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Mind Your Churn and Other Keys to Build a Thriving Subscription Business

By: David Woolenberg
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From Stitch Fix and Dollar Shave Club to Amazon Prime and Spotify, online subscriptions are having a moment. Our VP of solution innovation, James Gagliardi, recently spoke with BizReport about how brands can adapt their ecommerce strategy to capitalize on this growing trend.

As brands develop their online subscription business, they first need to consider which subscription type will appeal to their customer-base and makes the most sense for their business goals. In part one of the four part series, James identifies three common types of subscription offerings:

  • Replenish — “This camp includes those subscriptions that replenish items that people use on a daily basis through passive purchasing models. Dollar Shave Club is one of the most famous of these models.”
  • Discovery — “This experience-driven subscription often gives the impression that the consumer is receiving a gift — a box that arrives at your door with personally curated goods and some kind of a surprise.”
  • Productivity Enabling — “This camp includes access-based convenience services that make consumers more productive. Adobe Creative Cloud, Zipcar and Slack are all examples of services that help consumers save time and work more efficiently.”

Once a business decides to move to a subscription billing model, it needs to shift how it thinks about both its products and customers. James advises:

“[Retailers must] make a shift from monetizing products themselves to monetizing relationships and experiences.” Further adding, “Simplicity is key. Subscriptions are supposed to not only provide experiences and establish fruitful relationships between brands and consumers but also make life easier. The consumer of today values time and freedom above all else. To be successful, the subscription needs to offer enjoyable and consistent ongoing value to the end user.”

After successfully transitioning to a subscription business, much of the focus turns to how to attract and retain subscribers. While many companies understand the need to reduce voluntary (or active) churn — when a customer decides they no longer want to buy the subscription — it is equally important to build strategies aimed at reducing the more technical cousin, involuntary churn. Involuntary (or passive) churn is when a renewal fails due to reasons beyond the customer’s choosing. It could be because the customer moved and forgot to update the billing address, the credit card expired or there were insufficient funds for the charge. Small changes to a company’s involuntary churn rate can have a big impact on revenue.

“We estimate involuntary churn accounts for as much as 50% of total churn. These are the people who drop off the radar every month. With this percentage in mind, companies cannot focus only on seeking new customers and addressing issues related to voluntary churn, such as pricing and customer dissatisfaction. Instead, it is critical that companies know how involuntary churn is happening and how to mitigate those churn rates in order to ensure long-term profitability.”

Offering tips on how to reduce involuntary churn, James adds:

“Companies need to know exactly what happens in the back-end system when a credit card expires or when a customer gets a new card. Some updates can be handled within the system; others require customer engagement. In either case, the solution is ensuring the right tools and techniques are in place and the information on file is proactively kept up to date. Proper communication strategies put in place ahead of time will make sure the information is always accurate.”

Is your company considering moving to a subscription billing model? What are the biggest obstacles keeping you from making the switch?