If you have a business that involves a recurring or subscription billing arrangement between you and your customer, you need to understand churn.
Churn is the number of customers or subscribers that end their recurring relationship with your company. If you’ve ever cancelled a magazine subscription, you’ve contributed to that company’s churn.
Churn is an inevitable part of a subscription model. Understanding churn, and the ability to master it, can make a huge impact on the bottom line of your business.
With a robust strategy for reducing churn, your company wins on multiple levels. While having zero churn is unrealistic, reducing churn to the low double digits, or even single digits, is possible. If you, or the billing company that you hire, is proactive about churn, you can lower churn, and exponentially increase revenue.
Here are a few key benefits of proactive churn management:
- Customer Acquisition Costs Go Down: Customer acquisition is costly … often 5 x MORE than retaining a current client
- Customer Lifetime Value: If the customer is staying, the customer is paying
- Predictable Cash Flow: Understanding churn to the extent that you can predict it allows for better cash flow projections and allocation of resources for future projects
Reducing churn will also lead to more customer referrals which are free, have a shorter sales cycle and have a higher close rate.
How to Reduce Passive Churn and Increase Revenue
There are two types of churn: active churn and passive churn.
Active churn is when a customer makes the decision to opt out of their relationship with your company. Providing a great service is a good start to reducing active churn. You’ll also need to stay fresh in the mind of your client. Give them lots of reasons to stay with you beyond the product relationship.
Apple customers enjoy being connected to the brand name of Apple. Creating a feeling of belonging to a tribe of like-minded people who all share a love for your product as part of a bigger mission is difficult but the payoff is huge.
You know your business and your industry. Take time to understand the customer’s mindset and watch active churn numbers fall.
Passive churn on the other hand can be insidious. Passive churn is when some unexpected event occurs that causes a customer who would prefer to remain your client to stop paying you and soon after stop their relationship with your company altogether. The most common reasons for passive churn are related to credit card payment failure.
Here are five key steps to get or keep customers with a payment failure on track:
1. Credit Card Expiration Management: How does an immediate 3% bump in revenue sound? Well the average credit card expires once every 3 years. That means that 3% of your customer’s credit cards expire every month. Can your customer log on to a 24/7 payment portal and update their own information proactively? If not, your choice is to either have a staff member tasked to make these calls every month, or wait for the customer to fix it themselves, or more likely drop out of your system due to excessive delinquency.
Many of our clients choose the option of full-service billing to allow a highly-trained customer care team to reach out proactively and get an update for customer’s information.
2. Credit Card Reprocessing Management: A credit or debit card declined today may be approved tomorrow or the next day. Reprocessing a declined payment several times over a span of days can often result in an approved charge.
Many recurring billing providers lack a robust reprocessing strategy, choosing instead to have a standardized two-attempt policy for every client. Member Solutions clients can expect a higher reprocessing success rate due to our proprietary reprocessing strategy.
3. Renewal Notification: If your relationship with your customer is one that has a set expiration date, then handling renewals is a crucial part of reducing churn. Systematic communication about an upcoming renewal is crucial. Even if your customer’s account is set to auto-renew, notifying them of this renewal will go a long way to reducing chargebacks which lead to churn. If a renewal date passes without renewal, do you have enough staff to handle the phone calls needed to get good customers back in the fold? Which leads us to number 4 …
4. Customer Care Team: While some companies may be able to call and get their customer’s payments back on track, more than likely this is not the most profitable use of their time. Outsourcing however, has its drawback if not handled properly. Finding a company that can handle calls to your customer in a way that corrects the problem, but also preserves your relationship with your client, requires a team with just the right tools and training.
Member Solutions, for example, has a world class U.S.-based customer care team available to our clients. English is their first language and we have many bilingual team members to assist Latin American callers as well as French Canadian callers.
5. Winners Keep Score: Winning teams always want to know what the score of the game is. Even if they’re behind, winners want to know the score so they know exactly what they have to overcome. Do you know your churn percentage right now? If not, why is that? Do you have access to robust reporting that includes the number of members you lost this month?
So there you have it … 5 strong ways to reduce passive churn and increase revenue.
If you’d like more information on how Member Solutions can revolutionize your business’ approach to recurring billing, contact our Enterprise team at 267.287.1035 or click here.
Rick Ellis is a Business Development Executive with over 20 years’ experience operating a membership based company. Rick has experienced firsthand the types of unique challenges present when using a recurring billing business model. Rick enjoys working through complex business models to find and leverage every opportunity to optimize profit, and reduce risk.