By: Eric Johnson, CEO and President
For decades, the practice of driving revenue has been through bringing in new business – and new customers. Yet, some companies fail to consider that new business is only as good as old business. If you solely focus and succeed in acquisitions, you won’t account for customers leaving you. Not only does subscriber churn affect your net business, it also carries other hidden costs. Here is an overview of what attrition in subscriber-based companies looks like, why it hurts business, and what steps you can take to stop the outward flow of subscribers and money.
What is Subscriber Churn?
Customer churn or attrition refers to each time a current customer discontinues their subscription. The number of customers who leave also determines your churn rate, or, inversely, your retention rate. Both percentages, the churn and retention rates, look at the number of customers who leave in a certain period compared to the total number of subscribers.
Most subscription-based companies recognize two distinct types of churn: voluntary and involuntary. Just like it sounds, voluntary churn means that a customer makes a conscious decision to leave your company. Reasons for voluntary churn can include subscribers finding a better offer from a competitor or general dissatisfaction with the service your company provides. With involuntary churn, customers had no intention of ending their subscription. How can that happen? Automatic subscription renewals require payment information, so an outdated card or account can lead to churn. Additionally, some customers involuntarily churn by not paying their bill overtime and waiting for their account to be shut down.
Knowing how your churn rate compares to your competitors and your industry can help inform how you address it. Across industries, average attrition rates for all subscription-based companies sit between 6% to 8% annually. In the telecommunications industry, companies can see annual churn rates as low as 10% and has high as 67%. However, most successful subscription businesses have churn rates below 5% – major telecommunications companies hover around 1.5% each quarter. Additionally, B2B companies often enjoy lower rates of churn than do B2C companies, on average.
How Churn Costs Businesses Money
Many businesses mistakenly believe that acquisition, not attrition, is the best area of focus to maintain or increase profits. However, according to Forbes Magazine and a study by Lee Resource Inc, attracting a new customer costs five times as much as keeping an existing one. Furthermore, customer profitability tends to increase over the life of a retained customer. Your newest customers and those with shorter tenure are at the highest risk of leaving. Therefore, diverting some marketing funds from focusing wholly on acquisition is not only a more sustainable practice, but also one guaranteed to save marketing money in the long run and increase net profits.
Focusing on retention rather than acquisition puts your finances where they matter and turns your strategy from reactive to proactive. AnswerOn has worked with subscription companies to determine reasons that customers deactivate and what incentives will make them want to stay. Our solution uses non-confidential customer data, predictive analytics, and periodic online focus groups to:
- Identify high-value subscribers who are likely to deactivate or who are dissatisfied
- Determine the key variables associated with a subscriber’s loyalty score
- Produce low-cost loyalty campaigns that extend individualized retention offers to high-risk, high-value customers
- Evaluate and analyze the effectiveness of existing customer retention campaigns
Additionally, analyzing customer behavior can lend insight into future customer value and risk of attrition. For example, a comparison between customers who have discontinued service versus loyal customers could reveal behavior patterns. These differences could be exploited when accessing new customers to determine if they are likely to become loyal customers.
Losing your best customers is bad for business – even when you can sign up new subscribers. Reach out to our team today to find out how a tailored solution to your churn will lower your operating costs and keep your customers happy.