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How Subscription Companies Can Reduce Customer Churn

Michael Waters
February 7, 2022
Nearly 40% of customers cancel their new year subscriptions after 90 days. For subscription brands to succeed, effectively managing this customer churn is key.
Image from kustomer.com

Brands with subscription business models are always worrying about churn. Especially at the start of the new year, when customers buy a lot of new subscriptions, e-commerce brands are constantly deploying marketing tactics to keep cancellations low.

Unfortunately, their window of time to make a positive impression on a new customer is small. Almost 40% of people cancel a new subscription service after 90 days. More than half of new subscribers ditch the service by the six-month mark.

Of course, some churn is inevitable with any subscription model, but there are a few tricks that companies can rely on to cut back those numbers to manageable levels.

When Should I Be Worried About My Churn Rate?

Brands should only be worried if their churn rates start to match or exceed the industry averages.

It's Important to Know the Baseline

According to metrics from the subscription economy platform Recurly, software-as-a-service (SaaS) companies (4.79%) and media & entertainment companies (5.23%) have among the lowest churn rates.

Meanwhile, companies that sell subscription boxes (10.54%) and consumer goods (9.62%) should expect higher cancellations rates.

Churn rates by industry. (Image from recurly.com)

Subscriptions With Lower Price Points Don't Automatically Translate Into Greater Customer Retention.

The cheaper the subscription is, the more likely customers are to cancel it: the churn rate for subscriptions under $10 is 7.36%, according to Recurly, which is a little worse than the churn rate for subscriptions between $100 and $250 (5.17%).

How Else Can I Cut Back Back on Churn?

Give Customers Greater Control Over Their Subscriptions

One of the most avoidable ways customers cancel subscriptions is when they receive orders too frequently. Adding more customization can resolve this.

The coffee subscription company Trade, for instance, offers several hyper-specific delivery periods. Customers can get their coffee replenished every week, every 1.5 weeks, 2 weeks, 3 weeks, 4 weeks, or 6 weeks.

Customers also have the option to skip a shipment if they are away during a specific time.

Personalize, Personalize, Personalize

In addition to giving customers more flexibility over the timing of their subscriptions, companies that send physical products—especially subscription box companies—should be asking their customers what, exactly, they are looking for.

Dollar Shave Club has a "tell us how you get ready" form that helps it better tailor its boxes to individual user experiences. Brands can also use quizzes to help make personalized subscription recommendations.

Dollar Shave Club "Tell us how you get ready" form.

Avoid Passive, or "Involuntary," Churn

The worst cancellations happen when subscribers end their subscriptions not because they want to but because their payment information is outdated. For instance, if customers switch credit cards or bank accounts, the payments might stop going through.

Luckily, there's an entire ecosystem of software companies dedicated to retrieving updated payment information from customers. Companies like Churn Buster make the process effortless through automation without overloading customers with messages or emails.

Build a Loyalty Program

Loyalty programs help develop and maintain strong customer relationships. All of the biggest retailers, from Amazon to Target, operate sophisticated loyalty programs for long-term customers, and that's for a good reason.

When using your service brings added benefits, customers are more likely to keep it around.

Subscription companies should consider the same strategy. Bundling additional free items when repeat customers reach certain milestones, like their six-month anniversary since subscribing, keeps them returning.

The beauty subscription box Ipsy, for instance, doles out points each time customers receive a box. Once they build up enough points, customers can use the points to redeem extra prizes for free—like a lip balm, a glam bag, or scrunchies. 

Shift Around When You Use Discounts

While many companies offer heavy discounts to maximize new customer acquisition, members of the new customer base are most likely to ditch the service as soon as the discount period ends.

One strategy is to instead focus on giving discounted monthly fees to existing customers at times when they're most likely to cancel.

Kidbox, a Chatdesk client, offered their existing customers 50% off one or two months of their subscription to boost renewals at the start of the new year.  

Kidbox offered their existing customers 50% off one or two months. (Image from Kidbox)

Evaluate Customer Feedback Patterns

One of the easiest ways to retain subscribers is to figure out why, exactly, they're canceling. Brands should be sure to set up post-cancellation forms where they ask customers to explain their reasons for ending their subscriptions.

But often, the most valuable insights come from directly analyzing customer feedback. It helps identify what each customer values.

Chatdesk Trends tags customer emails, chats, and social media comments, looking for patterns in customer feedback. Those patterns might point toward why customers are canceling.

To see how Chatdesk Trends helps brands formulate successful subscription marketing strategies, schedule a demo.

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