One of the most important factors that affect the survival of businesses that follow the subscription billing model is their ability to deal with customer attrition. Also known as customer churn or turnover, attrition is the loss of one’s subscribers, which occurs when these customers discontinue the subscription service.
The churn rate is an operational metric that is very helpful when determining the health of businesses. The higher the churn rate, the less likely a company will succeed in the long run. Conversely, even the slightest increase in customer retention rates can result in considerable ongoing profits for a subscription business. When a company is able to retain its existing customers and grow its customer base consistently and continuously, the long-term outlook for that business will indeed be bright.
The Two Types of Customer Churn
Subscription businesses typically recognize 2 types of customer churn: active churn and passive churn. Active subscription churn is defined by the active attrition rate of customers when they intentionally cancel their subscription because they no longer want to continue. On the other hand, passive subscriber churn is characterized by involuntary customer attrition, meaning they really want to continue doing business with a company, but they are not able to for one reason or another.
Now, there are many reasons why customers purposely churn. They might have had a bad customer experience, or the business might not have properly helped them achieve their goals. Perhaps the subscribers might not have experienced ongoing success with using the product or service, or maybe they just discovered that the subscription is not really for them because their needs have changed or they have simply outgrown the product or service. The point is that it’s often—but not always—the fault of the business.
Passive churn, on the other hand is mostly caused by billing problems. Typically, a customer has no reason to abandon the subscription, but repeated payment transaction failures cause them to finally give up. The problems encountered by customers can include expired payment cards, blocked cards, exceeded limits, and so on.
What Companies Can Learn from Customer Churn
A high customer attrition rate is certainly a big business killer, and it would be an understatement to say that it has a big impact on the profitability of a company. Nevertheless, experiencing churn can be a learning opportunity for any business. By studying their attrition rate, a company can gain a better understanding of what factors cause customers to abandon their subscription, as well as what would make them want to stay instead. A business can, for instance, improve the way they engage their current customer base, in addition to taking steps in order to make the customer experience for subscribers more frictionless across the board.
For instance, when it comes to recurring payments, companies can employ a smart subscription billing platform in order to eliminate the friction points experienced by customers during transactions. Such a software can automatically retry payments when they fail, or it can charge alternative payment methods when the first option is not successful.
On top of spontaneously resolving failed payment transactions, the right software can also be used to support methods that improve the customer experience and bolster retention. For example, a subscription billing solution can automatically send incentives triggered by particular billing events. This can be as simple as incentivizing your customers during their birth month, or providing them with a loyalty discount when they reach the anniversary of their subscription. It can be about launching seasonal promotions that promote cross-selling of specific combinations of products and services, or it can be about granting additional free time for the use of a product or service once the trial period ends. In short, a subscription billing platform can help with customer retention management by allowing businesses to carefully craft, time, and target their messages and promotions.
While customer churn can be dangerous, it can also serve as a tool for businesses to better understand what makes their customers want to stay. Employing the right technological tools and the appropriate methodologies will allow you to gain important insights about attrition, which you can then use to raise your customer retention rates instead.