Did you know that it is 50% easier to sell to existing customers than to acquire new ones?
That should come as no surprise to subscription ecommerce businesses, who make the majority of their revenue selling to their subscribers and reducing their amount of customer churn (when customers stop using a business’s products or services over a certain period of time).
How you combat churn, also known as your retention strategy is key to ensuring you have a healthy subscription business. Especially considering that according to Gartner, 80% of your future revenue is likely to come from 20% of your current customers.
Despite knowing the importance of reducing customer churn, many subscription businesses struggle to hold onto their subscribers. For one reason or another, existing customers decide to leave your subscription program and stop buying from you.
In this post, we’re going to delve into the reasons why people cancel their subscriptions and what you can do to reduce this customer churn rate.
Why is customer churn rate important?
Here are a few reasons why it’s important to keep your customers from cancelling their subscriptions:
Subscription businesses are based on retention, not conversion — subscription businesses survive because customers stick with you for a long time. Businesses with a very high customer churn rate are best visualized as a leaky bucket. If the total number of customers you’re adding to your subscription program (imagine them like adding water to a bucket in this extended metaphor) is less than the number of customers lost from your subscription program you’re in trouble. Your bucket has too many holes in it and you’ll soon be out of water.
Low customer churn allows you to pay off your customer acquisition costs, meaning that, over time, each customer becomes more and more profitable.
Some businesses, incentivize may not make a profit until after a new customer’s first one or two subscription orders as a means of incentivizing joining their subscription program. So, what happens if those brands have high customer churn rates? Very simple —they won’t be profitable and will be bleeding their business dry.
That’s why your main focus should be on increasing your customer retention rate, not on converting as many customers as possible. Customer attrition should be more of a focus as opposed to customer acquisition.
Subscription companies are always selling, and customers can cancel any time — each month, your customer has the option of deciding to spend their money somewhere else.
Don’t assume that they’ll just stick with you. You need to be proactive and remind your customers of the value you’re offering.
This means that, if you want to keep your customer, you should focus on delivering an exceptional customer service experience alongside your great products or services.
Remember, by reducing your churn rate, you increase your average customer lifetime value —It’s a pretty straightforward equation. The long a customer stays with you the more money your business will end up making.
If your average customer stays with you for six months, and you increase that by one month, you’ll increase your revenue by 16%.
That’s why you should try your best to reduce customer churn as much as possible.
Why do customers cancel subscriptions?
Here is a list of the main reasons why customers cancel their subscriptions:
Too much focus on acquisition — getting new customers is important for your growth, but keeping them is far more important.
Many streaming services, for example, offer discounts to new customers for the first couple of months but neglect to provide any incentivizing deals for their loyal subscribers. We all know someone who’s hopped around to every gym and fitness class in the city to take advantage of their free or discounted rates for new members. The best subscription programs make sure they don’t lose sight of the big picture by focusing solely on bringing more customers into the business.
If you neglect to take care of your long term subscribers your customer loyalty will suffer and your churn will go up.
Don’t make the same mistake. Reward your most loyal customers with impactful deals.
You don’t deliver the same value anymore —the primary reason a customer first bought from you is likely because you were offering something valuable to them.
They decided to become a subscriber because they wanted to fulfill this product need each month, and your recurring service seemed like the best option.
What do you think will happen if you start sending lower-quality products or restricting their options on order delivery?
Customers will start looking for different options. Depending on your vertical, there are likely several competitors offering similar products and services, so always be sure to keep your quality up.
No options to change/edit their subscription — the needs of your customers might change over time. The best companies grow with their customers and meet them where they are.
Subscribers want flexibility over their subscriptions. They want customisable options to meet their needs for what’s best for their life. Having a flexible customer portal that gives customers options around products, delivery schedule and how they pay are now the norm. Rigid subscription plans with limited options around skips/swaps or changing the cadence of deliveries are prone to raising churn rate.
One of the most common reasons for customer churn are subscribers having too much product. If customers don’t have the option or aren’t aware of the ability to skip a shipment, change their schedule or try a new product they’re likely to cancel their subscription.
You increased your prices — increasing your prices might cause a lot of customers to cancel, especially if your main competitive advantage is your low pricing.
Paying more for the same thing makes people feel like they’re being ripped off. So, avoid increasing pricing for your current customers.
Of course, sometimes you will have to do it to survive in business.
In this case, be sure to back this increase in pricing up with an increase in value for whatever you’re offering to your customers.
Explain to them how the product quality or service will improve. Align your pricing with a social cause, such as a percentage of each sale being donated to a charity cause that aligns with your brand.
Customers don’t use your products — buying a product is not the same as using it.
Sometimes, you might have customers that initially decided to subscribe to your service, but never ended up using your product.
That’s why it’s extremely important to engage with your customers on a regular basis and teach them how to use your products.
Be sure to survey them to figure out whether or not they are happy with the quality of your product or service, and how they are using what you sell. This simple rule can save your business.
The customer is trying to cut down on costs — sometimes, our financial situation changes, and we need to spend less money or we simply want to spend it elsewhere.
Sometimes, there is nothing you can do when this happens, but in other situations, you can improve your chances of holding onto the customer.
If you are one of the first things that your customer has decided to cut down on, that means that your product or service is not a high priority for them.
Be sure to regularly remind your customers of your value proposition and why your products are so convenient to receive on subscription.
This will keep your products valuable in the eyes of your customers and increase your chances of avoiding being cancelled if money gets tight for your subscribers.
The customer found a cheaper competitor — of course, there may always be someone who can sell even cheaper than you, even if that competitor isn’t making any profit from his sales.
This might be a reason for customer churn, especially if your competitive advantage is low pricing.
That’s why you should always focus on having other advantages, as well — like exceptional customer service, high-quality products and an engaged brand community.
These advantages all combine together to build up your brand loyalty which in turn deters customers from ever wanting to switch to a competitor.
The customer found a competitor offering better service/products — there might always be someone that outsmarts you with higher-quality products.
Remember that a higher-quality product does not mean that people will automatically switch to using them.
It’s all about positioning your brand and offering exactly what your customer needs.
If your competitors are offering additional features, but your customers don’t need them, why switch?
Remember what Mike Dubin, founder of Dollar Shave Club, said: “You don’t need a backscratcher and 10 blades.”
So, your competitor will only be able to successfully steal your customers if they offer them something that better that simultaneously fulfills their needs.
So, take some time to understand what your customer wants and what your competitors are doing.
You provide a bad customer experience — even if you have the best products in the world, you will turn a lot of customers off with a bad customer service.
When people have questions or problems, they want someone from your side to pick up the phone and help them ASAP.
If they have to hold the line for 30 minutes, you’ll make them feel very disappointed. And with time, this disappointment might lead them to decide to cancel.
How can I prevent cancellations and improve customer retention?
If you want to prevent more customers from cancelling, you should do the following:
Communicate regularly with your customers — this will allow you to learn more about customer dissatisfaction, unmet needs and reasons why your customers might cancel their subscription.
The best and simplest way to do this is with your customer service program.
Every time a customer contacts you, that means that they have a problem that needs to be solved. So, make sure to record calls and save all chat and email messages.
Then, spend some time analyzing these issues and finding the most frequent reasons why people contact you.
Here are a few other ways to get to know the needs of your customer a bit more proactively:
- You can create a post-purchase survey and send it to your subscribers
- You can contact your most loyal customers and survey them
- Less direct but incredibly important, use analytics tools like Google Analytics or you’re a Recharge merchant utilizing your Recharge analytics dashboard
Always focus on improving your service — when you do this, the value that you offer to your customer grows over time.
At the same time, this allows you to build even greater brand loyalty, which makes it even harder for your competitors to steal your customers.
There are several things that you should focus on improving in your subscription ecommerce business:
- Quality of your products — when you’re reselling someone else’s products, this might be harder, but you can always be on the lookout for better suppliers or ingredients
- Your product packages — understand which products your customers tend to use together and offer them as a bundle at a better price. Also, consider the quantity of products that people buy, and create different offers based on the number of items people are buying.
- Customer service — don’t make people wait for someone to pick up the phone. Train your staff to answer all questions as quickly as possible.
- Delivery — make sure (if it’s within your logistical control) that you’re delivering your products on time each month, damage-free.
Make your monthly subscription as flexible as possible — allow your customer to switch their plan at any time with ease.
Make the whole experience as intuitive as possible so subscribers can simply go to your website and easily swap products, skip an order or change the delivery schedule.
Teach your customers how to use your products — if you’re selling skincare products, teach your customer how much of the product to use and how to apply it. If you’re selling coffee beans, teach customers how much they should grind for the perfect cup.
Providing supplement information that is helpful (and flexes your delightful brand tone) will go a long way toward convincing subscribers to stick with your subscription service.
Frequently remind your users of the quality and benefits of your products — as previously mentioned, in subscription businesses, you need to keep reminding customers of the reason they’re subscribing to your customers every order. And that reason is, your product is desirable, delightful and betters their life.
You need to remind your customers why they chose you in the first place.
Be sure to communicate regularly with your customers and inform them about your value proposition, how you can help them solve their needs, and why they should stick with you.
Share the same values as your audience — a lot of the time, customers will choose you because you share the same values.
This may be related to their lifestyle, sustainability and saving the environment or helping those in need. Be sure to let them know what your brand values as a company and engage with like minded customers on your social media channels.
Handle bad publicity — no company is immune to bad publicity.
You might not be able to prevent bad PR, but you should always act accordingly when it comes up.
Otherwise, you might lose a lot of customers. This happened with Netflix when they decided to increase their pricing and split up their streaming service and DVD-by-mail service.
So, here’s what to do when this happens:
- Admit your mistakes and make apologies
- Try your best to help all people who have been affected
- Explain why the mistake happened and what you learned from it
- Let people know how this crisis will allow you to serve customers better in the future
Always increase pricing with a value offer — when you have to increase prices, make sure to communicate how this will result in the customer receiving a more valuable experience.
Explain how this will improve your service — he’ll receive upgraded products with extra features, premium customer support or something else.
Always have someone to answer questions and help customers — handling customer support might be tough, especially if you’re a small company and have a lot of questions coming in from customers.
If you can’t handle it yourself, you may want to consider outsourcing it. There are a number of companies that are well-trained and will learn and answer everything about your product.
The long short
To build a successful subscription ecommerce business, you not only need to acquire new customers, but retain your current ones.
Understanding the why behind customer churn is the first step in implementing effective retention strategies.