As a billing model, subscriptions probably first emerged as the standard in the print media industry, as households in the 1930s grew accustomed to paying recurring fees to publishers in exchange for receiving deliveries of daily newspapers and monthly magazines. Over time, the model expanded to other industries such as milk and diaper services, and eventually, in the digital age, software-as-a-service and even ecommerce.
Thanks to recurring revenue predictability and the perception of lower fees for customers, subscriptions have permeated virtually every business vertical you can think of, to the point that today, even companies offering exercise devices, game consoles and air travel offer subscription tracks.
However, as a business model, subscriptions are notoriously difficult to master, as proper subscription management can be elusive. This is why on average, B2C subscription companies experience over 7.5% annual churn, while B2B companies experience 5.56% churn.
In order to thrive in the subscription space, businesses must be able to continually satisfy their customers, because your profits come from the extended customer lifetime value in the form of those long-term recurring payments. Essentially, the entire model hinges on your sales team’s ability to have a consistently growing community of subscribers. One bad month, and revenues can plummet as churn increases.
As churn and total subscription revenue are inherently linked, minimizing churn should be the primary focus of all subscription commerce companies. In this article, we’ll dive into customer churn, demonstrating why it’s a vital metric to trace and pinpoint proactive subscription management tactics that reduce churn.
Proactive Subscription Management for Reducing Churn
Subscription commerce has rapidly expanded to integrate into the vast majority of customer and business-facing company operations.
With this new frontier of customer billing comes a whole range of important metrics to monitor, such as Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), and Average Revenue Per Account (ARPA). Yet, each of these three core metrics is directly linked with customer churn. Of course, without customers, there is no recurring revenue, and the average revenue per account begins to fall.
Subscription billing models rest on the assumption that every single month, any given customer is likely to come back and continue their payments to the vendor. Whether that’s for a weekly meal kit box or enterprise software seats – or something else entirely – the central requirement for an ongoing subscription is established. Thus, by reducing customer churn, businesses can proportionally increase their monthly subscription revenue.
Even a small reduction in customer churn can lead to:
- Higher revenues: More customers subscribed to a company will lead to higher revenues.
- Increased LTV: Keeping customers subscribed for more consecutive months increases their lifetime value, thereby boosting average customer LTV.
- Improved customer experience: Customers that stay subscribed to a service are content with its services. A decrease in customer churn also suggests an increase in average customer satisfaction, which increases the chances that buyers will become evangelists, helping to recruit still more subscribers.
Yet, reducing customer churn for subscription services is not a simple one-size-fits-all solution. On the contrary, there are a number of proactive strategies that brands must engage with in order to keep their customers subscribed.
Effective subscription management begins with understanding what customers expect from a company’s services and meeting those expectations. If a business isn’t able to provide the services or value that they promise in this engagement, then a customer will churn. Equally, if the customer feels undervalued or ignored by a company, they are less likely to continue to subscribe to its services.
Let’s break down some leading proactive subscription management strategies that help to reduce customer churn.
Identifying Key Churn Points
In order to reduce churn, businesses must first identify where churn is occurring. By exploring product usage data, collecting customer feedback across the service lifecycle, and using survey questions when a user unsubscribes, businesses can build up a comprehensive network of data to analyze.
Churn point identification takes available data and traces key crossroads where customers are most likely to jump ship. Perhaps SaaS clients on a specific service tier have access to additional features, yet they show low rates of engagement with them. In that case, revamping those products to provide more value to those customers will ensure that engagement increases and churn subsequently decreases.
Every business is distinct when it comes to churn point identification. But once your company is able to effectively trace where and why churn is occurring, you’ll be better equipped to manage it.
Offering Custom Pricing Plans
One of the most effective proactive subscription management tactics for reducing churn is to deliver custom pricing to your user base. According to studies by McKinsey, over 75% of customers expect a personalized experience when it comes to dealing with businesses. Despite the relative standardization of subscription services, the same is often true for customers who engage with this billing style.
By using data insights integrated with signals from your subscription management software, revenue strategists are able to trace customer LTV and discover which customers are the most loyal to their services. In order to reward loyalty, brands can create customized subscription pricing packages for these groups. Providing these customized services helps to demonstrate to customers how much your business values their partnership.
As a proactive strategy, this is especially effective because it cultivates the sense that you’re willing to make exceptions to how you generally work in order to provide maximum value. While customers can still churn at any point, personalized and custom pricing will boost their loyalty and further lower the chance of them churning.
Cross-Selling New Services
Another effective strategy to reduce churn among your community of customers is to publish an active product or service roadmap. In these dynamic plans, businesses can outline the major features slated for development and any dates when they expect to publish new tools or services.
Displaying the progress that companies are making behind the scenes will demonstrate to customers that they will increasingly get more services for their money. By communicating the release and expansion of the number of tools or services that a customer has access to, businesses can continually demonstrate their increasing value to the customer, which also opens up opportunities to cross-sell and upsell new service tiers.
Alongside helping your company to grow, this will reduce the likelihood that customers will churn during the year, as they have new features to look forward to.
Proactive subscription management can empower businesses by radically reducing their customer churn. For subscription services, a reduction in churn directly correlates with an increase in monthly revenue, with each customer continuing to generate a cumulative monthly income. As a customer-centric metric, reducing churn is innately tied to customer care, service, and support.
The proactive strategies that we’ve outlined on this list are directly tied to increasing customer satisfaction. By creating clear communication channels, offering personalized plans and new services, and ensuring that every customer touchpoint is as positive as possible, subscription businesses can help to decrease average monthly churn.
As this billing model continues to grow in popularity, subscription management will only become even more important for modern businesses.