What Is Churn, and How Does It Affect Your Subscription-Based Company?
As a subscription-based company, your business is centered around one thing: your loyal subscribers. You want to gain as many subscribers as possible, but the inevitable result is that every company implementing recurring billing strategies will have customers who end their subscriptions. This is what’s known as “churn.” You can’t keep 100% of your customers—some subscriptions simply come to an end. However, if you understand churn and its effect on your business, you can keep these cancellations to a minimum. Here is a breakdown of everything you need to know to keep your churn percentage as low as possible.
The Basics: What Is Churn?
Churn sounds like a scary thing to happen to your business, but it
isn’t. Put simply, churn is the percentage of canceled subscriptions you
company receives in a certain amount of time. That time frame is up to
you when you are making your calculations. Calculating your churn rate
allows you to see how many customer subscriptions ended in a week,
month, quarter, or even year. Once you have your timeline defined, you
can investigate and see how many subscriptions expired or were canceled
due to a failed payment or transactional error.
This is what’s
known as involuntary churn—cancellations caused by billing issues such
as declined or expired payment methods. It could be caused by something
as simple as a customer not updating their payment information when
their card expires. Involuntary churn is important to analyze because it
accounts for the customers you may have lost who didn’t have any
intention of canceling their subscription. Fortunately, this type of
churn can almost always be avoided with the right strategies. By
focusing on elements you can control, like making sure your customer’s
account information is updated, you can lower your business’ churn rate.
Why You Should Spend Time Analyzing Your Churn
Churn impacts many important aspects of your business. From your
monthly recurring revenue to your customer’s lifetime value, it can be
costly to lose customers. Plus, it can be even more expensive to bring
new customers on board. Spending time digging into your churn numbers
can help you understand their impact on your business, especially when
it comes to involuntary churn. Once you begin to understand the reason
for your churn, you can begin to improve your business strategies and
decrease your churn numbers.
What You Can Do to Improve Your Churn Numbers
Eliminating all your company’s churn is impossible. However, you can
take steps to improve the churn your business faces. To start, a billing platform
with smart tools that can update credit card information and track
payment expiration dates can reduce the amount of involuntary churn your
company experiences. With the right tools, you can even identify cards
that are likely to fail in processing a successful transaction. If the
failed transaction was out of the customer’s control, the solution could
be as simple as trying to process the payment after the initial
failure. If the customer’s payment failed due to insufficient funds, you
can partner with a subscription and billing platform that uses machine
learning to determine different days or different times of day to retry
the card.
With all these options, your company can recover a
higher percentage of the subscriptions you might have lost as a result
of involuntary churn. No matter what strategies you use, be sure to
partner with a reliable recurring billing platform to help you test and
iterate these potential solutions to find the best option for your
business.
About Recurly
If
you are ready to take the next step in evolving your subscription-based
business, Recurly can help. In all kinds of markets, from pet food to
software, businesses are introducing subscription-based models to build
recurring revenue streams. Recurly has been a key part of the recurring
payment industry for over a decade and has helped manage over 40 million
subscriptions. Their expertise features a range of smart tools to help
your company adapt quickly, scale globally, and increase customer
lifetime value. They understand the difficulties you face and remain a
partner throughout your subscription journey. Whether you are iterating
new pricing models or want to optimize your churn rate formula, make Recurly your top choice to help your business thrive in the modern business landscape.
Find out how you can improve your churn numbers with help from Recurly at https://recurly.com/
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