Subscription websites mostly rely on customer retention more than customer acquisition. No matter the number of new customers you are acquiring, if you haven’t taken enough measures to keep your customers in the long run, you are losing revenue.
In this blog post, we are discussing subscription churn. If you aren’t familiar with the term or don’t know how it would impact your business, dive in to learn about subscription churn.
We’ll also discuss some proven strategies that can help you with reducing the churn rate for your subscription business. So, if you have a subscription business already, you should read this article till the end.
Let’s begin by addressing the obvious big question.
Subscription churn is the rate at which customers unsubscribe or cancel their subscriptions from a business. It is usually calculated in the percentage of lost customers in a given period of time (mostly in a financial year). The churn rate is a clear indicator to identify how the business will perform in the long run.
How to Calculate the Churn Rate for a Business?
Here is a formula for calculating the churn rate of a subscription business:
Subscription Churn Rate = UC ÷ TC x 100
where UC = Unsubscribed customers
and TC = Total customers at the beginning of the time period
Consider the following example:
At the beginning of the financial year 2022-23, you had 100 subscribers for your business, and at the end of the financial year, 10 customers unsubscribed from your business.
So your UC = 10 and TC = 100
Applying the above formula, your churn rate is 10 ÷ 100 x 100, which gives you 10% as the churn rate.
What is a Good Churn Rate?
As you already know, the lower the churn rate, the better. But we can’t define what is a “good” churn rate for your business because it depends on your business model, products or services, industry, etc.
Here’s a table that shows the average churn rate for various industries:
| Industry | Average churn rate (in percentage) |
| Media & Entertainment | 20% – 30% |
| Online retail subscriptions | 15% – 20% |
| Fitness and wellness | 10% – 15% |
| SaaS (Software-As-A-Service) | 5% – 7% |
| Telecommunications | 2% – 5% |
So, the average churn rate will vary depending on the industry. You have to take the necessary steps to reduce the churn rate for your business. Always keep it down than the average rate. Anything above the given number can be alarming, which means you have to take serious actions to ensure the longevity of your business.
What are the Different Types of Churn?
Now let us look at different types of churn in subscriptions.
Voluntary churn:
When a customer intentionally cancels their subscription with your business, it is known as voluntary churn. It happens due to various reasons, such as the product being overpriced, having poor quality, competitors having better options or poor customer service.
Involuntary churn:
Involuntary churn happens when a subscription gets canceled due to failed payments or a change in billing or shipping address. In such cases, your customers might not want to cancel their subscriptions, and the churn mostly happens without their knowledge.
Seasonal churn:
Seasonal churn happens when customers cancel their subscriptions due to seasonal factors, such as festivals, holidays, weather conditions, etc. In such cases, your customers cancel their subscriptions for a short period and then resubscribe.
Example:
Sunscreen lotions may seem a churn in the winter season. (In most South Asian countries, there is an extremely hot climate for most of the year, and winter is mostly seasonal.)
Upgrade churn:
Upgrade churn happens when customers cancel their subscriptions because they want to upgrade to a higher plan. This type of churn may not cause a bad impact, but if you don’t have a higher plan option, you are losing some huge sales.
Downgrade churn:
This is exactly the opposite of the upgrade churn, in which customers want to downgrade to a lower plan. It happens mostly because they find a more sensible plan that offers better value and meets their requirements.
These are the five major types of churn in subscriptions. The first three may cause some negative impacts on your business, while the upgrade or downgrade churn cannot always be bad. You can retain customers by offering better plans that suit their requirements.
Why is Churn Rate an Important Metric for Subscription Businesses?
Subscription businesses rely on the predictability of revenue for making strategic decisions for their business, and the churn rate could seriously affect it. The churn rate shows how strong your customer base is, how long they are likely to retain, and whether you succeed in the long run.
If you are seeing a sudden hike in your churn rate, there could be a serious problem with your products or services. Sometimes, it’s a bug, poor customer service, or low perceived value. Identify what’s causing the issue and act accordingly.
If you are not monitoring your churn rate, things could go wrong seriously, and you will lose your customers. And lost customers aren’t that easy to win back.
By monitoring your churn rate, you can make informed decisions and act quickly before things go out of control.
A lower churn rate can also give some good insights as well. It shows your customers are satisfied with your offerings and are loyal to your business. Also, if you are seeing a decrease in churn, it means you are attracting the right customers and your products or services are meeting their expectations.
How to Reduce the Churn Rate?
To reduce the churn rate, first, you have to identify what’s causing the churn. Why are your customers canceling their subscriptions? Don’t just assume; instead, look at the statistics, or talk directly to your customers and identify what’s wrong.
BIG MISTAKE- Adding Features or Reducing Price is Not the Solution
Most businesses attempt to reduce churn rates by giving more features or reducing the price. But that’s a BIG mistake. Having fewer features or higher pricing might contribute to the churn rate, but most customers already know these factors before they subscribe to your products or services.
Feature additions or competitive pricing is a good thing, but these two alone won’t bring the churn rate down. You have to identify what’s causing the churn, and then only you can fix it.
9 Reasons Why Customers Leave Your Business
Here are some common reasons why customers churn from your business.
- You are attracting the wrong customers
- Your products/services are no longer needed by your customers
- Your customers can’t see the value in your product anymore
- Your product didn’t meet the expectations
- You have poor customer service
- Competitors offer better pricing and plans
- Your products have poor quality
- Lack of proper communication about renewals and expiry
Proven Measures to Reduce Churn Rate for Your Subscription Business
Here are some proven measures that can help you lower the churn rate for Subscription Business:
- Set up free trials / Offer sample products
Give users a chance to know how your products will work for them. Offering free trials or sample products is the best way to establish product expectations in the minds of your customers. If they’re happy with the trials, they will subscribe to your products and services.
If offering product trials isn’t feasible for any reason, a 100% money-back guarantee can provide customers with the confidence to try your products risk-free. While there might be some sales lost due to refunds, the customers you gain through this approach are more likely to retain and renew their subscriptions.
- Get feedback from your customers
Feedback is important. You can always learn from your customers. Ask for their feedback and suggestions for improvements. Positive feedback is good, but negative feedback is the one that is helping you reduce your churn rate.
Find out the pain points of your customers, and understand their requirements and expectations. Such insights can help you make better decisions for your product development.
- Improve your customer service
Your customers may face a lot of problems when using your products. In such frustrating situations, they might not prefer talking to a chatbot on your website or scrolling through your documentation.
That’s the reason why you should have a customer success team for your business. If you can’t afford a dedicated team with telephone service, at least provide your customers with an option to contact you via email and let them know the availability of your customer service.
- Provide incentives and discounts
Customers love discounts. You can provide renewal discounts to your customers to reduce the churn rate. Also, offer free gift cards to your loyal customers for referrals and promotions. This can significantly increase customer loyalty and retention rate on your website.
- Send renewal reminders
For products that are purchased on an annual subscription basis, your customers might not remember the date of renewals. Send renewal reminders to your customers at least a week before the renewal is due so that they can ensure that the payment details are up-to-date and can continue their subscriptions without any hassle.
In case of failed payments, let them know about the payment failure and send follow-up emails to retry the payment.
These are some proven measures that can help you reduce the churn rate for your subscription business. Apart from these, we believe you will take measures to improve the quality of your products and services.
Conclusion
We hope now you understand what churn rate is, how it can be calculated, why it is important, and how you can reduce it. The lower the churn rate, the better, but higher churn rates aren’t always bad either. It means there’s room for improvement for your products.
Identify what’s causing the churn and see if there’s a trend. Is it a seasonal trend, or is it really something went wrong? Remember, winter products won’t sell as much in summer, no matter how bad you try.
Look for the problem before you look for the solution. This will help you reduce the churn rate for your business.
Have you found this article to be informative? Let us know in the comments. If you have any queries, please feel free to ask.
