How to reduce subscription churn: an expert guide5 min readReading Time: 4 minutes
Subscription churn has always been one of the biggest challenges facing subscription-based businesses. Even if you have a great offering (software/product/service), it can sometimes not be enough to keep customers on board. If you don’t have a plan in place to reduce churn, you could be losing money and customers every year that could have potentially been retained. This challenge is only going to increase going forwards due to current global economic conditions and the ever-increasing amount of competition that may be facing your business from your sector.
We’ve compiled this guide for you because churn is one of the most important metrics to monitor in any subscription-based business. If viewed and handled correctly it can be an opportunity to improve customer retention and increase your revenue.
We’ll explain what churn means for businesses like yours and how much it can hurt your growth strategy. Then we’ll share some tactics for reducing subscription churn and improving customer retention.
Firstly, what is churn?
Subscription churn can be defined as the number of customers who cancel their subscription during a certain time period. It’s calculated by dividing the number of cancellations by the total number of customers at the beginning of the period and multiplying by 100%.
You can calculate this as follows:
Subscription Churn Percentage = (Number of Cancelled Accounts / Total Number of Accounts) * 100%
For example, if you have 1,000 active customers and 100 cancellations in a month, then your monthly churn rate is 10%.
We often get asked by customers what should my churn rate be?
Well, the frustrating answer is that churn rate varies by industry, but a good churn rate is somewhere between 5% and 10%. A higher churn rate means that you are losing more money to customer attrition. But how can you reduce your subscription churn?
Churn as a metric is one that goes under the radar for most businesses. This is due to a combination of a lack of understanding as to what churn is through to people just assuming it is something that they will always have and can’t fix. The search term “what is churn” gets over 6,500 searches a month globally, whereas “churn software” gets less than 250. Churn can have a huge impact on your growth, if you acquire 30 new customers a month but lose 20 then the net growth is just 10 customers. A high churn rate can also be damaging for your brand as it can show that your offering is not giving the value to customers that you hope it does.
With all that in mind, there are a few simple things that can be done to reduce your business’s churn.
1) Make sure that your product meets the needs of your customers and creates value for them.
This means having a strong value proposition and making sure your product is solving their problem. If they’re not getting value from it, they will churn. Asking your current customers what features they like and they want to see has been shown to help reduce churn in saas industries.
This should be a continuous process through a customer lifecycle, from acquisition to offboarding.
2) Communicate with customers regularly so they know what’s going on with your company.
The rise of content marketing is often talked about as a way to attract new customers but what is hardly discussed is how communication can be used to help retain customers and reduce churn. This can both be from a product side but also a social side. Little things like feature updates via LinkedIn (see point 1), company charity events showing the positive community impact you are having, and even just interacting with your customer posts. All of these methods can help to keep customers engaged and onboard.
3) Make the cancellation process easy.
Create an automated cancellation process. In today’s busy lives customers and businesses may not have time to reach out to customer support to cancel their subscriptions. In these cases, it’s best if you can set up an automated process that makes it easy for them to cancel at any time. Ideally, this will involve setting up a ‘Manage Subscription” or ‘Cancel” button within your customer’s account, that allows them the autonomy to manage the process themselves. Whilst this may seem scary to some businesses the key to success here is to ensure an effective cancellation flow follows engagement with this process.
Many businesses are afraid of their customers canceling but hidden cancellation processes can frustrate customers. This can have multiple knock-on effects including; poor customer experience reducing your chances of winning back customers, increased involuntary churn, chargebacks, damage to your brand reputation and in some instances – breaches of regulation.
4) Identify why people cancel and focus on addressing those areas.
Understanding why your customers want to churn can be a really useful tactic that can help you to shape the direction of your business. By surveying customers when they cancel you can find out the cause of their cancellation.
The reason for churning could be from any number of factors such as:
- They can’t afford your subscription anymore
- A competitor offers more features or a better value for money
- They aren’t getting the same benefit from your offering as they once were
Whatever their reason might be for canceling their subscription, surveying them at the point of cancellation can provide helpful information as to what areas of the business you might need to address.
5) Incentivising churning customers to stay with discounts, subscription pauses, and the ability to switch plans.
Often many customers could be retained through an offer, this can be both a financial offering but also something simple like offering the customer the ability to pause their subscription. Each case is unique but by understanding your customers and offering them a solution as to why they are canceling you can reduce your business’s churn rate.
Reducing your churn rate should be a fundamental goal for any business no matter the size/industry. Saving customers or at least understanding why they want to cancel can help to grow your revenue, build a better product offering and enhance your brand.
Here at Upzelo, we have built a tool based on our previous experience fighting churn that is proving to help companies reduce their churn and give them the insights they need to grow their business. Our suite of tools including analytics, audiences, offers, surveys and flows have been built to help you achieve your goals.