Refining The Fight Against Subscription Churn

As one looks across the subscription landscape with an eye toward combating the consistent issue that churn presents, there are often small breakpoints where churn is happening and can be battled back. Zeroing in on the right targets can make the biggest impact, Recurly SVP Danielle Gotkis told PYMNTS – a need that is more pressing today than ever, she noted, as the subscription landscape has seen some major shifts in the last 30 days, with more likely to come.

“We’re seeing unprecedented shifts and are keeping a close eye on how subscription services and their subscribers are affected by the pandemic and the various mechanisms merchants are testing to retain their customers in these volatile times,” Gotkis said.

Refining the Fight Against Churn

Fighting churn, Gotkis noted, requires a nuanced understanding of the subscriber base and insights into churn patterns and industry benchmarks for similar businesses. For example, when looking at performance metrics across all subscription services and industries as published in Recurly’s Annual Subscription Billing Metrics Report, subscriptions of $100 and above have much lower rates of voluntary and involuntary churn.

This seems counterintuitive at first, and by no means should be interpreted as advice to increase the price of a subscription as a retention tactic. When segmenting the data by industry, it becomes evident that subscriptions at this price level are much more prevalent in the SaaS industry, rather than in streaming or box-of-the-month industry segments.

The selection of SaaS vendors is usually driven by business requirements, and entails a vetting process to ensure a good fit for months and years to come. Those purchases are often linked to a business card managed by someone in the accounting organization whose job it is to make sure the subscription doesn’t lapse. So it’s not surprising that voluntary and involuntary churn due to card declines is lower for B2B subscription services.

Lower-value transactions that are more common in the B2C subscription world, such as streaming subscriptions and box-of-the-month offerings, have higher churn than B2B services. These products are less mission-critical for their subscribers, who are more likely to let them lapse merely because they are more “nice to have” than “must-have.” In those cases, battling churn takes more work to render the product or service essential. That might mean offering variable payment terms or building loyalty by offering subscribers perks or rewards.

“We have seen a lot of our eCommerce and Internet of Things merchants increase their revenue per customer by introducing unique add-on offerings or by allowing their subscribers to make one-time purchases in between their subscriptions,” Gotkis explained.

With voluntary churn, sometimes the solution is an overhaul of the product or experience. To combat involuntary churn, Gotkis recommends working closely with the payment provider to analyze decline data.

“For example, one of the top reasons for churn is a decline related to a temporary hold on the account used to make the purchase, which often happens when a business is trying to renew subscribers outside of normal banking hours,” Gotkis said. “It’s a best practice to move the renewal times to normal business banking hours.”

The Emerging Landscape

As the COVID-19 pandemic continues and consumer habits continue to evolve, Recurly’s data is already showing shifts in subscription trials, purchasing and usage patterns. In April alone, Recurly saw subscription businesses double their new subscription volume.

A new market for subscription service providers is emerging, as consumer preferences are rapidly realigning to the new world. The goal now, Gotkis noted, is to capture new subscription momentum and retain subscribers by delivering value over the long haul.