The Most Costly Threat To Subscription Customer Churn

Churn is an endemic problem for all subscription businesses.

There are two sides to the issue: one that grabs the lion’s share of the spotlight and one that doesn’t — but should.

Intentional churn — when consumers opt out of a subscription service — is where the most focus is placed, and for one reason: It tends to be where subscription commerce businesses think they have the most potential to improve their odds with better engagement. According to the PYMNTS Subscription Commerce Index, there is a variety of best practices that merchants can use to fight intentional churn – offering consumers easy site navigation, making sign-on simple with quick authentication, finding ways to connect subscribers to new users – most of which emphasize keeping the user happily engaged.

But according to Emma Clark, subscription management expert from Recurly, unintentional, or passive, churn is too often overlooked, particularly by newer businesses.

Unintentional churn consistently eats away at subscription services’ revenue each month; the latest edition of the company’s long-term consumer study emphasizes this as well. And since, according to the study, customer retention is the heartbeat of any subscription firm, that and revenue recovery need to be a priority, Clark said.

“We looked at subscription commerce data from sites ranging across a wide range of verticals over the last two quarters. Specifically, we were interested in two things: how much they could be missing out on due to involuntary churn and how effective is it to start remediating the problem,” Clark explained.

What Recurly discovered is that doing nothing is quite costly.

The Cost of Involuntary Churn

Unlike intentional churn, where consumers decide they’d like to cancel a subscription and no longer want to receive a product, involuntary churn is only discovered by the consumer or the business when the service is no longer received. Clark said that’s often because something was faulty in the payment process. For instance, a service goes to charge a card on file, but the payment is declined.

The classic example, Clark said, occurs when a customer gets a new card after an old one expires, but doesn’t update their account with the new expiration date or card number.

There are also other situations: insufficient funds on a customer’s credit line or bank account at the time the subscription charge was attempted, or a card replacement due to fraud or theft.

Those lapses — that involuntary churn — can cost subscription businesses big: As much as 7 percent of a firm’s user base, on average, can be lost each month to payment issues. It’s an effect, Clark said, that compounds and can take a big bite out of a company’s bottom line.

Or at least it would, she said, if a firm decided to ignore the issue. Luckily, subscription brands don’t seem to be content with inaction.

Remediating the Problem

Fighting passive churn, Clark noted, comes down to two separate, but related, actions that subscription-based firms need to make.

The first line of defense, she said, is preventing the decline from ever happening. That can mean reaching out to a consumer when their card expiration date is approaching so they can remember to update the data manually.

A better option, however, is to work with card networks like Visa and Mastercard and the various payment gateways to ensure that when a user’s card data changes, the information automatically updates within the subscription service, so no additional friction is added for consumers.

“It’s about noting when you’ve gotten a decline; it doesn’t necessarily mean you should just accept the churn … there are a lot of remediations to work with,” Clark said, adding that part of Recurly’s study analyzed the “past-due recovery rate,” which focused on how businesses can recover once a decline has gone through.

“There are a few strategies we can try once that decline has happened,” she explained. “The first is called dynamic retry, which uses machine learning to figure out when the best time is to attempt to make that purchase again.”

Tapping an account with no money or available credit is foolish. Using artificial intelligence (AI) to figure out when a customer will be able to pay dramatically helps the situation — particularly when combined with AI-enhanced interactions via phone or email to remind customers to rectify their payments situation so they can go back to enjoying the service, Clark said.

“When Netflix, for example, reminded me to update my payments information recently,” Clark stated, as an example, “they also included a list of things I had recently watched to remind me of that value proposition.”

And it worked: She renewed her subscription with Netflix immediately.

The before/after push works for keeping consumers hooked on a subscription, too. Clark said the merchants Recurly interviewed that leveraged techniques to both prevent churn and bring potential churners back into the fold were able to persuade about 70 percent of their customers to stay, according to the day.

“The most important thing subscription retailers need to know is that it is not ‘all hope is lost’ when a transaction [is] declined. You don’t need a replacement customer yet. There are still a lot of things that can bring that consumer back into the tent,” Clark said.