DTC eCommerce subscription programs have grown significantly over the past few years. When done correctly, a subscription offer can increase your customer’s LTV. They can help your brand build a loyal customer base. And, of course, they create an opportunity for monthly recurring revenue. Most valuable of all, a subscription offer allows your brand to become part of your customers’ everyday lives.
But with so many subscription options now available, what can your offer do differently to actually retain your subscribers? A little under half (40%) of all US consumers felt they had too many subscriptions in 2022. Meaning that, to ensure your offer is appealing to customers, you need to understand what causes subscribers to churn in the first place.
eCommerce subscription churn can be challenging to both pinpoint, and reduce. To help your brand build and optimize a subscription program that’s actually worth your time and resources, let’s take a look at what subscription churn involves and how you can reduce it.
Subscription programs can raise your brand’s LTV. But you’ll need to prioritize customer service and understand why subscription customers churn to see a subscription model shine. Since subscription services benefit more from retention than acquisition, keeping customers subscribed is crucial.
What is Subscription Churn?
Subscription churn is the frequency at which customers unsubscribe from your subscription services within a defined period.
Subscription churn behaves differently than retail churn – and can vary between SaaS subscriptions and physical product subscriptions, as well as between eCommerce industries.
While a high-quality, customer-centric subscription program can increase your brand’s LTV over time, you won’t see the real benefits of your program until fewer customers are churning than the number you’re retaining.
Additionally, since customers who subscribe to your program are most likely to already be existing customers, as your churn frequency rises, so will your Customer Acquisition Costs (CACs.)
Subscription churn affects:
- Customer Satisfaction
- Customer Acquisition Costs (CACs)
- Customer Lifetime Value (LTV)
- Monthly Recurring Revenue (MRR)
With subscription churn impacting so many of your brand’s vital metrics, understanding why customers churn can help you optimize or create a subscription program that actually keeps people around.
Subscriber churn doesn’t have to only mean lost customers and revenue – it can be a useful tool for improving your offer and zeroing in on your best selling points.
Why Your Subscribers Churn
Subscribers churn for various reasons. Some reasons you might already expect. Others can help reveal what your brand should prioritize optimizing most.
There is, however, one distinct commonality between high-churn subscription programs: too many brands treat their subscription service as a “one-and-done.”
For a subscription service to be successful, brands must continuously strive to enhance their customer service, and increase the tangible value their program provides.
According to subscription payment platform Recharge:
“Subscription companies are always selling, and customers can cancel any time – each month, your customer has the option of deciding to spend their money somewhere else. Don’t assume that they’ll just stick with you. You need to be proactive and remind your customers of the value you’re offering. If you want to keep your customer, focus on delivering an exceptional customer service experience alongside your great products or services.”
Essentially, brands must continue to incentivize a customer to stay subscribed. Your brand’s incentive will likely depend on the benefits people see from your program (i.e., convenience, health benefits, novelty, etc.).
However, remember that one customer’s decision to churn may not be the same as someone else’s. But for physical product subscriptions especially, there are a few key reasons most subscribers churn.
- Too much product: There is such a thing as too much of a good thing. When subscribers end up with too much of your product in their pantry, they may unsubscribe simply because they aren’t using everything they receive. Remember, not every customer will follow the recommended usage. So even though it may seem like a win-win when someone has extra product (the appearance of higher LTV) you’re actually increasing the likelihood that they’ll churn.
- Customers aren’t educated about the value of your product: If a customer doesn’t know how (or when) to use your product, they may not experience its full benefits. Which means they likely won’t see the value of your product.
- No communication with customer: Not checking-in with your customer is a surefire way to lose them. When a customer commits to your subscription program, your brand should also make a commitment to that customer. Back up your service with helpful customer communication channels. Don’t leave customers on hold. Answer their questions immediately, and resolve their problems fast.
- Brands only invest in their tech: A user-friendly online portal and mobile application are important. But when brands de-prioritize all other aspects of their subscription program to upgrade their backend tech, fewer resources and time are given to what matters most: the subscription service itself.
Although most subscription churn is voluntary, a 2018 study from ProfitWell found that around 20-40% of subscription churn is involuntary.
Voluntary vs. Involuntary Churn
Voluntary churn is exactly what it sounds like: subscribers who churn voluntarily. Whether it be because of their experience with your brand, lifestyle changes, or anything else – voluntary churn is customers unsubscribing on their own.
Involuntary churn, however, occurs when a subscriber is unsubscribed without choice. This could mean a customer’s payments didn’t go through or they weren’t aware of the subscription’s length of time.
Here are the main differences between the two:
- Customer leaves because of poor experience or dissatisfaction.
- The customer isn’t using your products enough.
- The customer is receiving too much of your product.
- Customer doesn’t see the benefits of your product.
- The customer can’t afford to stay subscribed.
- The customer signs up for a competitor’s subscription service.
- The customer’s payment details have changed and updating is too inconvenient.
- Customer dislikes the number of steps needed to re-subscribe after a trial period, update their payment or shipping information, or customize their subscription. So, they simply don’t and let the system churn them.
- The customer sees a charge to their account from a business name they don’t recognize.
While your brand should work to reduce both voluntary and involuntary churn, determining whether your customers are churning voluntarily or involuntarily is a crucial first step. Because some causes of churn are less evident than others.
To help minimize voluntary churn, leverage customer feedback and insights to discover where you can modify your subscription program. To help reduce involuntary churn, work on streamlining your backend for a better user experience.
Either way, it’s important to factor in both kinds of subscription churn when calculating your churn rate, and learning where to optimize your offer.
What is a Good Churn Rate for Subscription Services?
A good churn rate for subscription services is considered anything under 20%.
However, the average churn rate for B2C subscription services is 7.1%.
Depending on your industry, how effectively your offer is reaching the right audience, and a number of other factors (like season), your rate could vary. It’s also possible that you’ll see a higher churn rate when a customer first signs up for your subscription program and once they’ve received their first few orders (if you don’t have an optimized onboarding experience).
How to Calculate Churn Rate
Churn rate can be calculated either by your Monthly Recurring Revenue (MRR) or by your customer retention data. Though, the two will provide different insights. MRR Churn Rate can help you get a clear idea of lost revenue. Customer Retention Churn illustrates customer churn trends.
- MRR Churn Rate = MRR churn (sum of cancellations for a total period) divided by MRR at the beginning of a period, then multiplied by 100 to get a percentage.
- Customer Retention Churn = Total customers at the start of a period divided by the number of customers who churned in that same period, then multiplied by 100 to get a percentage.
Keep Customers Subscribed By Following These 6 Recommendations
So what exactly separates a high-quality subscription offer from one that churns customers within a few months or less?
With a growing number of choices, and consumers starting to feel burnt out, your subscription offer needs to provide a higher level of value and satisfaction than what a customer would expect from a one-time order. It should also implement the six recommendations below.
1. Understand Why Your Churn Exists (And Why Customers Stay)
There’s no better data to lean on than direct feedback from your customers. User reviews, customer service logs, and customer surveys are all great opportunities for uncovering why your churn exists. They’re also invaluable tools for learning why customers stay subscribed.
Try setting up exit polls, sending out short surveys attached with gifts for completion, or encouraging customers to leave public reviews.
You can also look to social media comments, live chats, or even try a phone call. You’ll find commonalities between your subscribers, and even unique benefits of your subscription service you might not have previously considered.
Of course, once you have customer feedback and data, use it to inform your optimization efforts wherever possible.
2. Educate, Educate, Educate
If a large subset of your subscribers leave because they don’t see the value in your offer – meaning they aren’t seeing any real benefits – then your customer onboarding could need some work.
Or, if you’ve made efforts to educate your customers about your products but customers are still churning, try reevaluating how that information is delivered.
Are you using primarily text-based articles or pamphlets? Consider creating video content of product demos, highlighting customer testimonials, or featuring scientific studies. You can also try Before/Afters.
Customers engage with different types of content and absorb information differently, so provide numerous ways and opportunities for educating customers about your products. Customer education really is paramount for retention.
3. Offer Flexibility
A rigid subscription program is often an unsatisfying one for customers. And, as we mentioned earlier, too much product is a big contributor to churn.
Instead of sending the same amount of product to every one of your customers, let customers customize the frequency of their orders as well as the quantity of product they receive. Whether they want to downgrade or upgrade, make it easy and quick to do so.
Additionally, allowing customers to delay shipments, pause their subscription, or add extras to their delivery will help your subscription program stay adaptable to customer needs. That way, even as your customers’ lifestyles change, your subscription program can still provide value to their day-to-day.
4. Prioritize Customer Service & Experience
The way you engage with your customers should be directly related to where a customer is in their customer journey. For example, welcome emails, check-in emails, and extra goodies during the onboarding stage help create the foundation for a memorable, positive first customer experience.
And all of your upfront efforts will pay off in the long run. If you can successfully make a customer feel genuinely welcome, they’re more likely to engage (and stay) with your brand for longer.
What’s more, illustrate that you’re always around to answer their questions or solve their problems. If a product isn’t working out for them, offer to swap the product for another or provide helpful resources.
The goal, and the real benefit, of offering a subscription program is that it comes with the opportunity to be part of your customers’ daily routines. But for your products to reach that stage, subscribers need to be able to trust your customer service and sincerely feel like their business is valued.
Zendesk found that after a positive customer experience, 81% of customers will buy again – but 61% will switch to a competitor after just one poor experience. So, prioritize supportive customer service, and you can reduce subscription churn significantly.
5. Enhance Your Delivery with Incentives, Gifts, and Complementary Products
After a customer has been a subscriber for some time, it’s never a bad idea to offer complementary products on a trial basis. Just make sure that the extra products you’re sending are complementary to a customer’s standard order (i.e., moisturizer packaged with hand lotion).
Discounts, bonuses, and random gifts are thoughtful, universally loved surprises. They also help ensure your long-time subscribers still feel valued by your brand months or even years into their subscription.
In 2020, Recharge found that, by offering one-time complementary products with monthly physical product subscription packages, AOV increased more than 70%.
6. Make Canceling Easy, and Hassle-Free
Lastly, if a customer wants to cancel their subscription, make the option to do so easy, fast, and straightforward. An intentionally complicated cancellation experience won’t help you reduce churn long-term – in fact, it’s far more plausible that it would increase your churn.
No one likes jumping through hoops to cancel a subscription. And the reality is that not every customer who’s canceling is doing so permanently. Some may want to subscribe again in the future, but making it a hassle for them to cancel today will cost you their business tomorrow.
An eCommerce brand can measurably benefit from creating a subscription service. But only if customers benefit from the service as well. By prioritizing customer service, flexibility, and rewarding loyal customers, a subscription program can continuously provide value, and complement customers’ changing needs.
As your brand begins to create its subscription offer or looks to optimize its current program, leverage customer feedback and data to understand why customers churn.
While there may be more competition in the subscription market today, if you offer genuine value and emphasize your brand’s unique benefits, you can build a subscriber base of loyal customers that help boost your MRR – and elevate your LTV.
- Nirav is the CEO and founder of Anatta. Nirav received his engineering degree in 2006 from George Washington University. Prior to Anatta, he served as founder of Dharmaboost, a software company working with Cisco Systems, Hewlett Packard, and New Leaf Paper. He is also cofounder of Upscribe, a next-level subscription software for fast growing eCommerce brands.