Why is the Average Churn Rate for Subscription Services So High?


Customer retention is a top priority for any successful subscription box business, but preventing churn is no easy task. While even the most successful businesses deal with some amount of customer churn, subscription commerce businesses are affected the most. While subscription churn rates of 6% to 8% are common in other industries, a customer subscription retention rate of 80% is considered “good” when it comes to subscription box services, equating to an average churn rate for subscription services of 20%!

Most often, customer subscription churn rate is voluntary: Subscription boxes are often seen as a novelty, so customers find it easy to jump from one to the next—especially if your competitor is offering a too-good-to-resist intro deal. Or maybe they were disappointed in the product quality or the value for the price. Other times, customer retention problems may be involuntary: The customer’s credit card has expired or been cancelled, and they don’t replace it, causing their membership to discontinue.

When churn runs amok – as it tends to in this industry – businesses can expect lost revenue and bad customer relationships. To retain new customers for longer than three to six months, it’s crucial to provide better customer experiences that keep your loyal customers coming back.

The negative effects of churn on subscription businesses can be devastating. The most obvious problem is that you’re no longer gaining value from a loyal customer, and worse, you’re losing future lifetime value that could’ve been gained by keeping that customer. 

Many subscription box companies invest heavily in their customer acquisition marketing strategy, offering promotional offers that heavily discount the cost of their products, and spending large sums on advertising to promote these offers. But it’s important to think through the math behind your marketing. For example, if you spend $100 per sign-up on customer acquisition fees such as discounts and social media advertising, you’ll need to ensure that your customers are sticking around for a long enough period of time to more than recoup your marketing spend. If your meal-delivery customers spend only $30 a month on average, it’s important to keep customers engaged enough to stick with your service for at least six months.

When more than one-third of consumers who sign up for a subscription service cancel in less than three months, and over half cancel within six months (McKinsey), oftentimes the competitive battlefield boils down to who can provide the best customer experience. When customers churn, that gives competitors an opportunity to acquire them, which may not need to happen if more time is invested in keeping your existing customers. In fact, high subscription churn rates may indicate that something is broken with your customer journey.

While customer acquisition is important, it’s far more essential for the sustainability of your business to focus on building world-class customer retention strategies. Cultivating loyal customers will help you build a sustainable brand that grows its value organically through referrals, rather than constantly increasing your acquisition costs to replace lost customers. Customer relationships are the lifeblood of your business: Show them that you value them, and everyone wins.

Here are some key guidelines for improving your subscription retention rate and increasing the lifetime value of your customers:

Provide superior customer support.

New customers often churn because they’re not impressed by a company’s customer service. Miscommunications about items, unexpected charges, delayed shipping, long call hold times, unhelpful support staff, and delayed or nonexistent email support are all elements of poor customer support that can damage customer relationships and lead to poor customer retention. In order to boost your customer subscription retention rate, make sure that you have built strong processes for managing customer expectations, including clear communications around purchases, shipping, and returns; and access to a best-in-class customer support team for customers who require extra attention.

Utilizing tools such as Solvvy to provide faster, more accurate support experiences will give customers more time to engage with your website while improving customer satisfaction (CSAT) scores. Using support as an outlet to engage customers will also lead to positive effects. Is a customer asking about tracking a delayed package? Provide a discount by adding a few extra days to their monthly billing cycle. Notice a customer is dissatisfied with an order? Give them a free offer. Spending the time and resources to create these small moments will always be worth it when the alternative is losing them as a customer. Invest in customer support technologies and initiatives that will deliver excellent customer service, increasing your customer retention rate.

Create a personalized customer experience.

Good customer support is one thing, but excellent customer service requires even more attention to detail. Providing more personalization in your customer experiences can reduce the churn epidemic in subscription box businesses. 28 percent of subscribers said that a personalized experience was the most important reason for continuing to subscribe (McKinsey), and providing these customer experiences doesn’t need to be complicated. Delighting customers with personalized offers, handwritten notes, and other simple recognition of their loyalty to your brand are all great first steps to show your customers you value and appreciate them. You can also make use of marketing automation technology that responds to their digital body language, sending them highly relevant content based on what they’ve shown past interest in. Creating these moments that matter for your customers – and celebrating that they chose your business – will keep them happy.

Build an engaging customer loyalty program.

Encourage your customers to stay engaged and become brand advocates by providing generous incentives for remaining loyal to your brand and performing certain actions. The makeup subscription box service Ipsy, for example, gives loyal customers “points” for each month they receive a box, as well as the chance to receive extra points by taking actions such as leaving product reviews and referring Ipsy to friends. These points can be redeemed for free monthly bonus items. A high-quality customer loyalty program can increase your customer lifetime value substantially: Gartner found that 80 percent of a company’s revenues come from just 20 percent of customers. Rather than spending heavily on customer acquisition, focus on building loyal customers who’ll advocate for your brand.   

Use customer feedback to help you improve your product and process.

Pay attention to what your customers are saying about your brand—either directly to you or on social media or external reviews channels. Are you meeting or exceeding customer expectations, or are you falling short? Pay close attention to trends in both customer complaints and praise to build a roadmap for improving your products and customer support throughout the customer lifecycle. Likewise, pay close attention to your competitors to understand what they’re doing to attract and retain customers, but don’t race to the bottom when it comes to promotional discounts, or you’ll never be able to recover. In order to build a healthy customer retention rate, you need to focus on high-quality service and products, and a sustainable operating model.

Learn how to identify warning signs of potential customer churn.

Use your CRM to track subscribers down to the individual level to understand patterns that impact customer retention and loss. For example, how many subscribers skip two months of shipments and then cancel altogether? Can you develop customer retention strategies to re-engage with these customers by providing them with a special promotion or exclusive new product for their next shipment? Can you offer them personalized customer support to help them find what they want? Pay close attention to those customers who seem on the verge of disappearing—it will be much easier to win them back while they’re still active in your customer base than after they’ve opted out.

Pay attention to benchmark metrics to help you understand your customer lifetime value.

Once you’ve implemented new customer retention strategies, how can you track their success? Pay attention to changes in metrics over time, including the number of customers who maintain their subscription for 30, 60, or 90 days; their average spend; and how many new customers each existing customer refers. If you’ve worked hard to optimize the customer experience, you should begin to see a substantial boost to your bottom line. Follow your progress over time and make adaptations to your strategy to optimize for higher customer retention, such as testing out different types of follow-up email offers to lapsed subscribers to see which offer has the highest success rate, then building on those successes.

Customer retention is the final frontier for subscription businesses, so proactively taking measures to reach it should be your top priority. Personalization is one of the most important ways to keep customers loyal to a brand, and providing personalized experiences can pay back in dividends. Choosing the best customer support tools should also be a top priority, as improved engagement with customers will help your business stand out from the rest. So let’s get the elephant out of the room: churn doesn’t need to be a plague in the industry. With sights set on better customer experiences and the right customer retention strategies in place, churn won’t keep you up at night anymore. Sleep peacefully, my friends.

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