What is a subscription churn?
The number of lost members in a certain amount of time, shown as a percentage, is called subscription churn.
The churn rate for subscriptions is only a tiny part of the churn rate for the whole company. It’s a big chunk (if not all) of the money companies with subscription business plans lose from customers.
There are many different ways to look at a company’s subscription churn, and each group will interpret it in a way that fits its needs. Most of the time, a business does better financially when the rate of contract cancellations is low.
Synonyms
- The churn rate for subscription businesses
- Subscriber churn
- SaaS churn rate
- Customer churn
Why pay attention to subscription churn?
A company that charges for some or all of its products by subscription is very interested in the subscription loss rate because it shows how its customer base changes.
It is the most stable and predictable way for a business to make money, and subscriptions are an excellent way to get it. Companies can get a good idea of their customer’s loyalty to their primary source of steady income by looking at the contract churn rate.
Stakeholders can also learn much from subscription churn data, like how happy customers are with the company’s subscription goods and whether they keep their subscribers interested.
A lot of the time, high contract churn rates mean that customers are unhappy. This could be because of how a company sets its prices, its poor customer service, problems with its products, or any other problems.
If, on the other hand, the membership churn rate is low, it means that customers are happy with the product and that it meets their needs. For buyers, this means a company they can put money into that has a lot of room to grow its sales in the future.
Different Kinds of Churn to Track
There are different kinds of churn. It is easy for investors and users to understand the data when broken up into groups.
Choice of Churn vs. Forced Churn
When a customer voluntarily cancels their subscription with the company, this is called churn.
Some reasons why people choose to leave include
- Bad customer care
- Product performance that isn’t good enough
- Not enough tools
- Prices set too high by competitors or too high
- Not enough people using software
When a customer’s subscription is canceled without their knowledge or agreement, this is called “involuntary churn.” It makes up anywhere from 20% to 40% of all churn. Most of the time, it can be stopped.
Some common reasons for forced churn are:
- Cards that have expired
- Not enough money
- Problems with processing and timeouts
- Customers not paying
- Customer information that is wrong or missing
- Not being able to get paid
Sales Churn vs. Customer Churn
Another essential difference to remember is customer churn and income churn.
Customer churn is the number of customers who cancel their contract within a specific time. Revenue churn is the total amount of money made but lost because of cancellations.
The revenue churn rate takes into account more than just customers leaving. It also considers changes in customer plans and payment cycles, among other things.
For example, a business with tiered pricing or multiple subscription plans may have many customers leave but not a lot of income loss because customers move up from cheaper plans to more expensive ones.
Also, a company with a low customer churn rate might have a high revenue churn rate if most of its churn comes from its top subscription tier.
Churn by Month vs. Churn by Year
The monthly churn rate for a subscription company is the number of customers who cancel their plans each month. Its yearly churn rate shows the number of subscribers it loses each year.
Companies should check both because they show various aspects of their financial health.
If a company only looked at monthly losses, they might get the wrong idea about how well (or poorly) they are doing as a business. The DevOps team may have found that the company was in trouble by measuring and analyzing just one of its high-churn months by chance.
The company may have had a low annual churn rate because the monthly churn rate was pretty stable all year.
The monthly churn rate can help you determine how successful a recent marketing campaign, product update, or effort to get customers more involved. The annual churn rate, on the other hand, is better for planning long-term strategies.
Other Metrics About Churn
Besides the churn rate, other measures must be considered when looking at the big picture. Some of these are:
- Customer lifetime value (CLV): The amount of money you expect one customer to spend throughout their service. Companies use CLV to determine how loyal their customers are and how much they should spend on each.
- Revenue retention rate: the amount of money from returning customers over time. It is a valuable measure for predicting sales and determining customers’ loyalty.
- Customer retention rate: the share of people who stay with you for a specific time. To find it, divide the number of customers at the start of the month (or other period) by the number of customers at the end.
- Customer acquisition cost (CAC): The number shows how much a business costs to get new customers compared to how much money those customers bring in. It helps businesses figure out how much it costs to get new customers.
Different companies have very different ideas about what the subscription churn rate and the numbers that go with it mean.
Most subscription businesses have a churn rate between 6% and 8%. This doesn’t give investors or customers the whole picture by itself.
For example, a good CAC ratio could cancel out a high average churn rate by showing that the business is getting new customers well.
Your company might not make money even if not many people cancel their subscriptions if the value of each customer over their lives is too low.
How to Figure Out the Rate of Subscription Loss
How you figure out contract churn is similar to how you figure out customer churn. Use the following math to find out how many subscribers are leaving your business:
How many subscriptions were canceled or added in the first place, multiplied by 100? This is the subscription churn rate.
The subscription business can use different kinds of data, like customer relationship management (CRM) software and billing records, to tell the difference between the customers who have canceled their subscriptions and the rest of the customers.
The best ways to keep subscribers from leaving
There are effective ways for companies to reduce subscriber churn, but it is hard to stop it completely.
Getting rid of voluntary churn
Customers choose to leave alone, so efforts to keep them can only go so far. The company won’t be able to keep a customer if they can’t buy the product anymore, find a better product that meets their needs or lose interest.
Still, there are several things that companies can do to keep members.
Making the customer experience better
If you want to keep customers returning, ensure they have a good time with your product.
An old study says that 86% of people who trust a brand would stop doing business after two bad situations.
Several things could lead to a bad customer experience at different points in the customer lifecycle:
- Not being able to use the goods correctly
- A complicated process for onboarding
- Customer care that is not good enough
- Product features aren’t clear
- Product speed bugs or is not dependable
- The user interface is poorly made
Companies can improve the customer experience by polling their current customers and asking people who have stopped subscribing what they think they could do better.
It’s simple and cheap to poll, and email automation tools make it go even faster.
Giving rewards and discounts
Customers who have bought from you can stay with your business by giving them discounts or prizes. One easy way to do this is to give them a discount on their next contract renewal, free access to another product in the company’s suite, or other perks like gift cards or loyalty points.
A discount for a year’s worth of subscriptions is a popular way for software companies to encourage annual recurring revenue (ARR). One common way to keep people is to give them a free month of their subscription when they pay for the whole year at once.
Getting better at communicating
New data from Retently shows that 16% of all customer turnover is caused by poor relationship building. Customers don’t respond well when you don’t talk to them, and subscribers miss out on new features or product changes when you don’t talk to them.
Luckily, it’s easy to improve how you talk to your subscribers. Here are some ideas:
- Ask people who use your product about their experience with it through polls.
- Send emails with tips on how to get more out of your goods.
- Give customers information that is useful to them.
- Let customers know by email when their service is about to end.
- Set up ways for people to talk about service problems using help desk software and robots.
People interested in and know how to use the product they join are more likely to take advantage of the subscription’s benefits.
Improving the user experience (UX)
User experience, or UX, is how a person feels when they use a tool, product, or service. UX factors like how easy something is to use and how nice it looks can significantly affect how many customers a business keeps. This is true no matter what kind of product the company sells.
When talking about tangible goods like furniture and electronics, UX could mean how easy the product is to assemble, how long it lasts, and how portable it is. It could be navigation menus, usability features, or the checkout flow for digital goods like software and streaming platforms.
The user experience needs to be a big part of digital goods. It’s the difference between a new six-figure customer successfully applying and adopting the product and leaving for a competitor: the product is easy to use, integrates well, and is well-designed.
Setting the ICP correctly
If marketers and sales reps don’t have a clear idea of their perfect customer (ICP), they’ll lose customers who aren’t a good fit for the product.
This can anger users and lower customer retention rates because they have trouble using the service or don’t get the value they thought they would.
To correctly describe a business’s ICP, team members should:
- Get information about their present customers and look it over.
- Learn about their ideal customer’s likes, dislikes, wants, and problems.
- Determine what kind of people will most likely be happy with the service or product.
- Figure out who your ideal prospects are in terms of size, business, location, and the way the company is set up.
- Focus on groups of customers that bring in the most money and stay with you the longest.
With an ICP as a tool, salespeople and marketers can come up with the right message and target customers who are more likely to stick around. The churn rate goes down as a result.
Getting rid of unwanted turnover
Many things can cause customers to leave without their choice, and none have anything to do with making the customer happy. As was already said, most cases of involuntary churn are caused by problems with handling payments.
Companies can cut down on the number of mistakes, failed credit cards, and chargebacks by automating processes.
Using automatic software to reduce forced turnover can be done in several ways.
Send renewal messages to customers whose subscriptions are almost up.
Renewals bring in an average of 62% of membership income. The easiest way to get more people to renew is to email them at the right time to tell them their subscription is about to expire.
Email automation is built into most subscription payment systems. Businesses must write the messages and set them to go out at the right time.
Allow customers who only use one payment method to have their bills paid automatically.
Even after the customer enters their billing information, the business still needs to check the credit card occasionally to ensure it’s still valid and hasn’t expired or been stopped by the customer.
Companies can lower the number of invalid payments and allow customers to change their information as needed by using an automatic system to monitor this information.
Use payment platforms for a variety of ways to pay.
One of the best things about payment platforms is that they keep customers’ information safe, so they don’t have to enter it all over again whenever they want to pay.
Online stores can use payment platforms that let card information be updated automatically. Every so often, a service in the background checks to see if there are any changes on the card issuer’s end and updates the customer’s account as needed.
Allow as many ways to pay as you can.
Customers can choose the way of payment they prefer when there are several options.
Credit cards, PayPal, and bank withdrawals are common ways to pay for subscriptions.
There are also new pay methods, such as Apple Pay and Google Wallet.
Make a self-service platform to make things easier for your customers.
Through the end of 2021, more than 33% of B2B buyers were ready to buy digital items worth at least $500,000. It was also possible for 75% of those buyers to pay more than $1 million through self-service e-commerce platforms.
Customers can change their payment information or plans without calling the company through a self-service site. Customers don’t have to deal with payment problems as much because they can solve them independently.
How software for managing subscriptions can keep subscribers from leaving
Businesses are under a lot of pressure to make their payment process more efficient and automated. This can be done with subscription management software, which helps businesses keep customer information organized, track payments better, and spot possible churn risks early on.
Most software for managing subscriptions has features like
- Billing is done automatically
- Taking care of regular payments
- Reminders to pay
- Management of subscription plans
- Automatic changes to payments
These tools are necessary to keep people from leaving and give them a better experience.
Businesses can keep more customers and make more money from them by automating the whole process of paying for subscriptions.
