Understanding and maximizing customer retention is crucial in subscription-based ecommerce, where churn rate—the number of customers ceasing to use a service—can make or break the success of a business.
Distinguishing between voluntary and involuntary churn is essential, but brands must develop holistic churn prevention strategies if they are to drive retention and growth around the globe.
Use this guide to understand what’s behind each of these two types of customer churn and what needs to be included in a winning churn prevention strategy.
Voluntary vs. Involuntary Churn
In the world of subscription-based ecommerce, customer retention is paramount. Churn rate, the measure of customers who stop using a service over a given period, is a key metric in understanding the health of a subscription business. Churn is typically categorized into two types: voluntary and involuntary.
Voluntary churn occurs when customers actively decide to cancel their subscriptions. This decision can be influenced by a variety of factors such as dissatisfaction with the product or service, a better offer from a competitor, or a change in the customer’s financial situation. Voluntary churn represents a direct reaction to the perceived value of the service and is often a reflection of the customer’s experience.
Involuntary churn, also called accidental churn, false churn, or passive churn, happens without a deliberate decision by the customer to end the subscription. It is often due to payment issues like expired credit cards, failed payment authorizations, or bank errors. Involuntary churn is less about customer satisfaction and more about the efficiency of the payment and subscription management processes.
Crafting a Comprehensive Churn Prevention Strategy
When it costs much more to acquire new customers than retain them, both types of customer churn are critical to understand for any subscription service.
While reining in voluntary churn requires a strategic approach to customer experience, involuntary churn demands a focus on the technical and operational aspects of subscription management. By recognizing these differences and implementing targeted measures to address each as part of a holistic churn prevention strategy, ecommerce brands can enhance their customer retention and, in turn, their long-term success.
How to Reduce Voluntary Churn
Voluntary churn can be a significant obstacle for businesses, as it indicates a customer’s conscious decision to leave due to dissatisfaction or a perceived better option elsewhere. Preventing this type of churn requires a proactive, multifaceted approach that prioritizes customer satisfaction and engagement.
Gathering Customer Feedback:
The first step in preventing voluntary churn is to understand the reasons behind it. Regularly collecting and analyzing customer feedback can provide invaluable insights into what customers value and what might be driving them away. Surveys, customer interviews, and feedback forms are useful tools for gathering this information. It’s essential to act on the feedback received by implementing changes that address common concerns or suggestions.
Improving Service Quality:
Continuous improvement of the product or service quality is non-negotiable. This involves keeping a close eye on market trends and competitor offerings, and staying ahead with innovative features that meet the evolving needs of customers. Ensuring your product or service is reliable, useful, and user-friendly will help reduce the likelihood of customers leaving.
Personalizing the Customer Experience:
In today’s market, a one-size-fits-all approach is often inadequate. Personalization can make a significant difference in customer retention. This means tailoring the customer experience based on individual preferences, purchase history, and usage patterns. Personalization efforts can range from customized email communication to individualized product recommendations, all aimed at making the customer feel valued and understood.
Analyzing Churn Patterns:
Data analytics can reveal patterns and predictors of churn, enabling businesses to identify at-risk customers before they leave. By using data intelligently, companies can implement targeted interventions for those customers. For instance, if data shows a segment of customers tends to churn after a specific duration, preemptive engagement strategies can be employed to retain them.
How to Prevent Involuntary Churn
Involuntary churn is often a silent culprit that erodes the customer base of an ecommerce business without any overt warning signs. It’s primarily technical, not emotional—a result of failed transactions, not failed relationships. This type of churn, while less complex than voluntary churn, requires a proactive and preemptive approach to manage effectively.
Strengthening Payment Infrastructure
The foundation of reducing involuntary churn lies in creating a robust payment infrastructure. Ecommerce brands must ensure that their payment platforms are not only secure but also equipped with advanced features that can handle a variety of payment issues. For example, implementing smart retry logic can significantly increase the chances of successful charge attempts after a payment failure. Meanwhile, a platform that’s backed by an extensive acquiring network can help reduce false declines.
Automated Payment Updates
One of the most common causes of involuntary churn is outdated payment information. A solution like Digital River’s Account Updater can automatically update expired or changed payment details with major credit card providers. This service liaises with credit card providers to obtain updated customer payment information, minimizing the number of subscription renewals disrupted due to card expirations or replacements.
Proactive Communication Strategies
Communication is key in reducing involuntary churn. By proactively reaching out to customers before their payment method expires, companies can preempt failed transactions. Automated email or SMS reminders can prompt customers to update their payment details, thereby avoiding service interruptions.
Flexible Payment Options
Offering a variety of payment methods that cater to diverse customer preferences can ultimately reduce the likelihood of payment failure and involuntary churn. Choose a platform that supports payment methods preferred by customers around the globe, including different types of credit cards, digital wallets, direct bank transfers, and more, ensuring that customers can choose the most convenient and reliable option for them.
Dunning is the process of communicating with customers to resolve failed payments. Effective dunning management involves a series of strategic communications designed to engage the customer and resolve payment issues. This includes clear messaging about the problem, steps for resolution, and deadlines for when actions need to be taken. By personalizing these communications and making it easy for customers to take action, businesses can recover revenue that would otherwise be lost to involuntary churn.
By leveraging a comprehensive strategy—and leaning on the right payments and subscription management partners—ecommerce brands can proactively guard against and reduce churn in all its forms.
Fight churn and continue to capitalize on the growth in subscription-based commerce with the help of a turnkey ecommerce platform, designed with the needs of today’s SaaS and digital product sellers in mind. Learn more today about how MyCommerce offers sophisticated billing optimization and subscription management tools alongside access to global payments capabilities and international tax, fraud, and compliance protection.