One of the most serious threats facing subscription-based services is churn. Reducing churn doesn’t just keep your revenue base stable; it can increase your revenue significantly. Studies have found that a 5% increase in customer retention can boost company revenue by 25-95%. Retained customers also buy more often and spend more than newer customers, increasing their lifetime value.
Based on our own experience and what we’ve learned from working with hundreds of clients, here are four key strategies subscription businesses can focus on that will help reduce churn, increase customer loyalty and drive revenue.
1. Focus more on involuntary churn
While subscription-based businesses must work hard to keep customers, especially in the first days, weeks and months of subscribing, there is a tendency to overlook other areas of churn, such as involuntary churn, that can have an equally big impact on their bottom line.
“If you’re not addressing involuntary churn, you’re going to make it harder on yourself,” says Chad Buckendahl, Vice President of Performance Marketing at sticky.io.
At sticky.io, for example, 37% of customer churn so far this year has been involuntary. Other subscription-based businesses likely see a similar amount of involuntary churn. Yet, when Buckendahl looked at how sticky.io’s clients were doing with involuntary churn, he discovered that only 28% were actively mitigating involuntary churn.
To Buckendahl, the issue isn’t just that not enough businesses focus on reducing involuntary churn, it’s that those that don’t work to mitigate involuntary churn also tend to have less of a relationship overall with their customers.
“As a business, you’ve got to form strong bonds with your customers and really understand your customer at a deeper level. If you have that kind of relationship with your customer, you’re going to mitigate more churn,” says Buckendahl. “If you’ve got a relationship where customers trust you to talk about updating their credit cards, home addresses and email, then you will naturally mitigate this involuntary churn better.”
So, if you’re not mitigating involuntary churn, not only is it time to start doing so, it’s also time to examine your customer relationships closer to see where and why you might be falling short.
2. Focus on customer sentiment
Another important measurement of your customer relationship, which can impact churn, is understanding your customers’ sentiment toward your service or product. Measuring sentiment over time, which is useful for AI applications that might help you predict at-risk customers, can provide valuable insights.
“If I have a group of customers that have this sentiment, call it sentiment C, and they’re turning at a higher rate, then I understand that sentiment C is something that I should look out for,” explains Buckendahl.
Another place to identify sentiment churn drivers is in your different channels. “This goes back to the customer journey,” says Buckendahl. “Why is customer acquisition from email different than my affiliate program? Why is somebody coming in on paid search, and why are they churning at a different rate than somebody on direct mail? You want to start to understand that and apply that knowledge, along with your understanding of the customer journey.”
3. Prioritize the first experience
“From surveying purchasing customers in the past, we’ve learned that the first experience that customers have with you really sets the stage for the relationship moving forward,” says Buckendahl. “So, if your onsite experience is less than stellar, the likelihood of churn down the road is higher.”
This first experience includes everything that plays into that initial order — confirmation emails and order delivery status as well as the overall flow — as the customer goes through the cart experience, such as what your terms and conditions are and what payment options you provide.
But beyond reducing friction at key points in the experience, many brands also miss the opportunity to set themselves apart in that first delivery experience. And it’s not only about getting the package there faster, but in making the delivery an experience itself. Instead of sending a plain brown shipping box, your brand should think about how to make the experience of receiving your product or service more unique. Small details like a decorative branded box or unique packaging inside can go a long way in deepening the customer relationship and building long term loyalty.
4. Create emotional connections with your customers
The common thread in all these strategies is thinking about how to build emotional connections and deepen the relationship with your customer. Because the relationships you build with your customers matters a lot, especially when it comes to reducing churn, retaining customers and increasing their lifetime value.
In a study reported on in the Harvard Business Review, increasing emotionally connected customers by just 5% allowed one retailer to reduce its attrition rate from 37% to 33%. While increasing customer advocacy from 24% to 30% resulted in a 15% increase in the number of active customers and more than a 50% increase in the rate of same-store sales growth.
“When you’re talking about churn as it relates to your customer base, you have to go back to that emotional connection that you have with your customer base,” says Buckendahl. “The weaker the relationship that you have with your customer base, the greater your churn is going to be.”