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The best thing about a subscription program is the reliable revenue it generates. The worst thing about it is that a healthy chunk of that “reliable” revenue is actually pretty unreliable. Yes, we’re talking about churn.
What is churn? Customer churn happens when an existing customer stops doing business with you. Your subscription churn rate is the number of subscribers you lose over a given period. Although there isn’t a magic standard, Bessemer Venture Partners suggests that an “acceptable” SaaS churn rate for enterprise-level companies should fall between the 5 – 7% range annually.
Churn can be voluntary (e.g. the subscriber elects to cancel their subscription) or involuntary (e.g. the subscriber didn’t update their credit card information). Either way, you’re out of monthly income you were planning/wishing/hoping to get.
If you’re looking to stabilize your monthly income, here are five tips to reduce churn for ecommerce businesses.
1. Incentivize Prepayments
Month-to-month subscription plans give your customers the freedom to quit at any time, which can mean unpredictable churn for you. Offer subscribers a discount if they pay in advance – either quarterly or annually – and you’ll have more money you can count on sooner. Is your product hard to discount? Then try something else, like offering a free month or exclusive features to members who prepay.
It’s easier to budget the predictable income that comes from prepaid subscriptions than the unpredictable income that comes from your monthly subscribers. Consider putting part of your prepaid income toward customer acquisition to buffer monthly churners.
2. Automate Dunning
Automate dunning management to reduce passive churn. Dunning is the process of communicating with subscribers with overdue accounts. They may have missed a payment because their credit card expired, was lost or canceled – whatever the case, they neglected to update their account information, resulting in involuntary churn.
These people may still want to use your product, they’re just totally unaware that their payment method has failed. But do you have the time to individually email and/or call each failed payment? Probably not. For B2B businesses, 9% of monthly recurring credit card transactions fail on average and, for B2C businesses, the number is closer to 14%.
That’s where automated dunning comes in. There are multiple dunning services that will automate emails to help recover missed payments and lost subscribers. For example, a dunning service might start by sending your customers with failed payments a lighthearted email like “It’s not us, it’s you” that reminds them to update their payment method and then direct them to a secure portal, before progressing to more serious messaging.
Once you have a campaign in place that matches your brand, it will run in the background to help you reduce churn while you focus on other efforts.
3. Survey Churners
Wondering why people are canceling their subscriptions? Just ask. Survey customers who have recently churned to ask why they stopped using your services. You can include it on your cancellation page or send a survey link via email.
What’s the worst that can happen? You’ve already lost them after all. Best case scenario, you find out what caused them to cancel and you work to fix it, preventing future churn.
4. Let Subscribers Skip & Pause
Sometimes people just want a little wiggle room. If your subscription standards are strict, it shouldn’t surprise you if subscribers jump ship when life throws unexpected things their way… or when a competitor comes along with a comparable plan that’s more flexible.
Letting subscribers skip a month or put their subscription on pause for up to three months will help you retain customers who really like working with you but need a break for whatever reason. It’s also something you can market that will give prospects peace of mind. They may never need to skip or pause, but they’ll feel more comfortable committing to you knowing they have that option.
5. Celebrate Loyalty
Loyalty programs reduce churn by making your customers feel like they are part of something special. Create a loyalty program and give your most loyal, reliable subscribers a fun name. You can reward them with incentives like sneak peeks at new features, exclusive swag, in-person meetups and discounts at partner companies.
Research has shown that members of customer loyalty programs generate between 12 percent and 18 percent more revenue, meaning longer subscription times and less churn. So figure out what it costs you to acquire a new customer, and then create a loyalty program that costs less per customer but keeps subscribers happy longer, creates more predictable income and stimulates positive word of mouth marketing.
Remember, every business has churn. You can’t stop it, but with these five tips to reduce it, you should be able to get your churn rate below industry benchmarks.