Retaining Subscription-Based Customers

Too often, companies focus on customer acquisition at the expense of retention.  And yet minimizing customer churn is a key, and often totally manageable way to increase number of subscribers, revenue and profitability, key business metrics that go well beyond operations and finance.

There are 4 primary ways that subscription-based businesses lose customers:

1. Opt-out--customer utilizes online mechanism to opt-out of the service
2. Customer service--customer calls company help line, asks to opt-out, and is not retained by the customer service agent
3. Breakage--customer doesn't actively want to sever the relationship, but the customer is canceled, usually due to a credit card glitch (expiration, changing card-issuers)
4. Chargeback--customer disputes payment to credit card company, or refuses to pay

Most companies focus on opt-outs, which are often product or service related issues.  Examples of these might be someone saying that the content is not interesting enough, or that the service is lacking key features. 

Some companies also use customer service as an opportunity for marketing and customer retention--that is, when a disgruntled customer calls to cancel their subscrption, the agent has the training to win-back the customer, ideally with a targeted offer designed to regain the customer's trust. Unfortunately, it seems as though many companies are  cutting their customer service spend, and as a result, they are making it more difficult for customers to talk with an agent, thus reducing the opportunity to talk with customers precisely when they are rethinking their buying decision.

Fewer companies think of breakage and chargebacks as marketing and selling opportunities.  And yet, each can contribute materially to marketing and revenue objectives.  Many "breakage" cases are actually just infrastructure glitches, which could be quickly fixed if they were accurately recognized--for example after a bank merger when a large group of card numbers change at once.  There are products and services designed and optimized for companies to manage such issues, but they are not yet widely used.  One such example is Vindicia, a local company here in  Silicon Valley that is really changing how companies selling digital services with low marginal costs think about infrastructure.

Chargebacks usually occur when the customer is reminded of the purchase through the credit card statement, and calls the card company.  Each chargeback is required to provide the reason for the refusal to pay, thus providing an excellent source of data for the company.  Trends are easy to spot in this segment and can often be remedied through simple actions.

By thinking more broadly about retention, and analyzing the root causes, companies can often quickly increase average lifetime customer value, the "holy grail" for subscription businesses.

Comments

[Richard]

It amazing that more companies dont employ these stratagies and the training and tools rquired. The cost of acquistion of new customers is so high today that everyone should be leveraging ways to keep revenue from walking out the door. Also it's no atypical for some markets to see new customers as "not profitable" upfront with profit streams coming from longer term use of services (absorb cost of acquisition) or the addition of added revenues via complementary services.

[Robbie Baxter]

Any company who is not thinking Lifetime Customer Value, and who doesn't recognize how much cheaper and more profitable it is to keep customers than to win new ones is missing a huge opportunity.

Often, clients want to focus on new lead generation before they have optimized for retention. But I say "let's go for the easy win first!"

Thanks for posting, Richard!