Subscription commerce continues to boom — with segments such as subscription box sites growing 3,000%, according to Internet Retailer. While subscriptions can be great for building strong and long-term relationships with buyers, when not managed carefully they also can be a source of customer attrition or churn. To gain a deeper understanding of the nuanced approach needed to drive down subscriber churn, we commissioned a study by Forrester Consulting called The Art and Science of Reducing Involuntary Subscriber Churn.
We had a hunch that subscription companies are far more focused on reducing voluntary churn, while missing the impact involuntary churn has on their growth, profitability and innovation efforts.
In simple terms, involuntary churn occurs when recurring payments fail due to insufficient funds, credit card limits and restrictions, technical failures, and other reasons beyond the customer’s choosing. Whereas, voluntary churn occurs when customers choose to opt out of their subscription, typically due to a perceived lack of value.
So what did we learn from the hypothesis Forrester Consulting went out to test?
According to our research, on average, 62% of subscription revenue is from renewals with organizations losing 34% of customers to churn. Considering involuntary churn often accounts for 34% of total churn, driving down these rates can have significant impact on revenue.
An acquisition focused strategy — absent a renewal strategy — is short-sighted from an organizational cost perspective. Acquiring a new customer costs companies at least twice as much as keeping an existing one. If involuntary churn is not managed well, it becomes difficult for organizations to replace lost customers while continuing to grow their businesses and remain profitable.
So why don’t more companies view reducing involuntary churn as a key priority to managing customer retention? The truth is, many companies think involuntary churn is simply a cost of doing business — something that is difficult to manage and costly to influence. But this mentality is short-sighted. From the study:
Involuntary churn is primarily attributed to payment failure — something organizations can better manage with the proper tools and communications.
By developing a holistic approach to managing a subscriber lifecycle — from acquisition to payment processing to order management, and more — companies can see a significant reduction in churn.
Read the full study and tell us what you think. Does your company understand the impact involuntary churn has on its business? Do you have strategies in place to reduce churn?