Churn Management: A Guide to Keeping Your Customers Coming Back for More
Subscriptions offer numerous advantages. The advantages can range from predictable revenue streams to reduced volatility and the ability to forge long-lasting relationships with customers. Selling your product through a subscription model benefits both consumer and company alike.
However, there is a flip side that every subscription business must address to achieve long-term growth and profitability — managing customer churn.
What is customer churn? Simply put, it’s when a subscription does not renew. It can happen due to a variety of reasons:
- Maybe the customer completed a free trial but decided not to convert into a long-term customer.
- Maybe they’ve been a customer for a while but recently haven’t gotten as much use out of the product.
- Maybe their credit card expired, and they forgot to update their new card info in your payment system.
No matter the reason, churn matters to your bottom line. While churn rates vary greatly across industries and business types, the average churn rate is estimated at 5.6%. On the flip side, focusing on churn management can pay huge dividends. Research shows it costs up to 7x more to acquire a new customer than to retain an old one, and increasing customer retention by only 5% can increase profits anywhere from 25-95%.
Of course, you’ll never eliminate churn entirely. The key is to identify opportunities to decrease churn and keep customers renewing again and again. We’ve built this guide to get you on the path to managing your churn and increasing your business’ profitability. We’ll dive into:
What is Churn Management?
Churn management is understanding why a customer isn’t renewing and determining the best approach to entice them to stay. It deep dives into answering questions such as:
- Are customers more likely to churn after a certain period of time?
- Is there seasonality within your business when more customers tend to churn?
- What are early red-flag indicators that a customer is considering canceling?
A churn strategy program looks at the holistic life cycle of your customers, identifies trends or commonalities on why your customers churn and determines win-back strategies to deliver the right message to the right customer at the right time to reduce churn and drive profitability.
Benefits of Managing Churn
The health of your business depends on your ability to retain customers long-term. Companies who successfully lower their churn rates experience healthier financials, improved customer satisfaction, and even a better product.
The following highlights just a few of the benefits of a successful churn strategy program.
More predictable and stable revenue streams
Shifting from a pay-once model to subscription-based billing allows for better insight into your revenue forecast. Customers sign up to pay at regular time intervals, so as long as they don’t churn, you can count on that revenue ongoing. This reduces your business’s overall volatility since your revenue is no longer tied solely to new customer acquisition. As you lower your churn rate, your overall profitability improves, and your ability to predict future revenue becomes easier.
Optimize the customer experience
Building churn strategies specifically targeted at the point of cancellation arms your business with invaluable insight to improve your customer experience. Using exit-intent data effectively means you’re not left guessing why a customer didn’t renew. For example, was it because of price or lack of functionality? These are two very different reasons that require very different strategies to solve. Holistic churn strategies management means using user-specific intel to tailor your response for each customer while also looking at overarching trends to identify opportunities to improve your product or business on a broad scale.
Better product-market fit
Many people believe that your customer retention number — the number of customers that do not churn — is the single best indicator of product-market fit. Why? Because if your customers continue to renew, it means they find continual value in your product. By understanding the reasons your customers’ churn, you can identify opportunities to improve your product to meet and exceed customers’ desires.
Churn Management Strategies to Increase LTV
Now that you understand why managing churn matters let’s look at strategies for an effective program. But first, what is lifetime value (LTV)? It’s the projected revenue that a customer will generate over their lifetime, and it’s a great indicator for the overall health of a subscription business.
By implementing the following four strategies, you can start reducing churn and increasing overall customer LTV.
1. Understand your churn — The first step to mitigating churn is to invest in understanding it. First, you need to determine your churn rate. A basic calculation is:
Next, you need to understand why you’re losing customers. An automated cancellation flow that asks customers tailored questions at the point of cancellation gives you the data necessary to know what issues you need to address.
2. Segment users to prioritize your best customers — Once you understand why customers are churning, use this data to segment customers based on factors like how long they’ve been a subscriber, the reason they're canceling, and the likelihood you can win them back. The goal is to determine the most profitable customers so you can prioritize your efforts.
Sunil Gupta, the Edward W. Carter Professor of Business Administration at Harvard Business School, lays it out best in this article from HubSpot by stating that rather than redirecting time and resources to retain any customers on the brink of churning, businesses need to focus their attention on the most profitable customers on the brink of churning.
3. Develop win-back strategies most likely to convert — Armed with data about what customers are the most profitable and why they’ve opted to leave, you can determine the best incentive to win them back. For example, don’t be afraid to offer new or extended discounts (remember, the cost to acquire a new customer is likely much higher than a discount). However, it isn’t always about price. Maybe they’re on too high of a usage plan, and an alternative is better suited for their needs. Or maybe a feature you’re just about to roll out is something they’ve been wanting, and an offer to be an early beta tester will be the push they need to give your product another chance.
4. Look for opportunities to add value and delight your customers — At the end of the day, your customers will only continue to subscribe if they feel they are getting good value for the price. While subscriptions are tailor-made for forging long-term relationships, you need to continually identify opportunities to add and showcase new value.
Spotify is a widely known example of a company that builds new content and adds continuous value for subscribers. They are masters at creating personalized content (custom playlists based on past listening habits) and sending annual Year in Review recaps to remind you just how much you’ve used and loved their service over the previous year.
Churn Management Solutions that Work
Since managing is such a critical component of a profitable subscription business, why do so many companies avoid addressing it?
First, it can be costly and time-consuming to build a churn strategy program that addresses churn at the point of cancellation. This is why we see so many companies focusing on new customer acquisition and top-of-funnel churn. Making a customer happy who just signed up is much simpler than keeping them engaged month after month and year after year.
We’ve all heard of the Leaky Bucket Theory that you must acquire new customers to replace those you’ve lost. But what if you could plug the holes so that fewer fall out, to begin with? Even better, what if you could understand why the holes exist in the first place so you could build long-term solutions to keep the holes from forming?
Luckily, there are proven solutions that are easily integrated into your existing systems to help you do just that.
Look for a customer churn solution that helps with the following.
Unlock your data through automation — You're busy building products, marketing to your customers, and growing your business. Make managing churn simple through the use of automation. By integrating a churn software solution into your existing billing platform and CRM, you’re able to see a 360 view of your customers to understand your churn.
Hosted cancellation flow for ease of use — Start with a modern cancellation experience designed around industry best practices, then customize based on your business and what the data tells you.
Seamlessly integrate the ProsperStack cancellation flow directly into your application with minimal dev time.
Collect actionable data from customers when they cancel. Customize survey questions at any time.
Automatically present coupons and more to retain customers based on their answers and segments.
Use the insights you’ve gathered to improve your product and re-market to lost customers.
A firm foundation that improves as you learn — Learn from what’s worked for others. Find a solution that allows you to mix and match reusable components while also allowing for easy customization. Tried and true best practices tailored to your audience is how you create a powerful cancellation experience that customers won’t hate, reinforces value, and cuts churn. Choose a solution that allows you to:
- Act quickly when needed. Respond to the unexpected with the ability to make changes at any time without the help of a developer.
- Create sophisticated rules for targeted offers. Retaining a customer requires the right message. By combining survey responses with customer segments based on MRR, plan, billing interval, and more, you’ll be able to deliver the right offers to the right customers at the right time.
- Find the best approach with A/B tests. Pit offers head to head to discover which performs the best. Make sure your solution can seamlessly connect to your billing system to apply coupons automatically, extend trials and pause subscriptions.
Tips for Choosing the Right Churn Management Software
Not all churn software is created equal. To make sure you’re building a program that can get you up and running quickly, as well as grow along with your business growth, assess solutions based on the following criteria:
- Ease of integration — can the software easily plug into your existing billing platform and CRM?
- Flexibility — does the user interface allow you to adjust and customize on the fly?
- Growth roadmap — is the tool continually adding new features and functionality to keep up with the ever-changing nature of a subscription business?
- Performance measurement capabilities – are you able to easily measure the effectiveness of your churn program to understand its real impact on your bottom line?
You’ve done it – you’ve built a thriving subscription business. Tackle churn management at every point of the customer lifecycle with a combination of human and automated strategies built to showcase your product’s value and delight your customers.
With ProsperStack’s hosted cancellation flow, in a matter of hours, you can start retaining your customers, driving down your churn rate, and growing your revenue. Schedule a demo and start reducing your churn today.