Three steps for reducing subscription churn

Three steps for reducing subscription churn

Lowering your churn is one of the most important goals in any subscription business. A decrease of a few percentage units can result in massive changes in volume and revenue, especially in the longer term. It’s important to understand that there are few ready-made solutions to apply to any business. You have to test and evaluate for yourself what measures are relevant to your business. Quick fixes are pointless in the long-run, instead you should tailor you organisation for continuous improvements.

That’s what this article focuses on: how to continuously reduce churn, using a data-driven structured process. We’re summarizing this process in three steps.

Step 1: Understand the churn

Not surprisingly, the first step is about understanding the churn. You have to ask yourself the question: Do you really know why your customers are leaving you, or are you just guessing?

To successfully answer the question, one should start by analyzing the subscription data to produce churn for different segments and different parameters. Examples of such parameters are: Price level, sales channel, product, activity, behavior, demographics, and more. Here you can find, for example, that some sales channels may have higher churn than others, which leads to the question why that is the case and what to do about it.

In addition to looking into the subscription data, you must talk to the customers and familiarize yourself with their reality. What do they say? What is it like to be a subscriber with us? A good tool here is to use customer journey mapping. One way is to call some current and past subscribers and ask kindly to ask questions. Another is to allow more structured customer service (whether digital or physical) to collect exit data.

It is also important to understand if the churn actually is at a high level – compared to benchmarks. You can invest a lot of time, focus and money on getting your churn down, so before you do so, you want to make sure you’re focusing on the right things. If you land in this conclusion, perhaps you should invest your time in increasing sales or raising the price instead. These two measures will, if nothing else, push the up churn again, so just start by lowering it again.

Step 2: Prioritize actions

Once you understand why the churn looks like it does, you have to draw conclusions and build hypotheses on which actions to take. Here, it is important to incorporate the right mindset into the organization, so that you constantly discuss new solutions, evaluate and learn together. Specifically, this can be done in three stages: Brainstorming, Quantification and Prioritization.

Brainstorming is nothing new. It’s about developing as many good (and bad) solutions as possible to a specific problem. Therefore, ask the question broadly: What can we do to reduce the churn, if all solutions are on the table? Is it about improving our product? Providing other payment methods? Simpler customer journey? Better customer service? Other sales channels? Lowered price?

Quantification is the next step, where you take all the solutions that have been brainstormed and quantitatively determine the value of each. Let’s say that one idea is to convert from the payment method invoice (where the churn in this example is high) to an direct debit solution (where the churn is lower). Here you then need to derive the value of doing that conversion, by assuming reasonable values and counting. You have to know the churn for each of the two payment options, the number of subscribers you expect to convert, the cost of doing so, etc.

When the quantification is complete, we have a list of possible measures, hopefully with a hypothesis on the value of each measure. With this information you can have a discussion about what we should prioritize first and what we should wait for. It is important to consider two additional factors here: 1. How much effort is needed to implement a measure, and 2. How confident we are of the value. In general, we want to start with measures that we know will have a great effect, although we must always dare to try things we are also not entirely certain of.

Step 3: Act and repeat

When the priorities are clear and everyone knows what to do, then it is just about taking action. Start working on the measures as quickly as possible and make sure that the organization itself feels responsible for solving the problems. Work together and meet often to discuss what works and how to find new solutions.

Here, it’s important to remember that this is about learning and improving, not about holding specific people accountable for the exact results we estimated in the previous steps. The priorities are only hypothesis, and we must be ready to change our mind if we learn that they are wrong. Keep the goals in mind, but be ready to adapt how you aim to reach them.

Often, there is a need to prioritize the continuous improvement work described above, against ongoing day-to-day work being done in the organization. This is perfectly reasonable and a balance must be found. Our suggestion is to visualize everything the organization does, for example through Trello-like services or simple whiteboards that are updated daily. Then it’s a lot easier to have the discussion on which priorities should be made, on a daily basis.

As we noted in the beginning, reducing your churn is most effectively done through continuous improvement and not by using quick fixes. We believe that the three steps we outlined will be a good start for starting to reduce your churn.