What is Subscription Churn?
Subscription churn is defined as the number of individuals moving out of a specific group over a given time period. In subscription business terms, it’s a financial metric detailing how many customers opt to end their existing relationship with your business.
Why Customer Retention becomes Important?
As customer acquisition costs rise, ecommerce entrepreneurs need to focus more on retention to keep their existing customers. The reality of any business is that it is difficult to scale your business if retention rates are low. If retention rates are low, then the DTC store needs to constantly hunt for new customers.
New customers as we know are 5X times more expensive to acquire than retain existing customers. If a DTC store is looking for healthy scale, then retention should be the key focus areas to propel growth. High retention leads to lower customer acquisition costs i.e. CAC higher lifetime value i.e. LTV and increased cash flow for your business.
What is Churn Rate for Subscription?
Churn rate is a measure of the percentage of customers that cancel a subscription over a specified period of time. Businesses look an annual churn or the % of customers who cancel subscriptions over a year long period.
Types of Subscription Churn
There are two types of customer churn – active and passive.
Active Churn
When a customer decides to stop a subscription, that’s considered active churn. There could many reasons why a customer wants to cancel their subscription. Most of the times they could already be having a lot of product and hence want to stop their subscription. Launching surveys are a great way to gain insights on key reasons for stopping the subscription via an exit survey.
Passive Churn
This kind of churn occurs without the customer knowing he or she is unsubscribed. This type of churn can be easily prevented because merchants can lose customers for various reasons such as the below:
a. Credit Card Issues
b. Inventory Issues
c. Removed Products
d. Out-Of-Stock Products
9 Ways to Reduce Churn for Subscription Business:
Below are nine ways one can reduce both active and passive churn for your business:
1. Target the Right Segments to reduce subscription churn
The first step in customer retention success is to identify the right segment of your customer base that would be the best target for subscription. Focus on providing these customers with the ideal subscription shopping experience.
As per the 80/20 rule, these 20% of your power customers will be responsible for generating 80% of revenue. Increasing your retention rate with these “power” customers will provide a significant boost to your bottom line and free you up to focus on growing your business.
2. Utilize Your Transactional SMS
Transactional SMS is opening up a line of communication with your customers via text messages. It allows DTC stores to text their customers about something related to their purchase or order and allow the customers right back to your store to manage their transaction.
Transactional messages allow customers to stay in control, build trust and reduce subscription churn.
Customers are drawn to the convenience and flexibility that transactional SMS provides, while your business can benefit from increased AOV, LTV, and retention, as well as reduced customer support needs.
With Recharge SMS, you can text your subscribers from your own brand-specific phone number. You can leverage the customer data you already have within the Recharge platform and use our texting simulator to preview what your transactional messages will look like on a mobile device.
As per Recharge, promotional messages see a 40%-60% opt-out rate whereas transactional text messages only see a 3%-6% opt out rate. Some examples of transactional messages are text messages informing customers about their order transaction details, transit time details, a notification that they can add on a one-time product and not pay extra for shipping (part of subscription benefits), a text letting customer know their subscription can be bundled with another one-time product before the next shipping date. Know more about recharge SMS here. With Recharge you can reduce subscription churn while rapidly growing AOV and enhancing customer experience.
Starting an SMS strategy is less daunting as it may seem. You’ll discover that its success involves more with automation than just physical orchestration. Also, gain insights on incredibly powerful tips on bundling strategies to drive DTC growth here.
3. Allow Customers Flexibility with Bundles
Allow customers the ability to curate their subscription. Combine multiple products into one curated box or let customers personalize their own bundle. Sell bundles as both a one-time purchase or subscriptions with or without a discount. With various subscription management platforms such as Recharge, allow customers to choose between different kinds of bundles.
a. Customizable Bundles
Customizable bundles work by using a single subscription product to bundle multiple Shopify products. This allows customers to select a group of products they wish to include in their bundle. Merchants can also customize the bundle’s subscription settings to offer bundles as one-time products or subscriptions and include add-ons or extra products
b. Preset Bundles
Preset bundles allow customers to purchase a pre-configured bundle of products at a set price. Present bundles can be offered as a one-time purchase or as a subscription product. Preset bundles are a great way to allow for choice and reduce subscription churn.
c. Automatic Reset Bundles
The automatic reset feature allows merchants to offer bundles with rotating product selections. After each charge is processed, the customer selections are cleared and the customer must make new selections during a set customization window. If the customer does not make selections during the customization window, fallback contents are added to the bundle order when the next charge processes
d. Manage Existing Bundles with Add-Ons
The automatic reset feature allows merchants to offer bundles with rotating product selections. After each charge is processed, the customer selections are cleared, and the customer must make new selections during a set customization window. If the customer does not make selections during the customization window, fallback contents are added to the bundle order when the next charge processes. This reduces subscription churn.
E.g. if a customer buys a skin cream subscription, allow the customer to buy a skin cream and mascara as a box add-on.
This greatly helps move existing inventory and provide value to customers. Learn more about how to manage product bundling with Recharge here.
4. Provide Customer Service to reduce subscription churn
Customer service is a priority for any business. Even if you have other measures in place, churn rate still would heavily rely on a great customer service. To avoid frustrating customers, make sure you take proactive steps such as the below:
a. Add an FAQ page
b. Add a customer service platform like Gorgias
c. Add an informative social media channel
d. Invest in exit surveys for churn insights
5. Incentivize Subscriber Loyalty
Another effective way to reduce subscription churn is to create a customer loyalty program. Below are a few strategies that can help reduce churn and increase subscriber loyalty.
a. Offer incentives, like exclusive discounts and free shipping
b. Engage users in an exclusive online space
c. Give first access to new products
d. Offer incentives to customers who share subscription benefits on social media channels
e. Create referral bonuses so subscribers can share your business with friends and family
6. Run email marketing campaigns to reduce subscription churn
As in every marketing campaign, a subscription business too needs to acquire new subscription customers, engage them, turn regular customers to subscribers and re-activate inactive subscribers. Here are some ways in which email marketing forms a critical cog to drive subscription growth and active subscriptions.
a. Welcome Series
Use email to educate subscribers about the features of a subscription program with the goal to enable seamless onboarding.
Me Undies an underwear retailer that features a subscription-based service and a personal note on subscriptions from the founder. There is a clear CTA for men and women sections and a clear subscribe and save CTA. The welcome email makes it easy for customers to understand the benefits of subscription and subscribe to monthly or quarterly deliveries
b. Engagement Emails
With existing subscribers engagement emails work well to remind customers as to why their service makes much sense. Many DTC companies such as Bombas, Barkbox engage existing subscribers and encourage referrals to friends and family hoping their extended circle of networks would ultimately extend a purchase to a subscription. Keeping customers engaged increases trust and showcases latest product bundles in their subscription offering.
c. Reactivate Inactive Subscribers
No matter how good your products and services are, customers can eventually churn out actively. This could be due to a changing life situation, too much of product or a better alternative. But before they are sunset customers forever, it is always prudent to try and winback these inactive subscribers. Customer reactivation by email remains by far the most efficient and cost-effective ways to reach past customers to activate a subscription. For example, DTC brands like Glossier, VineBox, Barkbox etc. offer inactive customers a 15%-20% discount in an attempt to win them back.
Learn more on how how to leverage email and SMS marketing to scale DTC growth here.
8. Identify Product Quality / Product Experience Gaps
When ecommerce brands witness high churn rates they often look to all areas but product experience. If you are having a higher than average churn rate, look to see if this because of gaps in the product experience. Does your product meet customer expectations? Conduct in person interviews and in-depth surveys to assess any need gap areas so you could quickly plug the gaps in future product output.
9. Align Purchase Cycles
One of the most common reasons for churn is when product purchase cycles do not match customer behavior. This can be taken care of by giving control to customers to skip, bundle or add-on products based on their unique needs. Recharge is the leading subscription platform that enables these features know more here.
Concluding Thoughts
To summarize, personalizing the customer journey experience by investing in segmentation, in-moment surveys, curated bundled subscription offers, customer service support and transactional text messaging goes a long way in reducing subscription churn for a brand. Get more information on how we could work together to build a subscription solution for your brand and our full service lifecycle marketing solutions offerings below:
