Wednesday, February 14, 2018
One of the biggest challenges that any subscription business has to face and deal with has got to be customer churn. For the uninitiated, churn—in the context of subscription businesses—is the e-commerce term for the attrition rate of a business’s customers—or in this case, its subscribers. Therefore when we say ‘churn rate,’ it means the rate by which a subscription-based business or service is losing subscriptions. Losing subscriptions, of course, translates to lost revenue.
Voluntary vs. Involuntary Churn
There are two types of churn: voluntary and involuntary. Voluntary churn is what happens when the customer voluntarily drops their subscription. This could be for any reason at all—a sudden lack of funds, a change of heart, or losing interest in the service that the business provides.
Involuntary churn on the other hand—and what we’ll be focusing on in this article—is what happens when something external affects a customer’s ability to keep the subscription going. One of the biggest reasons for involuntary churn is failed payment transactions, which are, in turn, usually caused by problems like payment transaction errors with a customer’s banking service, a credit card reaching its expiration date, or even chargebacks.
Why Involuntary Churn Matters
Now, voluntary churn is something that we can’t really deal with 100%. A subscription business can make their product or service more attractive, or maybe constantly think of rewards for those who keep their subscriptions going for as long as possible. But at the end of the day, the decision lies with the subscriber.
Involuntary churn is another matter. As mentioned above, it’s not the customer’s choice that they are dropping the subscription. Instead, other things are happening that prevents them from keeping the subscription going, things that the subscription business can in fact deal with on their end. It is something reducible and ultimately preventable. If a subscription business chooses not to deal with involuntary churn, then they might as well be throwing their revenue away.
In fact involuntary churn may actually cause subscribers to abandon your business or service altogether. Being unable to resume their subscriptions for whatever reason that is not of their own choosing may frustrate subscribers to the point that they might just give up and go somewhere else.
With that said, here are some ways in which a subscription business can reduce—and eventually prevent—involuntary churn:
1.) Use the right subscription billing software solution for your service
There are many subscription billing software solutions out in the market today, but not all of them help minimize involuntary churn.
Use and implement a recurring billing software that has features to address involuntary churn directly. These include automatically retrying failed payment transactions after a set time limit, notifying customers about failed transactions and informing them of the steps they can take to resolve the problem immediately, as well as allowing the customer to have ‘backup’ payment methods in case the primary ones fail.
The key here is to make transactions as smooth, painless, and hitch-free as possible for both you and the subscriber, and the right subscription billing software solution can easily do that.
2.) Offer personalized support
There’s nothing like a company that takes care of its customers, and the same holds true for a subscription-based business. If a customer is legitimately having trouble with being able to pay, ensure that the subsequent customer support experience is actually meaningful and valuable. While this may not necessarily eliminate churn, it does cement your reputation among your subscribers as a warm and compassionate business, and not one that is simply interested in taking their money.
3.) Offer multiple ways to pay
Credit cards shouldn’t be the only way your customers can pay for their subscription. Offer other payment methods, such as PayPal, debit cards, or even direct deposit. This way, not only do you reduce the chances of involuntary churn but also attract customers who usually don’t resort to credit cards for e-commerce.
When you’re running a subscription business, it is important to deal with involuntary churn as quickly as possible because losing your customers this way greatly affects your average customer lifetime value. Remember that acquiring new customers is more expensive that retaining existing ones, so it makes good business sense to invest resources in customer retention.