Winning a customer in the subscription business is only the beginning as customer loyalty is key to success. Keeping customers satisfied with products and services is important for businesses to establish a stream of recurring revenue. Customer churn, however, can have a negative effect on this monthly recurring revenue. To minimize the impact of customer churn, it’s essential to anticipate customer needs and take proactive steps to reduce the customer churn rate. With an elevated level of customer satisfaction and loyalty, subscription businesses are more likely to achieve their growth goals.
What is customer churn?
Customer churn, also known as customer or subscriber churn, is the term used to describe the percentage of customers who discontinue their subscription in any given period. Churn is typically used to measure customer turnover every month; however, it can be applied over any predetermined period needed for reporting purposes. The customer/subscriber churn rate can be calculated using the below formula:
It is important to note that customer churn can arise for multiple reasons and should not be viewed as a single phenomenon. At its core, customer churn is the result of customer dissatisfaction and frustration. The root causes of the churn rate can be categorized as either involuntary or voluntary.
Involuntary cases are typically driven by external factors such as customer location, pricing, cost, or competition. These factors are hard to control and mitigate. In contrast, voluntary cases of customer churn tend to stem from negative customer service experiences, difficulties using the product, or any number of other dissatisfaction experiences. With an effective churn management strategy in place, these objections can be tackled before they become the foundation for customer departure.
Why is it important to reduce churn?
Churn reduction is a critical part of running a successful subscription business. Minimizing customer cancellations is essential to protect recurring revenue, as well as get insights into how the company is engaging with customers. Accepting some level of customer churn is normal but businesses must actively strive to reduce it. Doing so will give your organization a better understanding of the market, your customers, and how they respond to different strategies that are implemented. Furthermore, proactive churn reduction techniques can help to lessen reliance on customer acquisition while also acting as a way to identify any issues that may be causing customers to leave.
With the right strategies in place, businesses can ensure more secure revenues and feedback which can help take informed decisions about the products and services offered.
How can subscription businesses reduce customer churn rates?
Engage with customers and get feedback
In the subscription business model, customer churn can often lead to major issues. That’s why it’s essential to put measures in place to directly address customer churn before it happens. To do this, you should always take every opportunity to encourage customer feedback from both — those who have gone on to become loyal customers and those who have decided to leave.
Simple surveys are a great tool for understanding how people are using your products and their features and the specific challenges they’re experiencing. Furthermore, you should make sure to ask canceled subscribers for their feedback when they leave. This way, you can get a deeper understanding of their reason for leaving and take steps toward reducing customer churn for the same reason in the future.
Analyze the cause of churn
Routine customer satisfaction surveys are often inadequate when it comes to truly understanding customer churn in a subscription-based business. While they can provide clues as to customer sentiment and satisfaction levels, it is important to consider a more individualized approach. Reach out to customers who have churned with customer support staff, asking probing questions that delve deeper into customer experience and the tensions between customer expectations and product capabilities. These types of insights can have a greater impact on customer loyalty than customer surveys alone.
When running a subscription business, customer loyalty is essential. Providing customer incentives is an ideal way to reduce customer churn and keep customer interest alive. Offering value-added services such as exclusive content, premium support access, or additional features will make your product more appealing to paying customers. While these incentives may cause marginal increases in operational costs, the amount of customer loyalty generated by these offerings is well worth it — leading to exponential reductions in customer churn.
Proactively communicate with customers
Customer communication must be proactive to reduce customer churn. Send early reminders to the customer if their payment cards are expiring and offer them direct support in updating payment information – this ensures the customer’s convenience while simultaneously reducing customer churn. A customer-friendly way of proactively communicating with customers can ultimately go a long way in decreasing the churn rate.
Convert billing obstacles into allies
Problems with credit cards, billing info, or payments can cause people to stop using your service. To prevent this from happening, businesses can take advantage of automated systems offered by major credit cards such as Mastercard, Visa, American Express, and Discover. With these services monitoring customer credit card changes and updating customer records accordingly, subscription businesses can successfully process recurring transactions ahead of their expiration date.
Use a subscription billing management platform
Credit card transactions that fail to go through can be frustrating for merchants and can lead to customer churn. By using a subscription billing management platform, the issue of failing transactions can be alleviated. Its intelligent retry logic identifies the reason for the initial failure and adjusts retry attempts at a schedule that will likely result in success.
Ultimately, this helps maximize the revenue gained from these retry attempts, while keeping transaction fees at a reasonable level. Therefore, subscription management platforms are an invaluable tool for any merchant looking to decrease their customer churn rates and increase their customer satisfaction levels.
Using RackNap for subscription billing management
RackNap is an end-to-end subscription billing management platform that helps subscription service providers build profitable businesses. With RackNap, businesses can automate their subscription billing with next-gen automation capabilities.
As the subscription business model becomes increasingly popular, RackNap’s features make it the perfect choice for businesses that need to define pricing and product plans on their terms. These features include the ability to create free, one-time, recurring, pay-per-use, and contract-based plans which can be delivered to customers automatically with RackNap’s robust automated billing management system.
With RackNap, you can easily integrate and automate various processes, such as provisioning, billing, and support, without extensive development work. You can address your key business challenges and do a lot more, like:
- Register multiple partner types – commission-based or discount-based partners.
- Provide power in the hands of your partners with a custom-branded marketplace, reseller panel, support, and strong GTM enablement.
- Provide power in the hands of your administrators with an admin panel and customers with a customer panel.
- Enable your partners with complete cloud billing automation – the ability to sell multiple plans with flexible billing and discounts.
- Empower your partners with data intelligence via graphical dashboards.
With RackNap, you can focus on your core business rather than spending valuable resources on development and maintenance. Our team of experts is always available to provide support and guidance. Book a demo to know how subscription service providers can benefit from RackNap’s automated subscription billing platform.