Churn, the arch enemy of subscription servicesTeetFeb 05, 2013

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Every subscription service like, say, cellular network, newspapers and doorstep milk delivery — or internet apps like Edicy — is getting new subscribers signing up constantly. If it wasn't accompanied by churn on the other end, each service would finally end up taking over the universe after the last living man has subscribed. So churn rate is a ratio of subscribers who end up discontinuing the service when facing request to extend it.

To put it plain and simple — if 1000 people extending your monthly subscription service are accompanied by 50 quitters then you have two important numbers:

  • your churn rate is 5%
  • you've got 50 payers less.
Even though they express the same thing, they have to be looked separately.

The importance of keeping churn low

Why would you even care when you have constantly expanding cash flow and the churn rate is kept around couple of percentage points? This is where the real number of churned users comes into play.

50 payments less is actually a staggering 3000 payments less — if they discontinued 5 years (that is 60 months) early compared to their expected lifetime with your service. For a service with a 50 dollar subscription fee it's one house less in your assets.

With real life services, especially doorstep milk, this number gets compensated by lower costs as you don't have to give out the milk to them anymore. For internet apps the costs get diluted much more so you also don't get any significant cost lowering benefit from churning.

To keep your business vital, in minimum the number of churned users has to be kept lower than then number of new subscribers. Again, to put it simply - when you have 50 churned users but only 20 new subscribers, then you are on the death row.

Therefore, low churn rate is not just a goal in itself. Rather it's an indicator of life versus death. As an important side note, churn rate shows pretty objectively how satisfied your users are with your service.

Handling churn in Edicy

It would be weird to talk about churn without giving you some insights on how we are handling it in Edicy.

We do the following crucial things to keep churn at base here:

  • Most importantly: constantly update Edicy for better user experience.
  • Notify users in advance of the need to extend.
  • Offer auto-recurring payments to reduce hassle.
  • Contact churners manually to learn from them and if possible, support them.

A few lessons learned

Although Edicy users are able to see the details about their subscription from their site settings, not many approach handling services so systematically. Therefore we started notifying users in advance about subscription expiration via email from early on.

It is also important to recognize that automatically sent notification emails get more easily shit-canned by both mail filters and users. In too many cases taking down the website after subscription has ended is the only wake up call for updating credit card info.

To prevent site suspensions and to learn from those who discontinue consciously, we've been contacting churning users also personally. We take a closer look at their sites, analyze their situation and try to find out how could we help them out with the subscription. The best part of the personal inquiry is the feedback — these users can give you precious information on what's wrong with you, why they haven't renewed their subscription or why did they decide to leave. 

What if there are no results?

The most brilliant number for the churn rate would be 0%, wouldn't you agree? This would mean that no one quits the service and everyone keeps coming around. In the real world, churn rate is hardly ever close to 0%. Although there can be hundreds of factors that influence the churn, I would personally highlight the three following: 

  • Need. What type of service is it? Is it mostly used only once in a lifetime, in a year, in a month or is used on a daily basis?
  • Price. Can one afford it without thinking about the cost?
  • Competition. Who can take over my users? Are they more affordable? Are they better? 

So, whenever your churn rate and the number of churned users has started to grow you should focus on your service's user experience and fight it down quickly. There are no magic tricks that would work every time and for every business model.

Business

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    Some great suggestions! Thanks for sharing your thoughts. Another way to decrease churn rate in a way that is cheap, quick and efficient is to use Sentview.

    At www.sentview.com it is possible to find out what customers like and dislike about your product. The feedback obtained from multiple social media video platforms can be used by companies to improve customer experience which enables you to better understand your customers, so you are in a better position to increase customer retention rate and satisfaction.

  • Sentview Nov 08

    Some great suggestions! Thanks for sharing your thoughts. Another way to decrease churn rate in a way that is cheap, quick and efficient is to use Sentview.

    At www.sentview.com it is possible to find out what customers like and dislike about your product. The feedback obtained from multiple social media video platforms can be used by companies to improve customer experience which enables you to better understand your customers, so you are in a better position to increase customer retention rate and satisfaction.

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