Fighting churn is the most important thing for a subscription business. Why is it so difficult?
Subscription POV #24
By Morten Suhr Hansen
This article begins with the world’s smallest news! When running a subscription business, one of the most important disciplines is fighting ‘churn’. Churn is when your active subscribers decide to cancel their subscription and leave your business. In other words, churn is the factor that challenges your subscription business and breaks the growth that otherwise comes from selling new subscriptions. So the difference between high or low churn is what ultimately affects whether you’re running a healthy or unhealthy subscription business.
But… You knew that! So the question is what to do about it? My guess is that you’re doing a lot and still have a feeling that you should be doing more. And perhaps, you even have a feeling that churn is hard to prevent and hard to impact in a real way. In that case, you share that with many other subscription companies. Because there are plenty of good reasons why churn is a metric that is hard to work with.
Why churn is so hard to predict…
According to American data scientist Carl Gold who wrote the book ‘Fighting Churn with Data’, there are three main reasons that churn is so hard to prevent.
First of all, churn is hard to predict. Secondly, churn is even harder to fight. And third, churn prevention takes an effort from the entire organization, in order to succeed.
Let’s take a closer look at these…
Why is it hard to predict churn? Try to think of a time you canceled a subscription. It was probably because you no longer had the need for that service. And all probability speaks to the fact that you, through a period of time, started using the service less and less or at least, started feeling less and less satisfied with it. But when do you actually cancel it?
This could be completely random and will vary enormously across your customers. And quite often, you as a company don’t know what your customers actually think of the product. You can track and predict churn across your customers, but it is extremely hard to do the same on an individual customer level.
Many large companies put their faith in the use of AI and heavily complicated data analysis in order to predict the churn risk on a customer level. But very few actually succeed with creating useful analysis’ with this approach.
… And even harder to fight!
And even if you actually can predict churn, it’s even harder to fight in practice. Why? Because customers, when it comes down to it, are rational. They cancel the subscription because they no longer have a need for it or simply don’t enjoy it.
In reality, the best long-term and sustainable way to fight churn is to increase the value that you offer the customer through your product or service. The alternative is to lower your price and that is often a way too expensive way to tackle the challenge since it will typically end up affecting all of your churning customers.
In other words – and Carl Gold’s words: There are no silver bullets and at most, there is one ‘diamond’ bullet – lowering your price. A solution that works, but something that you absolutely cannot afford.
Simultaneously, churn prevention is hard to anchor across the organization. Since the best strategy is to increase value for customers, it is essential to activate the entire company in order to make that strategy succeed.
Warning! Hard work ahead, but it pays off…
But if it really is that hard to fight churn, is it even worth the hassle? Yes – absolutely!
First and foremost, it’s about identifying the factors that actually drive subscriber churn. Here, Carl Gold introduces ‘behavioral cohorts’ as an alternative to the traditional cohort analysis, which is driven by seniority and is part of the standard syllabus for any subscription geek. ‘Behavioural cohorts’ identify the behavior in subscribers that actually drive churn and to what extent.
With a bit of deft data management, these analyses will be able to give the company far better and more nuanced insights into what drives churn (other than the seniority of the customer that you can’t really do much about) and thereby, create the foundation for assessing, whether it is better customer communication, a strengthened product or a changed packaging that will change the number of subscribers churning.
No doubt that it is hard work ahead of you. Does it give you anything to focus on churn then? Yes, absolutely. At Subscrybe we run projects with customers where we put a focus on ‘churn management’ and working with strengthening the retention of the customer. In our latest project, we succeeded in bringing down the churn rate by 22% by identifying and implementing 11 concrete action points without lowering the price.
So my recommendation for all subscription companies is clear: Allocate the resources and start by analyzing how, why and where customers are leaving and then, work systematically and across the organization with strengthening your product, packaging, sales, marketing, and communication with a single focus: Keeping subscribers around for a longer period of time.
Because that definitely pays off!