Over 90% of subscription businesses believe retention is at least as important as acquisition to their success. With marketing channels being increasingly saturated, and customers becoming ever more fatigued by the non-stop flow of new subscription offers - retaining the customers you have won is now becoming the key capability that is separating winners and losers in the subscription space.
Unfortunately, CEOs and professionals alike are unsure how or where to start in analyzing their retention performance. At Cleeng we have seen subscription businesses of all sizes confront this face this same challenge.
So here is our guide to understanding and tracking 4 metrics that matter in building a powerful customer retention engine. One that will continue to power your growth no matter how competitive your space becomes.
#1 Churn Rate
Let’s start with an easy one. If you want to make retention a growth driver then your subscriber churn rate has to become the best known number in your office. Dropping your churn rate by a single point needs to become a cause for celebration.
There are two reasons for this. The first is that a one-point drop in your churn rate actually does transform your revenue performance. By itself, this one point change will increase your revenue by 12-13% over 12 months. You would have to grow your monthly acquisition rate by at least 5% to match that outcome.
The second reason is that the numbers your team think about are the ones that change their behavior. Your churn rate can’t just be hidden away in your BI platform. It has to be a number your team sees everyday.
Some managers make this happen by setting up alerts that trigger messages to their team when the churn rate moves. Others take it further and permanently display their churn rate on an office monitor.
However you do it, making your churn rate a focal point for everyone who can impact it is the key moving it in a positive direction.
#2 Average Subscriber Lifecycle
Here’s a question. What does your typical subscriber’s lifecycle look like right now? How does this vary across plans? Or seasons? How many of your current subscribers are early, middle, or late stage in the cycle?
Hopefully you know the answer to most or at least some of these questions. One thing that we have seen again and again is that a team that understands their business’ unique subscribe lifecycle dynamics has a serious edge in building effective retention strategies.
There are two sides to this. The first is the matter of churn timing. At Cleeng our churn learning models repeatedly find that the lifecycle point of a customer is one of the biggest factors in determining when they churn. Why? Well there are several reasons.
For example, your service has finite content and functionality to discover. We often find that customers lose interest when this discovery period ends, causing churn to spike at the corresponding point in the lifecycle. This is a fixable problem as customer education about new content or uses tends to offset this slump in interest. But to fix the problem you first need to see it. This is where churn timing insights are really important.
Another powerful dimension of the subscriber lifecycle KPI is lifecycle segmentation. In a recent study, 31% of managers admitted that the biggest challenge they face in retaining subscribers is combining the right time with the right message when communicating with customers. The importance of this balance to retention performance cannot be overstated.
It’s not 2010 anymore. Mass, indiscriminate messaging does not work in a world where hyper-personalized tailoring of content feeds is the norm. This does not mean that you need to know what your customer had for breakfast. It does mean that you need to know the difference between someone who has been with you for 10 days and someone who has been with you for 10 months.
Gaining intimate knowledge of your average subscriber lifecycle has a major impact on ability to anticipate churn in your business. Putting that knowledge to work will have a major impact on your ROI.
#3 Product Usage Models
Let me share an insider secret - churn patterns often look like a total mystery. Even for us. Luckily for me, I like mysteries. So I’m going to tell you a short mystery story that reveals a lot about how retention analytics work.
I was exploring churn dynamics for a few different types of subscription services. And one in particular was blowing my mind. I was examining product usage models for subscribers in different markets. And I was really focused on usage prior to cancellation, or ‘pre-churn engagement’ as we call it at Cleeng. This is what I saw.
One service had a relatively small segment of customers who were ‘very highly engaged’. These are the guys who can’t go two days without using the product. But here’s the thing, these highly engaged users were massively over-represented in our pre-churn engagement data. In other words, the customers who were most into the product, the people who were most clearly in the target market group, well they were also about 500% MORE likely to cancel their subscription.
How was anyone supposed to make sense of this?!!
Well it turned out there was a way. One reason we love ChurnIQ™’s ‘Retention Journey’ is that it allows you to join the dots between different aspects of the subscriber’s experience. Moving from engagement to cancellation analytics, I found something really interesting. In the same time periods, the number of highly engaged subscribers who churned corresponded almost exactly to another group in the cancellation analysis.
The group that said they were cancelling because there wasn’t enough content for them. This service had so perfectly appealed to this segment that these customers were burning through the content too fast for them to keep up. Leading these customers to cancel and move to slightly different services to satisfy their appetite.
So how do you use this information to improve your retention rates? It’s actually pretty simple. At Cleeng we like to pay close attention to our clients’ usage models. The logic of a usage model is like this: what percentage of your overall subscriber base engage daily, weekly, and monthly? So in the example below, let’s assume this service has 10,000 subscribers. That means their usage model is about 61% monthly, 42% weekly, and 15% daily engaged.
This model becomes a very good guide to what is ‘normal’ engagement for your service. In my mystery case, the very highly engaged group were deviating significantly from normal usage, which made them a group to pay close attention to. Even if high engagement itself seems like a positive behavior.
The other point is to use cancellation and engagement insights together to tailor very targeted workflows for your segments. If you know that high engagement isn’t predicting higher retention, then you know that group requires focused messaging on upcoming content, or new features. This is the type of holistic thinking that we created the Retention Journey for.
#4 Customer Lifetime Value
Ok, so let’s talk money. Ultimately reducing your churn matters because of how dramatically it affects the bottom line. There are many different ways to track the churn-revenue relationship (MRR churn rate for example). The most useful, flexible, and insightful metric however, is Customer Lifetime Value (CLV). Some even go as far as to suggest it’s the only metric that truly matters in the subscription business.
Simply put, CLV accounts for both the MRR contributed by a customer and the churn rate for that customer’s group. So a churn rate of 10% for a customer group who individually contribute $10 to your MRR equates to a $100 CLV (0.1 x $10).
CLV matters so much because of how it bridges these two perspectives of the business. You need to make retention a focal point in your company? Then this is a shortcut to doing it. CLV captures all the effort you put into improving the subscriber experience, your data platform, and your marketing system, and distills it into a single number that can be used for a multitude of decisions.
If you are interested in Subscriber Retention Management™, get our new eBook on the topic: