Why is my Churn Rate so High?

Why is my Churn Rate so High?

Why is my Churn Rate so High?

What is churn rate?
Churn is the percentage of customers that stop using a brand. This metric gives an overview of unsubscribes and the subsequent loss of recurring revenue. Though simple in theory, there are many reasons why customers stop giving money to a business, whether voluntarily or involuntarily. The only way to understand your rising attrition is by getting dirty in the numbers. Let’s talk more about the actionable steps for retaining subscribers.

The two types of subscriber churn

  1. Voluntary: Voluntary customer churn is when a subscriber chooses to leave. For subscription businesses, this is commonly because of a bad experience, decrease in perceived value, better competing offers, or a professional subscriber going out of business

  2. Involuntary: Involuntary churn is when outside circumstances prevent payments from going through. These are your card cancellations, invoice failures, declines, and bank issues. Involuntary churn can be easier to find, but actively chasing down problems and monitoring your invoices becomes complicated, especially as you scale and start dealing with hundreds or thousands of purchases


Involuntary and voluntary customer churn flowchart

How do I measure churn?
Revenue churn: Revenue churn refers to the number of subscription dollars a business loses over each period. Revenue churn is mostly reported with a whole number to show total loss of recurring revenue but using a percentage can help you better understand decreases in monthly/yearly income.

Subscriber churn: The percentage of customers unsubscribing, downgrading, or not paying. Subscriber churn is a tremendously important yardstick for a subscription business’ health. When subscriber churn rate is rising faster than new subscriptions, you’re at risk of going negative.

Average customer LTV: This metric measures the overall length of a customer’s subscription. Remember, churn is inevitable, so LTV gives insight to whether customer attrition is natural.


Revenue churn rate formula and customer churn rate formula

How can I decrease subscriber churn?
  • Setup reporting systems: The only way to catch involuntary churn is to actively monitor subscribers. Address issues quickly when they arise and avoid getting backlogged. Get a reporting tool and monitor for:
    • Expired cards
    • Outdated billing info
    • Maxed credit card limits
    • Issues from the acquiring bank
    • Problems with your backend or other systems
  • Ask your subscribers for feedback: Feedback is an actionable way to address customer attrition. It gives you an idea of how to tailor a better experience for your core market—if subscribers are happy, they’ll stay for longer. You might also find that churning subscribers aren’t your target market. If that’s the case, you should address your marketing and sales efforts
  • Know what your competitors are doing: They can (and will) take the market share when you least expect it. Know your advantage and understand what distinguishes you from competitors. If your competitors can’t match your offering, then emphasize that and position yourself accordingly. Keep an eye on competitor pricing, to determine how and why they chose that pricing model. Perceived value is a lot of the time directly linked to price and being able to pick up a cheaper offer with fewer bells and whistles
  • Optimize your pricing: As mentioned above, perceived value is heavily linked with your pricing scheme. Consider allowing subscribers to choose from freemium, fixed rate, tiered, usage, and hybrid model. We cover pricing heavily in this blog: top 5 pricing models
  • Refresh your user experience: Since branding is the first and last thing that your subscriber sees, it is arguably a more important sales tool than the product itself. In the subscription economy, convenience and ease retain subscribers. Design your brand and user experience around being clean and fast
  • Continue updating your offering: Especially true for subscription boxes, you need to continue providing a sense of discovery with products. If someone subscribed to a jam of the month box, but they could buy the jams somewhere else, why bother with your box? Having an engaged customer service, freemium trial periods, and guarantees, all get subscribers in the door and engaged with your brand

Conclusion
Churn rate is a percentage of people who no longer use your business. There are many ways to find and address and customer attrition, but none are completely straightforward. You will need to set up procedures to monitor payments and address involuntary declines as they arise and address the voluntary churn by selling a superior product/service, optimizing the prices, researching competitors, and refreshing your user experience.


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