CRO Lab - Reducing churn in subscription ecommerce

Friday, 20 August 2021

As we already know, keeping an existing customer is much cheaper than acquiring a new one, so for businesses whose model is based around subscription ecommerce where long-term customer retention is vital to their success, reducing churn is of paramount importance.

What is churn?

Churn refers to losing customers who had previously been purchasing from you and is measured by calculating the churn rate. The lower the churn rate the more beneficial for your business as just a small increase of 5% in customer retention can be worth over a 25% increase in profits.

There are two popular methods for calculating churn rate.

Firstly, you calculate the number of customers lost during a specific time period and divide it by the number of customers you had at the beginning of that specific time period plus new acquired customers, then multiple it by 100 to get a percentage figure, which will result in your churn rate.

For example, if you started with 800 customers at the beginning of the month, gained 200 new ones, and lost 30 existing customers over that same month, your monthly churn rate will be 3%.

Churn rate

The second popular and simpler method for calculating churn rate is to divide the number of lost customers throughout a certain time period from the number of customers at the start of that time period and then multiple by 100 to get a percentage figure.

So for example, if you started the month with 800 customers and lose 30 existing customers throughout the month, the churn rate would be 3.75%

Churn rate

*Note: This second method doesn’t take into consideration the acquisition of new customers, although some people argue that this is correct because churn should only measure those that are lost.

There are other ways of measuring churn that are based on the value of the lost business rather than the numbers of customers, but whichever method you use the aim is to keep your churn rate as low as possible.

Why do customers churn?

Customers churn for a number of reasons that could include:

  • Financial – Subscribers can no longer afford to keep buying your products or using your service.
  • Requirement redundancy – Customers no longer have a need for your products or service (i.e. Their dog has died so they don’t need pet food or their baby no longer requires nappies)
  • Habit – Their habits change so they no longer use your products at the same rate so cancel their subscription
  • Seasonal – A change in season means your product or service is not needed
  • Travel – Regular travel means they don’t have a constant schedule so cancel for fear they are not getting their money’s worth and not around to use what they have bought
According to McKinsey, more than a third of subscribers cancel in three months or fewer. As churn can greatly affect profitability, minimising it is key to long-term success and growth so here’s some methods for helping to reduce subscription churn.

1. Incentivise

It’s important to continue to incentivise customers even after they have signed up, so that they continue to stay subscribed and feel they are getting some added benefit.

An obvious way to do this is to offer a discounted price if the user commits to a longer subscription period, such as 3 months get 10% off, 6 months get 15% off, 12 months get 20% etc…

You could also run other separate promotions like ‘recommend a friend’ with a discount attached, which helps attract new business as well, or reward social engagement.

2. Add Value

Giving subscribers a discounted rate is one thing but they should also feel that they are getting added value for subscribing rather than that they are just buying something like every other customer. Added value doesn’t even need to come in the form of some financial incentive, it could be community features, resources, help, advice, competitions, special sales, previews, early access or anything else that makes them feel valued. Give subscribers more and they are less likely to leave.

3. Make management easy

Subscribers should be able to easily manage their subscription online in their own time, rather than having to wait to speak to somebody during office hours. Give them full access to their subscriptions via their my account and give them all the management tools they need. So allow them to change the frequency, update their payment card and details, updated the delivery address, add to or remove items from their existing subscriptions, pause any if they are away and cancel any and all of them.

4. Negate delinquent churn

As we’ve highlighted, when running a subscription ecommerce service, some churn is inevitable, but not all churn is the same and some of it is easier to stop than others.

Most churn is a direct result of the customer opting out of the service, but not all of it is. Some of it is passive, like delinquent churn, which occurs indirectly when an issue arises with a customer’s payment such as credit card expiry, repayment problems, credit limits, and fraud checks by the PSP. As subscriptions are reliant on electronic payment methods, they inevitably suffer from issues. However, once an issue arises, some customers will use the opportunity as a chance to opt out permanently and getting some of them to rejoin will be impossible. Preventing it from happening is key and tradeit’s subscription functionality includes a number of measures to help:

  • Customers are notified if their preferred payment method expires within the next two months in order that they can amend it.
  • If a payment does subsequently fail, customers are emailed immediately and have 24 hours to amend it.
  • Merchants can also run a report of any failed subscription payments in order to contact customers back.

5. Pre-empt churn

Don't wait for customer's to churn, try and pre-empt a loss of interest and be proactive. Are they no longer engaging? Have they stopped signing into their account? Are you asking for feedback and acting on it? Hotel Chocolat's subscription service, The Chocolate Tasting club, have an online scoring system for each chocolate in a subscription box which enables users to rank them each month when they get a new box. It's interactive, fun and helps keep users engaged, whilst also helping Hotel Chocolat with their product development based on that customer feedback and scoring. If a user stops ranking their chocolates they are able to tell that they are perhaps disengaging, so they can act before it's too late. There's other ways to try and pre-empt churn too. Have customers extended their re-ordering period? Have they reduced the number of subscription products? Have they stopped referring people or taking advantage of offers? All are clear warning signs that their engagement is waning, so act.

Hotel Chocolat's Tasting Club chocolate scoring

Subscribers can score their chocolates each month at Hotel Chocolat's Tasting Club.

6. Provide holidays

As we mentioned above in point 4, it's important to give users the option to pause their subscription, rather than cancel it completely. Users going on holiday, or travelling out of the country, may want to push their subscription back by a couple of weeks, but if there is no option to do that, they may well cancel. It needs to be easily accessible in their online account and really easy to do, otherwise it will again lead to more cancellations. Don't make users ring up to pause their subscriptions as they may end up cancelling completely.

McAdams offer customers the chance to change their next delivery date

McAdams give subscribers a simple method to move their next delivery if they are away.

7. Find out why they have churned

As we’ve already established, not every customer churns for the same reason so if you can understand why they have it gives you an understanding of whether there are elements of your proposition that could be changed or improved. It also helps to prevent other customers from potentially churning for the same reason and gives you a better chance of getting them to re-subscribe if you understand why it is they have churned in the first place.

8. Create a re-engagement programme

Even if customers do unsubscribe, there is always a chance that you can get them back, although it is harder for subscription customers as chances are they've actively unsubscribed, rather than non-subscription services where they just stop buying. People don’t like changing their mind without good reason so it’s slightly easier to lure back those who have passively churned, but put a programme in place to try and win back their business.

Find out more about the subscription functionality in tradeit or speak to us about adding subscriptions to your ecommerce site with tradeit.