Shopify Ecosystem

How The Right Refund Policy Can Boost Subscribers & Reduce Churn

how-the-right-refund-policy-can-boost-subscribers-&-reduce-churn

Building a customer retention strategy is a must for any business owner, large or small. This goes double for subscription-based businesses. As Stephen Tracy of Keap Candles told Recharge in The 2022 State of Subscription Commerce:

“A subscription encourages you to think in terms of nurturing long-term relationships. Like human relationships, when you prioritize a deeper sense of care and empathy in the ways you act, stability follows naturally.”

Stephen Tracy, Founder, Keap Candles

Subscription businesses like Keap Candles have to focus on the challenges of both converting customers to a subscription and keeping them subscribed—in other words, how to stop customers from canceling, also known as churning. 

In this post, we’ll discuss strategies that can help convert new subscribers while minimizing churn from your existing customers. We’ll also unpack how an untapped retention tool—refunds—can help with both goals.

What is churn?

Churn occurs when a subscriber stops paying for your product or service. This churn can occur for a number of reasons, including when customers:

  • Have a bad delivery experience
  • Have a bad customer experience
  • Can no longer afford the subscription
  • Cancel their payment method, like a credit or debit card expiration
  • Have too much of the product already
  • No longer have a need for the product or service
  • Find a different subscription that fulfills their needs for better value

Why does churn matter? 

Since up to 80% of your future revenue will come from just 20% of your current customers, and it is 50% easier to sell to existing customers than new customers, churn matters a lot. That’s why it is critical to calculate your churn rate and do everything you can to reduce it. 

How do you calculate your churn rate? 

A quick way to calculate your churn rate is:

Churn equation
To calculate your churn rate, divide your number of subscription cancellations by your number of total subscriptions, then multiply by 100.

Let’s say this month, your brand had 1,000 subscribers, and for various reasons, 55 customers canceled their subscription. If we plug that into our formula, that equates to a churn rate of 5.5% this month. 

# of subscription cancellations = 55

# of total subscriptions = 1,000

Churn equation 2
If your brand had 1,000 subscribers this month, and 55 customers canceled their subscription in that time period, your churn rate would be 5.5%.

How can reduced churn help boost new subscriptions?

It can be overwhelming developing strategies to reduce churn while trying to engage new customers, but luckily, strategies for these two categories often go hand in hand. If you can effectively understand why customers are churning, you can then understand how to capture new subscribers.

If you can effectively understand why customers are churning, you can then understand how to capture new subscribers.

How do I reduce churn?

Develop exceptional experiences

According to McKinsey, nearly one-third of subscribers who focus on exclusive deals or brand focus items (such as apparel, beauty, and food) state that personalization is the most important factor in keeping a subscription. For these customers, personalizing the end-to-end process, not just the product, will prevent churn while also engaging prospective customers. 

Outstanding customer service is a no-brainer when it comes to exceptional customer experience. However, with most interactions taking place behind screens in today’s digital age, it can be hard to find ways to develop an authentic connection with a customer. With clear and consistent messaging, transparent money management tools, and policies to minimize customer risk, you can seamlessly incorporate trust-building practices into your day-to-day operations. 

A huge component of churn reduction lies in the hands of your CS (customer support) team. Salesforce found that 92% of consumers said a positive customer service experience makes them more likely to make another purchase.

92% of consumers said a positive customer service makes them more likely to make another purchase, according to Salesforce.

Refund tip: Choice matters. Good brands empower subscribers to choose how they want to pay at checkout. Best-in-industry brands empower subscribers to choose how they want to receive their refund after checkout, too. By offering options outside of the traditional refund method, such as an instant site credit, you’re giving customers what they value most: choice. Want to learn more? Check out the Refund Selector by Fondue.

Keep subscriptions convenient

For replenishment subscribers, convenience is key when it comes to mitigating churn. The beauty of subscriptions is they are self-service. These recurring purchases are some of the few decisions in a consumer’s life that they don’t have to think about, which means they also don’t want to put any extra effort into subscription management. 

Ensure the details of your subscription model, including pricing and any commitments, are transparently laid out on your website. This can be helpful for prospective subscribers to fully understand what they’re signing up for and will eliminate any surprises once they sign up, which can result in frustration and churn. It’s also important to make your subscriptions self-service so the subscriber doesn’t have to reach out for assistance to make amendments to their order. Frustrating or unnecessary interactions with a customer service representative detract from the reason a subscriber signed up in the first place. 

Refund tip: Communication matters. Did you know 53% of shoppers check their refund status at least once a day? Providing an automated refund tracking system that updates in real-time can allow customers to see when their money hits their account. This eliminates the “where is my refund?” CS ticket, builds shopper trust, and helps you target advertisements for new products by understanding when shoppers have money and what they are looking to purchase. Want to learn more? Check out the Refund Tracker by Fondue.

Emphasize leniency & generate loyalty

When a customer starts a subscription, they’re agreeing to loyally buy from you month after month. What better way to start off the relationship than highlighting your commitment to loyalty right back? 

One of the easiest ways to encourage faith in your product is by offering a satisfaction guarantee. When a customer feels like you’re standing behind your product, they will stand behind your product, too.

When a customer feels like you’re standing behind your product, they will stand behind your product, too.

Another way to inspire customer loyalty is to lead with loyalty when it comes to customer payments. 

It happens to the best of us: An unexpected, urgent expense comes up, leaving us scrambling to make ends meet. Typically, non-essential expenses will be the first out, and this may mean monthly subscriptions. In the midst of financial stress, be the respite for your customer, allowing them to press pause on their subscription. This creates an opportunity to retain your consumer rather than having them fully churn. When their finances are back to normal, they’ll remember how you made things easier in a time where others were making things harder by demanding their money.

By making your subscriptions accessible, you’re opening the door for new subscribers to fall in love with your product, all while reminding existing customers why they fell in love with your brand in the first place.

Refund tip: Empathy matters. A study published in the Journal of Retailing found that return leniency, in general, helped drive sales more than it hurt the bottom line.  Revisit your refund policy, give peace of mind, and prevent churn by offering a longer refund window with more options. Want to learn more? Read expert insights on refunds and subscriptions to stay on top of the latest data.

Acquiring new customers while mitigating churn can feel complicated, but a few small pivots can make all the difference. Focus on a simple, customer-centric experience, even in the post-purchase space. Customer retention, as well as acquisition, will follow.

Special thanks to our friends at ReCharge Payments for their insights on this topic.
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