Understanding subscription churn
Subscriber churn is the tendency for people to register for a subscription service – potentially lured by an initial trial period – before soon ending their subscription (potentially immediately following the end of the initial promotion). It is common with many subscriptions – and while may be factored into the business model, can have a significant impact. As explored below, while some subscription services are able to absorb what may be a modest cost of an initial free trial, others can be significantly impacted by a high customer churn rate.
What causes subscription churn?
While there may be many reasons that influence why a particular service faces a high rate of customer churn, some common reasons include:
- The customers never intended to continue the subscription
- The service never lived up to expectations
- The service didn’t provide the expected value
- The customers never used the service in the way they intended
Why does subscription churn matter?
Whether or not a high customer churn rate will have a significant financial implication on the business is very much dependent on the costs associated with the turnover in customers. These include:
Cost of acquiring customers
The cost of customer acquisition plays a big role in influencing the penalty associated with a high customer churn rate. Large signup bonuses or initial discounts can mean firms require customers to on average remain subscribing well past their trial period in order to recoup in the initial outlay costs.
On the other hand, if the costs of signup are relatively modest potentially on a self-serve platform whether that incurred little direct costs associated with attracting the customers, then the requirements for keeping customers past the trial period may be a lot less. A high churn rate may simply be accepted as part of the free trial, with much greater importance placed on maximizing the number of overall subscribers through the promotion, rather than concern as that many customers do not go past the initial discount period.
Is the business model sustainable with the churn
Not only is the ongoing costs associated with customer churn problematic, but it may also indicate that the business model itself may not be sustainable. A company may be able to accept a loss over a short period of time associated with sign up up costs, but at some point in time, something must change to ensure that the average customer acquisition costs is covered by the proportion of subscribers that do continue the subscription. Thus, unless there is some reason to think that this is a temporary situation, incurring greater costs in acquiring short-term customers may indicate an underlying model with the overall subscription approach.
Indicates an underlying problem
A final issue with high subscriber churn is that it may indicate some other underlying issues with your offerings. Why are such a high proportion of customers canceling their subscriptions? Was it not living up to their expectations? High subscriber churn may thus be an indicating of other issues with the company’s offerings.
Addressing subscription churn
The key to addressing customer churn is to try and identify the root cause of the issue. Gaining an understanding of why customers are canceling their subscriptions can help address the issue. If it comes down to a larger proportion of customers never being interested in the original product (only taking advantage of an introductory offer), then there may be opportunities to better target the product only at those customers who are genuinely interested. Alternately, if it is related to the underlying offering – potentially some issues that mean it does not live up to expectations, then this would indicate a need to focus on improving those areas so as to reduce the churn rate.