Acquiring a new customer can cost up to 25 times more than retaining an existing one. In today's reality of increasing customer acquisition costs, the importance of focusing on customer lifetime value (LTV) has never been more crucial.
While LTV serves as a guide for prioritizing customer segmentation, resource allocation, and optimizing sales and marketing efforts, it also provides the opportunity for your most loyal customers to become passionate brand advocates. In this article, we’ll provide actionable insights to analyze and enhance the three most critical metrics to better understand your LTV: customer churn, average active days, and average revenue per user.
While other metrics are also important to monitor, these three KPIs offer a comprehensive view of your customer loyalty and retention, and can reveal when and why your customers are churning. By implementing the effective strategies in this article, you’ll not only improve these key metrics, but be more empowered to make data-driven decisions and enjoy the benefits of maintaining strong customer relationships.
Mitigating active and passive customer churn is vital for customer longevity and offsetting high acquisition costs. Active churn occurs when customers voluntarily leave, while passive churn happens due to reasons like expired credit cards or stock issues. Addressing both types is essential to retain customers and reduce acquisition expenses.
Step 1: Use Recharge features to help you decrease churn
To ensure you're offering competitive subscription flexibility and easy order management—two major components of keeping your customers satisfied and loyal—implement the following Recharge features and products:
Passwordless login: Providing your customers with an easy and convenient way to make changes to their orders is a great option for reducing churn and removing the burden from your support team.
RechargeSMS: Transactional SMS solutions, such as RechargeSMS, decrease churn by allowing your customers to manage their upcoming orders with a quick text, plus save time for your CX team, and integrate with your existing CX solutions.
Partial order fulfillment: Preventing unnecessarily missed shipments directly mitigates active subscriber churn. Partial order fulfillment allows you to remove out-of-stock items from an order and attempt the order again based on pre-selected conditions, such as requiring a minimum number of items, a certain subtotal, or specific product.
Step 2: Implement these tips from our agency & tech partners
If you’ve already implemented the above features and products, take a look at the following tips we’ve collected from the experts on how to effectively reduce customer churn.
Tip #1: Implement proactive, two-way communication tactics
Proactively reach out to your new customers before their second shipment and ask them if they’d like to make adjustments to their subscription, using features like RechargeSMS. Customers may need a prompt to adjust their subscription status if they have too much, not enough, or want to change the product they receive from your brand.
Tip #2: Be flexible, identify the cause & adjust your approach
To implement successful retention strategies, you must identify the cause(s) of your customer churn with data from cancellation and retention flows, surveys, and customer support. For example, if subscribers are canceling because they have too much product, providing options like skipping, pausing, or switching frequencies is essential.
For more information on customer churn, take a look at this five-minute video, which breaks down the primary causes of churn, top Recharge integrations to mitigate these issues, and tactics to identify why your specific customers are churning via Recharge Analytics.
Tip #3: Carefully craft your win-back campaigns
After identifying the primary causes of customer churn, it’s time to create winback programs. Begin by segmenting customers based on your top three churn reasons, then customize your messaging accordingly. In these winback flows, aim to re-activate as many potential churners as possible, while also providing an escalation CTA for customers to directly talk to an agent.
Improve average active days
Average active days is a crucial metric that measures the average duration subscribers stay with your company before churning. If your business falls in the lower percentile for average active days, it indicates that customers are subscribing and subsequently churning rapidly.
For example, even with a churn rate of 5% (losing 50 customers out of 1000 each month), if those customers order the product, receive it, and promptly churn, this information is vital for your retention strategy.
Step 1: Use Recharge features to help you improve average active days
Increasing average active days is an ongoing process that requires continuous monitoring and testing. That said, there are proven strategies to enhance this metric, such as prioritizing your loyal customers, offering flexible subscription options, and providing enticing discounts.
To help you implement these effective strategies, we recommend leveraging the following Recharge features and products.
Memberships: Improve your average active days by turning customers into lifelong fans. With Memberships, you can incentivize your loyal members with benefits, such as free shipping, exclusive product access, member-only events, and more.
Discounts: Keep your customers coming back with enticing discounts throughout their subscription journey. With Recharge Flows, you can implement a multitude of timely, customer-specific discounts that go beyond first-time purchases.
Pause subscriptions: If a customer has too much product at home, for example, this is a key indicator they may churn. To improve your average active days, offer customers the ability to pause their subscription, instead of cancel it, within your cancellation flow.
Step 2: Implement these tips from our agency & tech partners
To further increase your average active days, we collected tips from our agency and tech partners. If you’ve already implemented the Recharge features and products mentioned earlier, these expert insights will provide you with actionable strategies to boost your LTV.
Tip #1: Discover your "barbell subscribers"
To understand your store’s best recipe for retention, conduct a cohort analysis to identify your "barbell subscribers": customers with the lowest and highest active days with your company. Then, analyze the factors that influenced long-term subscriber retention and on the contrary, rapid churn. This understanding will allow you to enable LTV-driving strategies for your low-end customers.
Tip #2: Strategically surprise and delight your customers
Enhance customer retention by sending surprise-and-delight gifts to customers just before they typically reach the average month of subscriber dropoff. Pairing these gifts with subscription discounts and exclusive swag creates even more excitement and incentivizes them to maintain their subscriptions for an extended period, cultivating customer loyalty.
Tip #3: Rely on re-marketing efforts
Instead of solely relying on introductory discounts to drive subscriptions, it's important to focus on your overall customer experience. Instead of pressuring first-time subscriptions, target your marketing efforts towards one-time purchasers who have already shown interest in your product, and encourage them to subscribe by highlighting the benefits they’ll receive.
Increase average revenue per user (ARPU)
ARPU is a metric that assesses the revenue generated by each active customer within a specific time frame. The previous two metrics in this document primarily address customer retention in terms of LTV, yet overlook the revenue aspect, which is why ARPU is crucial.
For example, if your customers are staying loyal but you're not meeting your LTV targets because they’re making small purchases, focusing on ARPU can increase their spending behavior.
Don’t know where to begin? Start by implementing the following strategies such as optimizing your subscription model, creating product bundles, and offering enticing upgrades to your customers. To help you capitalize on these strategies, we recommend leveraging the following Recharge features and products.
Step 1: Use Recharge features to help you increase average revenue per user
Upsell & cross-sell: Increase the value of customers’ orders with targeted product recommendations at the right time and place. In addition to promoting product recommendations in the customer portal and checkout flow, be sure to consider the entire customer lifecycle, including your post-purchase marketing emails.
Bundles: Increase ARPU by enabling customers to purchase more than one of your products, conveniently bundled into a curated box. Whether they opt for a pre-crafted bundle, such as a best-sellers kit, or they build their own box, this is a great way to increase order value for both one-time purchasers and subscribers.
One-time products: Make it easy for your subscribers to try new products and increase their average revenue by offering an option to purchase a one-time version of your subscription product. Be sure to promote this option on your website and in your customer portal.
Step 2: Implement these tips from our agency & techpartners
After implementing the revenue-driving features above, it's time to delve into these curated tips from ARPU experts.
Tip #1: Ensure you’re putting effort toward the right customers
One of the simplest ways to uptick your ARPU? Increase your average order value, allocating the most time and resources to upsell and cross-sell your most promising buyers. To do this effectively, use predictive analytics to identify your customers with high-growth potential, and put your most personalized and costly marketing efforts towards this highly-targeted customer.
Tip #2: Don’t underestimate the power of personalized rewards
Implementing deeper customer segmentation enables you to uncover customer preferences and develop targeted loyalty programs. By offering redeemable rewards, special offers, and tailored content, you can increase customer satisfaction, conversion rates, and return on investment.
Tip #3: Implement a customer quiz
Subscription businesses have the advantage of offering personalized product offerings by leveraging customer data. One way to gather this data is through the use of customer quizzes. For example, Blackstone Road, a Recharge merchant, uses quizzes to identify their customers' preferences when they subscribe, enabling them to make highly personalized recommendations in the future.
Increase your revenue with these retention strategies
In today's economic landscape, the significance of prioritizing customer LTV cannot be overstated. That said, it’s imperative to focus on improving key LTV metrics such as customer churn, average active days, and ARPU to unlock even more revenue potential and foster robust customer relationships.
Once you implement the key strategies above, take a look at all of the ways you can continue to scale with your subscribers to pave your path toward long-term success.