The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate

Our tried-and-true tips for minimizing your churn
The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

If you’re spending a large amount of time and money to acquire new customers, do renewals really matter? They do, and it’s a matter of your profitability.

That’s because there’s a good chance that you’re spending quite a bit of money to acquire every new subscriber. In general, the average subscription business pays about what the first term of service would be in order to acquire that new subscriber. Unless they just appear out of thin air, which is pretty unlikely, there will be some investment required in marketing efforts, marketing time, and marketing dollars to acquire them.

The baseline cost for a renewed subscriber, on the other hand, is just the cost of credit card processing. You may have a small marketing cost if there was some telemarketing, direct postal mail, or some special campaign or premium involved, but generally, it’s just the credit card processing cost. Renewed accounts are as close to pure profitability as you can get, so it will positively affect your subscription business to have as many renewed accounts as possible. Here are some tried-and-true tips to help you maintain a healthy level of renewals, and limit your subscriber churn.

What is Churn?

Churn can be simply defined as people falling off your customer list after they’ve joined. It is the result of different actions or inactions on the part of the customer, the most common being account non-renewal, cancellation, and expired or declined credit cards. Whatever the reason, the end result is that your subscriber base gets smaller and smaller. Without proper controls in place, the end result is that you spend a large chunk of your budget to acquire new subscribers, but all you’re doing is just replacing the customers you’re losing through churn. All the work you’re putting in isn’t contributing to growth. Improving your rate of renewal means that you won’t lose as many subscribers and the company as a whole can reach a rate of growth that will bring you to a more profitable future.

Auto-Renewals: Subscriptions in the Modern Age

The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

In the old days before the internet and credit card technology, account renewals meant that you would wait on your customer to send in their payment at the beginning of their next subscription period. These days, the vast majority of customer renewals take place through auto-renewal of credit cards. This is indeed the connective tissue of the emerging “Subscription Economy” that we talk so much about because it opened up the doors of persistent streams of automated recurring revenue. The days of waiting around by the mailbox for a check to arrive are over, now you can automatically bill the customer when their term is up. This has changed the dynamic of renewals and left the ball in the court of the subscription business to fully engage the customer in an active, not passive, manner. What a time to be a subscription merchant!

It’s important to remember that when signing customers up for auto renew, you are explicit in your language that this subscription will renew on a pre-determined schedule, at a pre-determined price until the subscriber decides to cancel. It is very important ethically and legally that the subscriber knows exactly what they are signing up for, and are reminded in due time that their subscription is about to renew. In the meantime, the opportunity is yours to engender an active relationship with your subscribers where they wouldn’t even consider leaving you.

Despite this technological gift, the main problem with auto-renew is the inevitable credit card declines. There are several reasons for declines, the most common culprit being card expiration. Your customers could have also changed cards, hit their credit limit, or have committed some sort of fraud. The reasons are legion, but the bottom line is that it will negatively impact your subscription business. Active planning and maintenance of your customer database is key to maintaining a high rate of successful recurring charges.

Improving Recurring Charges

The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

A recurring charge is the credit card processing terminology for when a customer auto-renews. The following actions can help you cut down on declined transactions and chargeback’s and raise your overall renewal rate:

  1. A dedicated in-house staff member to keep track of and improve your credit card processing is a good place to start. They can keep tabs on how you are handling your clients and potential fraud, as well as chargebacks, which are when the customer essentially disputes the transaction and the credit card company attempts to recover the cost of your subscription. Chargebacks are costly for you and should be mitigated from the beginning.
  2. Sending an email informing your customer that they are about to be auto-renewed is not only good, above-the-board business, but it will also help to cut down on the surprises of a previously-unknown, expired, or otherwise bad card. It could either be an email telling them that they have been renewed or they’re about to be renewed, but the key thing here is that a lot of your members won’t remember they’re up for renewal and that they’re about to be auto-charged. It may seem counter-intuitive but you essentially want to give them the opportunity to cancel before it costs you money.
  3. Work with the credit card companies like Mastercard, Visa, and American Express to edit what your charge will look like on the customer’s statement. This is to avoid the situation where people open up their credit card statements and they immediately ask: “Did I buy this? Should I be paying for this?” You want to make sure that at least if they’re looking at their current statement or if they’re calling and asking for a refund that it’s a company name they recognize, and they know where to call. The last thing you want them to do is to call the credit card company because that could quickly become an expensive chargeback. The operator at the credit card company doesn’t care about your business. They are just going to say, “Oh, those bad people, they falsely charged you? Let’s get that off the statement for you!”
  4. Investing in the Account Updater service provided by the major credit card companies will work wonders for your payment processing activities and improve your renewal rate. This service tracks changes in account information to provide a seamless transition when cards change.
  5. Hire a payment-processing consultant like Paul Larsen who can dive deep into your processing activities, and can help immeasurably in recovering lost revenue.

First-time vs. Second-time Renewals

A strange thing about customer renewals is that the first time you harvest this field you’re going to get a pretty low renewal rate. Then the second time you renew the exact same people the renewal rate actually goes up. This happens across the board to subscription businesses.

What this means is you need to be tracking a few things. First of all, you shouldn’t be analyzing a general renewal rate for all of your buyers together. Split this number up into first-time renewals and the rest of your customers. What happens is when the first-time renewals come up, you end up getting rid of people who never would’ve renewed in the first place. This is a major hurdle for subscription businesses. The ones who fall off simply just weren’t right for you, but after this, you end up keeping the best people. Those best people, when it comes to their second renewal are much more likely to stick with you because you’ve already weeded out the bad seeds.  Even better for you, your best customers are also those who end up buying your cross-sales and other promotions.

Don’t spend any time worrying about the customers who don’t renew after the first term. They simply weren’t the right fit for your product and were probably indulging a momentary interest in your product that has since waned for whatever reason. Your focus primarily should be on keeping the good customers you already have.

Two Non-renewal Myths

The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

Sometimes you will run into the situation where you’ll have customers who have been with you for a very long time, even since the beginning. They renewed steadily until one day they just disappeared.

It hurts because you know that they’re in the right market and they certainly have had more than a momentary interest in your product. So what’s really the problem?

There are actually two myths that most subscription business owners believe. The first one is money. Most customers, when asked, will tell you that your membership costs too much money or that their budget for your subscription was cut. Most often, if they could afford it the first time, they can afford it the second time. If the product is right for them, if you were really solving their needs or really hooked into their passion, almost no price would be too much.

They should be so deeply interested in the product that it’s not about another $5. They are telling you it’s the price because it’s an easy answer. Nobody wants to tell you that you aren’t living up to expectations or that they just didn’t like your product or services. Nobody wants to tell you, “I just really didn’t like or I didn’t use it.” It’s easier for them to get out without hurting your feelings by saying that they don’t have the money right now. Don’t believe people when they say that. Always believe that you may have a different problem, and take action to correct it.

The other myth is that your competition caused the non-renewal. In fact, often your competitors should actually be your biggest marketing partners. Because the secret is that people who buy content on a particular topic tend to buy a lot of content on that particular topic. Great content should speak for itself. If you publish it, they will come, regardless if they are doing business with someone similar to you.

Engagement Tactics

The real number one reason people don’t renew is because they simply forget that they had a membership with you, which seems insane, especially if your subscription is quite expensive. It really is up to you as a marketer to communicate with them actively throughout their lifetime as your customer so they’ll get value out of your business and continue along with you. Sending an email newsletter to your subscriber list once a week with updates on the content, products and services you provide is a good place to start, but is just the bare bones approach to keeping them around.

When someone is a newly minted customer, you’ll need a marketing program so they’re engaged and involved in their membership from day one. The last thing you want is for someone to buy your subscription, get the one thing they came looking for, and promptly never return again. Program a series of welcome messages for new buyers to help them get to know your business. Those first 15 to 30 days of a customer’s lifetime are when you can make a huge impact because anything you do in the beginning will show up down the line in renewals and thus recurring revenue. Phone calls, if you can afford them, also make a real difference in your bottom line. Think of them not as sales calls, but as service calls to get people involved in your community.

Consider sending something tangible to your customers in the mail, even if it’s just a signed welcome postcard, because the senses do matter and something your customers can touch has a much longer impact than something virtual.

Another common product problem that impacts renewals is that what your customers expected to get from your site is not what they actually got out of your site. Another key to ongoing engagement is that your members generally use different content when they’re long-term members versus when they’re first-time members. Make sure that you have content that pleases both types of members and that you’re promoting the content for the long-term members. Customers who tend to feel like they are part of a community will stay around longer.

Improving Perceived Value

In short, improving renewals is about first improving perceived value. First of all, find out what your members, your current paid buyers, really want. The folks who have hung around for a while are going to give you the best ideas, because what they like will end up attracting other people like them. Consider the following tips to improved the perceived value of your subscription product:

  • For new members, conduct a welcome survey as part of your automated email welcome campaigns.
  • Hang out on the message board or member forum and monitor what people are talking about.
  • Study your web analytics. Search terms are incredibly useful to finding out what topics appeal to your readers.
  • Meet with people in person when traveling for business. Host an informal meetup event at a local restaurant or coffee shop. Face-to-face interaction is invaluable as people generally are excited to meet you once you are a member.
  • Implement an exit survey for non-renewals. Ask them what they would’ve liked to see more of and less of from your business. Don’t ask them anything about price, because we already know they will most likely say your subscription was too expensive.
  • For content publishers, make sure the Content Management System for your site allows you to place promotions for your most popular content on your homepage, and not just your newest content either! This ensures that you can get your best and most popular content in front of your readers, especially new members.

Improving Renewals Through Customer Service

The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

In the end, despite all of your best efforts, renewals are won in the trenches. Sometimes it comes down to a conversation to talk your customer off the cancellation ledge. That’s why it’s important to always have a customer service representative available during business hours to save an account that’s threatening to cancel. They need to be available for the times when the majority of your customers are looking at their credit card bills. If you miss them and they leave a message, you’re running the risk of a chargeback.

Running customer service hours from 9:00 AM ET until 7:00 PM ET is a good tip because you want to cover a little bit more of the Pacific time zone working hours. Give your customer service reps a list of “save offers” they are authorized to give to potential cancellations. It may not work, but it never hurts to attempt a save. Or you could offer them a premium, or a few dollars off the renewal price. Maybe you can offer them just a few more weeks. Think about what you can offer them that might save the account.

Train your customer service reps to be experts on what’s available from your business, so that when they’re talking to customers they have at the very least the same knowledge, but hopefully even better knowledge of your business than the customer does. This way, they can really speak to the customer in a consultative fashion. The important thing to remember is that often this is the only person in your entire company that your average customer is ever going to talk to in person, so a trained rep makes a huge amount of difference in renewals. Your hires in this area need to be people who love talking, consulting, and helping people and are probably from a sales background.

Last but not least, you need to give them the ability in your backend to look up accounts quickly and add notes to them, in particular, “do not email” and “do not contact.” It’s very important that they’re able to append that information to an account so that no one else ever emails that person again. The last thing you want to do is to upset these customers and end up with bad word-of-mouth on the internet. Also, keep in mind security precautions that give your reps a customer service screen that doesn’t show credit card numbers, just their contact information.

Regression Analysis for Renewals

Conducting a regression analysis will help your overall renewals. Put simply, it means determining the kinds of customers who have renewed really well for your business, then looking back (the “regression” part) at their account lifetime and attempting to determine where they came from. You’ll find that your most fabulous renewal-heavy customers all come from very few sources. Your non-renewal customers that fell off, cancelled, or charged-back within a month or two and never ended up being any good to you, all tend to come from different sources. You’ll end up seeing that certain sources just deliver pretty crappy customers and certain sources deliver fantastic customers.

The foundation for this ability is to have the proper marketing attribution for your members to track their initial source. You have to be able to look back and analyze these numbers. Start by tracking prospects by campaign type and perhaps even by the list within each campaign. It could be particular keywords on PPC campaigns, tell-a-friend specials, sale offers, or even a certain marketing list.

Each different media source where you place your ad and each different list you use will deliver a different quality of customer to you. You need to be able to look back, and ask: What was my offer? What kind of campaign was I running, where did I stick it, where did they see it? Ultimately, this is going to radically improve your renewal rate because it will inform your acquisition campaigns based on it. Say, for instance, that your tell-a-friend referral campaign delivered fantastic customers. You can then recalibrate your marketing time working on a campaign of that type, and dial down the time spent on the campaigns that didn’t perform as well. Very large membership organizations often have a full-time person who’s just doing regression analysis, it’s that important.

Improving Group Subscriptions and Site License Renewals

The Subscription Churn Primer: How to Maintain a Healthy Renewal Rate.

Source: Bigstock

If you’re operating mainly in the Business-to-Business space and selling site licenses or group subscriptions and you want to improve renewals, your email newsletter will not be enough because you’re not going to get the amount of renewals that you should be getting. From the start of the membership, you should get these customers on 2 or 3-year term if at all possible. For one, if you have to send a sales rep to negotiate in meetings, that’s really high cost to getting an account. What you really want to do is reduce that cost in time.

One of the ways you can do that is to make your group subscription a three-year term. You don’t want to begin the sales process, have it take six months just to acquire the account, and then six months later when they’re up for renewal, you have to sell them again. It’s just exhausting and you’re never going to get anywhere. Make these things as long as you can so then you can focus on getting new business and growing the total number of your site licenses accounts.

Another tip is to get as many contacts as you can at your prospective customer. The truth of the matter is that even in fairly small organizations you’re going to have eight to 10 people who are actually on a formal or an informal committee deciding whether or not they should buy a group subscription from you. Even if you think you have buyer contacts, they may not even be the people who have the power. You also need multiple people because after a two or three-year term, you don’t know who’s going to be still left with the company. The more people you have in your pocket, the better.

Next, you’re going to start heavily promoting the site license or group subscription after you’ve already sold the account to get the user base to use the product. You can conduct webinars for that particular account, or get a top executive to give a one-minute video testimonial, “I love this thing. You guys ought to use it.” It’s not a tutorial, and it’s not how to use it. It’s just a simple endorsement. You can even do in-person presentations where you go over to that particular site and have a meeting with everybody to talk about how great the product is and demo it.  Some subscription companies even go on-site in a cafeteria and have a mini trade show of sorts. Last but not least you can give people gifts. Obviously, there are corporate rules and guidelines, in particular on the government but also in large corporations about what you can give for tokens of affection to your users.

Insider Take

Customer renewals aren’t easy but are the lifeblood of subscription businesses. The genius of the Subscription Economy is that the value you get out of your customer doesn’t end at the initial sale. Proper maintenance directed in the right ways goes a long distance in ensuring that you get the maximum Lifetime Customer Value out of your subscriber base. The tips in this article will help you to establish processes and procedures to make the most of your customer renewals so you can ensure a steady stream of revenue and customers who always renew for more, no matter what your subscription business sells.

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