscribers. Imagine a skincare subscription brand partnering with a jewellery brand to allow subscribers to add a necklace to their make-up purchase, perhaps even tailored by color and design.
The more forward-thinking and creative a subscription brand can be at checkout, the better chance they’ll have in reducing their churn, Campbell says.
Don’t neglect the power of community
Peloton has their official Member Facebook Group. So does Goop, Birchbox, Trunk Club and a slew of other major subscription ecommerce brands.
But you don’t have to be Gwyneth Paltrow to embark on curating a responsive and vocal online community. Whether on Facebook or another platform, make people feel like VIPs, advises Campbell. That way, they can be part of something bigger than just a brand; they can interact with like-minded people about the products and services they enjoy, while also gifting brands a vital view into consumer feedback.
Building community works against churn by giving members more than enough reasons to stay along as subscribers: if they left your business, they would also miss out on the relationships they cultivated in your Facebook Group.
Citing an example, Campbell points to a subscription brand such as Glossier. “Here they have a community built on product feedback and it makes members feel like important people, and they feel more connected to the product than if there wasn’t this group,” he says.
But what about when members leave a subscription brand for reasons beyond the business’s control, such as financial issues or aging out of the products? “Brands have to understand that not all churn is solvable. People will leave and it’s going to happen,” says Campbell.
Even with churn being inevitable, subscription brands can instil best practices into their processes and operations in order to lower the churn rate as much as possible. Their future may depend on it.
Stay tuned for our sixth instalment, where we’ll discuss market-leading acquisition strategies.