Why focus on subscription churn?
In subscription-based services, repeatable income is core to preserving business continuity and growing your revenue base to build the best service possible. Retaining customers is key to your success.
On average, Recurly Research has identified 5.6% of customers churn from subscription businesses. You can retain many of these customers when you apply your retention strategies. The key is to apply your retention strategies before the customer decides to leave and potentially shares negative feedback on your business through social media or other communication platforms.
Some businesses have costly retention strategies, and at scale even less expensive retention strategies can add up. It’s still cheaper to retain your current customers compared to finding new customers. As shown in this Invesp infographic that explores customer acquisition and retention, it’s five times more expensive for a business to gain a new customer over retaining a current customer, and only 40% of companies have an equal focus on acquisition and retention.
Retaining customers and preserving the expected revenue is only part of the story. Increasing revenue is equally important with these retained customers. Bain & Company identified reducing your churn rate by 5% can increase revenue by more than 25% in financial sectors, and research by ChurnZero determined reducing churn rate by 1% can increase a SaaS company valuation by 12% after 5 years.
Finding customers and taking action to reduce churn
Knowing that churn has an impact on your business revenue, you need to find the right steps to find churn risk and act.
Steps to find and address subscription churn:
- Identify the value of reducing churn for your business. Find individualized churn risk for each of your customers.
- Segment and target high value, high churn risk customers.
- Apply retention strategies.
- Monitor your churn rate to measure ROI.
Let’s look at how a fictitious US company, we’ll call Proseware, Inc., has implemented these steps to save over $50 million per year. Proseware, Inc. is a music streaming service for consumers. Let’s walk through how they addressed the points above.
Proseware, Inc. has approximately 20 million subscribers and a 6% churn rate on average per year. Their service is provided through monthly and yearly subscriptions, and subscriptions average $12 per month. As an additional revenue stream, Proseware, Inc. also offers physical items to purchase that are merchandise or branded goods for the bands customers listen to, averaging $30/year per customer. If we consider the churn rate of 6%, there’s a loss of approximately $208 million per year through customer churn.
Proseware, Inc. used Dynamics 365 Customer Insights to unify their data from their subscription datasets, their music listening datasets, and their marketing datasets to create unique profiles for each of their customers. By applying this data and using the subscription churn prediction feature, Proseware, Inc. was able to find churn risk for each of their customer profiles. Using revenue information and the calculated churn risk, they were able to create a segment of high value, high churn risk customers.
The company exported these customers to their marketing toolset to send targeted loyalty offers, including free merchandise offers or reduced subscription costs in exchange for longer subscription commitments. Proseware, Inc.’s strategy to reduce customer churn centered on improving loyalty and value perception for their service, so they may make changes to customer support offerings for these customers, and working to improve messaging in advertisements to show the value they bring by having the hottest bands.
Finally, Proseware, Inc. needed to understand the value of the work done through this process. Overall churn rate reduced from 6% to 4.5% after identifying the customers most likely to churn and applying retention strategies for a total reduction of 1.5%. The actions Proseware took will retain over $50 million in revenue per year.
How Microsoft can help your company address churn
The subscription churn and transactional churn prediction features in Dynamics 365 Customer Insights enables subscription-based and transaction-based businesses to identify customers that are likely to churn and help businesses like yours to focus customer retention efforts more effectively and improve your retention strategy ROI.
You can learn more in our documentation about Dynamics 365 Customer Insights and subscription churn prediction, and Dynamics 365 Customer Insights and transactional churn prediction. If you aren’t using Customer Insights now, you can learn more and start a trial to see what value you can bring to your business today.
