The average subscription service churn rate is about 6-8%, and as of August 2022, up to 38% of consumers had canceled a paid video streaming subscription in the previous six months.
While the data for product-based subscription businesses and opt-in marketing lists is minimal, one thing is clear: churn is a common challenge that all types of subscription brands face.
To increase your subscription business's customer lifetime value (LTV) and monthly recurring revenue (MRR), you need to understand how churn works and explore proven ways to boost retention.
What is subscription churn?
Subscription churn is the percentage of customers who cancel their subscription within a given period. It's an important metric because it can reveal how well you retain customers. It can also help you identify trends in customer behavior that you can use to improve your subscription offering.
Considering that the average churn rate for subscription services is less than 8%, a good subscription churn rate is anything within that range. A churn rate above 8% indicates that you need to improve something in your subscription models, like pricing, features, or customer service.
How to calculate subscription churn rate
Calculate your subscription churn rate by dividing the number of cancellations in a given period by the number of subscribers at the start of that period. Then, multiply the result by 100.
Subscription Churn Rate (%): Number of Cancellations/Number of Customers x 100
Say you had 100 subscribers at the beginning of the month, and 10 canceled their subscriptions during that time. Your subscription churn rate would be 10%.
Customer Churn vs. Revenue Churn
It's important to differentiate between customer churn and revenue churn when calculating subscription churn.
Customer churn indicates the number of customers who cancel their subscriptions in a given period.
Revenue churn measures how much subscription revenue you’ve lost due to cancellations.
Voluntary and involuntary churn
There are two types of subscription churn: voluntary churn and involuntary churn.
Voluntary subscription churn occurs when customers cancel their subscriptions regardless of the quality of service they receive.
Involuntary subscription churn refers to cases where customers cancel their subscriptions due to a technical issue, payment failure, or some other external cause unrelated to the subscription service.
6 ways to reduce subscription churn rates
With competitors popping up in your niche regularly, reducing subscription churn is more important than ever. Subscription businesses can keep their churn rate low by focusing on customer satisfaction.
Here are some effective strategies to retain subscribers and boost market share.
1. Identify why subscribers churn
The first step to reducing subscription churn is identifying why customers unsubscribe. Analyzing customer feedback and surveys can help you pinpoint the root cause of subscription cancellations, enabling you to develop a strategy for retaining those customers in the future.
For example, if multiple product reviews show that customers cancel their subscriptions because your product lacks specific features, you can prioritize them in your new rollouts.
2. Improve customer service
Excellent customer service is key to reducing subscription churn. Make sure your team can answer customer questions quickly and efficiently, no matter the issue.
Additionally, providing customers with a seamless onboarding experience and an easy-to-follow subscription process will help them get up and running quickly, increasing their likelihood of staying subscribed for longer.
3. Offer discounts or promotions
Giving subscription customers discounts and promotions can be a great way to incentivize customers to stay subscribed.
Offering discounted subscription bundles and early-bird offers will encourage customers to stick with your service and also help you attract new subscribers.
4. Show appreciation for loyal subscribers
Showing appreciation for loyal users by sending personalized birthday messages, giving out exclusive invites, or offering a rewards program are great ways to reduce subscription churn and show customers that you value their loyalty. This strategy is a powerful way to reward your current subscribers and encourage them to remain subscribed for extended periods.
Imagine that a customer has been subscribed to your service for six months, and you give them a special perk or discount. The customer will appreciate the gesture, which could also be the push they need to stay subscribed.
5. Provide flexible subscription options
Giving subscription customers the ability to customize plans to suit their needs better can be a powerful way to retain them. Allowing customers to pause or extend their subscriptions, add additional features, or switch between subscription tiers will make them feel like they are in control and that you value their business.
Plus, offering subscription flexibility can also help reduce subscription churn by giving customers more options to find the subscription plan that best fits their lifestyle and budget.
6. Automate churn prevention
Automating subscription renewal emails and other notifications can help keep customers informed about their subscription status without relying on manual processes. These automations will make it easier for subscription customers to stay on top of their subscription expiration dates, allowing them to renew before the subscription ends if they choose to do so.
Beyond this ease of renewal, you can also automate messages to inform customers of new features, discounts, and other news that can help them stay engaged with your subscription.
Retain and win back subscribers with SMS marketing
SMS marketing is a great way to reduce churn and win back lost customers. Using an SMS platform like Emotive, subscription businesses can quickly create personalized messages to stay in contact with current and former subscribers.
This software allows you to provide timely reminders of subscription expirations or other offers that can encourage customers to renew their subscriptions or sign up again after they have canceled. You can also use SMS messaging to send helpful notifications of subscription upgrade options and personalize your communications by including information tailored directly to them.
When you provide a positive customer experience by delivering timely communication when it matters most, you'll increase the chances of retaining your current subscribers and winning back lost ones.
Ready to add SMS marketing to your subscription business's churn prevention strategy? Try Emotive today!