Crazy but true, although new subscribers are more likely to open your emails and respond to additional offers – such as upsells and cross-sells – than older accounts are, they’re far less likely to renew.
In fact, this is such a basic data point for every single subscription product regardless of whether they are B2B or B2C, that experienced subscription marketers refer to new customers’ first renew period as a “conversion” and only successive renewals are considered “renewals.”
The difference between these two rates – the first renewal versus successive ones – is so dramatic that you really shouldn’t take an average across both groups when reviewing your success metrics. Instead, you should look at conversions and renewals as very separate types of customers.
Why is this?
An analogy may help you understand. Your new customers at the cusp of their first renewal are like a field of wheat, ready for harvest. When wheat is harvested, it’s sorted into grains of wheat seed versus chaff (the stems and leaves of the plant.) The chaff is essentially worthless to you as an ongoing account. Only the seeds will be ongoing customers.
The chaff are customers who were never terribly good prospects for a long lifetime. They may include:
- Sweepstakes or free gift offer responders who wanted the gift but not the subscription
- Free trial responders who never really intended to stay, but forgot to cancel in time for the first charge
- Casual or one-time users who only needed your information briefly
- Company employees who discovered their boss would not be OK reimbursing the charges
- Consumers using debit cards, pre-paid cards, or credit cards near their limits who never manage to have enough money in their accounts to cover further rounds of charges
- Fraudulent charges
- People who misunderstood what the value your subscription service could provide them with
You can reduce the percent of chaff in your total acquisitions by optimizing onboarding campaigns and by analyzing acquisition source data carefully (perhaps a particular affiliate, PPC campaign, social media or offer generates a high percentage of chaff.) But, you will never entirely eliminate them – not if you are doing aggressive enough acquisition campaigns. Just as a retail store has a certain percent of foot traffic that never buys anything, you’ll need to open your doors to allow many new customers in the doors to get enough people who stick.
The big question then becomes: how can you get more wheat seeds to sprout into long-term, ever-renewing subscribers? Typically, the reasons why wheat seed-type subscribers don’t renew include:
- They don’t use your service “actively” which often means on at least a monthly basis, for a variety of reasons they usually describe as “time,” which could range from forgetting your site exists to not being able to find or use the existing content they need easily enough
- Their organization has cut their budget, despite their kicks and screams, and they can’t fund the subscription out of their own pocket
- Your subscription offering has disappointed them; it’s just not providing enough value
- They’ve had a major life change and left your target market
- “Involuntary churn” – their payment method has been declined by your processing systems (or those they tie into) and you haven’t done a good enough job of fixing that problem.
Do you understand why your subscribers or members have not renewed? Are you able to track subscribers and members through their lifetime based on how they were acquired? Do you have a dedicated person (or team) responsible for retention and renewals?
Customer retention is utterly central to an online subscription business’s profitability. Our industry’s business model is powerful precisely because after we acquire customers we can continue to sell them our services over and over again at a remarkably low cost per sale. This allows subscription companies to market much more aggressively than most other industries can.
With a good retention rate, you can afford to break-even – or even take a small loss – on new customer acquisition marketing. Your retention sales pay you to grow. Retention is key to your subscription business, are you tracking your chaff and managing renewals effectively?