How To: Burn the Churn
This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.
Originally published: April 3rd, 2019
Churn is a fact of life in the subscription game, but the beauty of the subscription model is that for the first time in the history of business, the relationship is baked right into how we make money. If a customer no longer sees the value in what we’re providing, they can easily cancel when the term comes up for renewal.
Yet, just because churn is a fact of life, doesn’t mean we can’t optimize for tactics that reduce churn considerably. Lets get to the data we gathered.
But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.
First up, the number one thing a lot of us need to attack yesterday is our failed payments.
Credit cards are mechanical devices subject to failure and delinquencies. Failed credit cards account for 20 to 40% of your churn when looking at both B2B and B2C companies. Note that as you get larger, the proportion of your churn that comes from delinquencies actually increases.
This is likely because you’re getting a bit better at regular churn, but also because you don’t get economies of scale with more credit cards.
To make matters worse, we’re actually pretty bad at recovering these failed payments.
No matter the size of the company, we’re recovering only around 30% of those individuals that have a failed payment.
To put it another way - for every 10 people who have a payment failure, you’re only recovering 3, leaving 7 to basically be flushed down the tubes.
After fixing up your delinquencies, I’d start to optimize annual payments. As the data indicates, those companies with more annual customers see lower churn, sometimes 5x lower, mainly because these customers have one purchasing decision per year versus 12 per year.
This obviously won’t hack your way out of not having a great product, but it certainly will help if you already have the right foundation.
Next is a bit more difficult to implement, meaning it’s not a quick fix, but one of the highest impact shifts you can make is utilizing a value metric in your pricing strategy. A value metric is what you charge for - per user, per 100 visits, per 1,000 videos - could be a whole host of things.
Those companies utilizing a value metric tend to see half the gross churn of their feature differentiated counterparts.
This is mainly because with a value metric your users are paying for what they’re using and presumably if they’re using more, they’ll pay more. If they’re using less, they’ll pay less. Most importantly though, they’re paying for the value they’re receiving, so there isn’t a reason to churn.
Ultimately, your gross churn is an incredibly tricky problem to attack that no amount of tactics is going to solve. Yet, there are very mechanical pieces of churn and classic positioning strategies with value metrics and annuals that can help you stack the deck and compound the churn reduction value that your product team is already implementing.
Want to learn more? Check out our recent episode: Your Open Office Space May be Tainting Your Subscription Growth and subscribe to the show to get new episodes.
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You've got the questions,
and we have the data.
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This is the ProfitWell Report.
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This is Nathan Beckert, CEO of
founder suite dot com, and I
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wanna know what would
you do to combat churn.
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Welcome back, everyone. Neil
here for the profitable report.
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Churn is a fact of life
in the subscription game.
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But the beauty of the
subscription model is that for
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the first time in the
history of business,
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the relationship is baked
right into how we make money.
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If a customer no longer sees the
value of what we're providing,
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reduce churn considerably.
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So to answer this question,
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we're gonna go deep into the
data by studying just over
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eight thousand
subscription companies.
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First up, the number one thing a lot
of us need to attack yesterday is
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our failed payments.
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Credit cards are mechanical devices
subject to failure and delinquencies.
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Failed credit cards account for
twenty to forty percent of your
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churn when looking at both
b to b and b to c companies.
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Note that as you get larger,
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the proportion of your churn
that comes from delinquencies
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actually increases.
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This is likely because you're getting
a bit better at regular churn,
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00:01:16,905 --> 00:01:20,825
but also because you don't get economies
of scale with more credit cards.
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To make matters worse,
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we're actually pretty bad at
recovering these failed payments.
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No matter the size
of the company,
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we're recovering only around
thirty percent of those
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individuals that have
had a failed payment.
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To put it another way,
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for every ten people who've
had a failed payment,
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you're only recovering three,
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leaving seven to be basically
flushed down the twos.
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After fixing up
your delinquencies,
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I'd start to optimize
for annual payments.
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As the data indicates,
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those companies with more
annual customers see lower
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churn, sometimes five
times lower churn,
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mainly because these customers
have one purchasing decision
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per year versus twelve per year.
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This obviously won't hack your way
out of not having a good product,
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00:02:01,440 --> 00:02:05,180
but it'll certainly help if you
already have the right foundation.
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Next, it's a bit more
difficult to implement,
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00:02:07,680 --> 00:02:09,485
meaning it's not a quick fix,
45
00:02:09,485 --> 00:02:12,765
but one of the highest
impact shifts you can make is
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utilizing a value metric
in your pricing strategy.
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A value metric is
what you charge for.
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Per user, per thousand visits,
per one hundred videos,
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could be a whole host of things.
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Right?
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Those companies utilizing a
value metric tend to see half
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the gross churn of their feature
differentiated counterparts.
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This is mainly because
with the value metric,
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your users are paying
for what they're using.
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And, presumably, if they're
using more, they'll pay more.
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If they're using less,
they'll pay less.
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Most importantly, though,
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they're paying for the
value they're receiving,
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so there isn't a
reason to churn at all.
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Ultimately, your gross churn is
incredibly tricky problem to attack that
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no amount of tactics
is gonna solve.
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Yet, they're very mechanical
pieces of churn and classic
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positioning strategies with
value metrics and annuals that
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can help stack the deck and
compound the churn reduction
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value that your product team
has already implemented.
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Well, that's all for now.
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If you have a question,
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send me an email or video to
neil at profitable dot com.
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And as always, if you got value
out of this report or any others,
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we'd appreciate any shares on
Twitter and LinkedIn because
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that's how we know
to keep doing this.
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I will see you next week.
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This week's episode is
brought to you by Mixmax,
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powerful analytics automation
and enhancements for your
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outbound communications.
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Mixmax dot com.
