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05_Overcoming voluntary churn_Header
Business Strategy6 min read

Actions that guarantee to lower voluntary churn in subscription businesses

Customer retention & acquisition for subscription businesses 


Over the last couple of weeks, we have looked at some of the most important financial metrics that subscription businesses should track in order to increase revenue and sustainability. One of the areas we touched upon was churn, which is an inevitability in any subscription model. However, while some churn is parred for the course, the objective is to minimize it as much as possible, and certainly to learn from it wherever it's unavoidable. 

In this article, we look at voluntary churn and how subscription businesses can proactively minimize it.



How is churn measured?

Churn is usually measured in two ways: customer churn and revenue churn. Customer churn looks at the number of customers that cancel their subscription over a period of time independent of the amount of revenue they generate. Revenue churn looks at whether a particular cohort of recurring revenue is retained over a given time period, rather than being customer specific.



Evaluating churn rates and their impact on your business

There are two parts to overcoming voluntary churn - the first is to understand what are an acceptable rate of churn and the impact that it has on your business. The second is to use that information to reduce the number of people leaving. 

In the first instance, we recommend three key areas of investigation for understanding what churn rates are acceptable and the impact they have on business operations:


Assess customer flow

There are lots of things that go into making a subscription business successful, but one of the basic components is that the volume of retained customers needs to continue to swell. Therefore, you need to understand customer flow to see the impact churn is having on your business. 

When you assess customer flow you want to look at the number of new customers coming on board vs. those who are leaving - i.e. compare the churn rate with the customer acquisition rate over the same period of time. This will give you a broad sense of the customer growth vs. loss and the overall impact that churn is likely to have on the long-term goals of your business. 


Evaluate your pricing plans

Pricing is an emotive element for customers signing up to subscription businesses, and lots of organizations fall into the trap of offering the best pricing models to new customers in order to bring them on board. While that has obvious benefits, existing customers are your most valuable commodity - it is common knowledge that it's more expensive to acquire new customers than keep existing ones. 

Equally, when it comes to increasing prices, it's important to do so carefully. For example, when it comes to A/B testing new pricing plans after the initial analysis stage, you may want to pilot them with new customers rather than valuable existing customers. Then set a timeline before rolling them out across the board whilst monitoring customer reactions. 

To do that, you need a system that can roll out the new plan and also assess customer churn, then work out how to initiate new pricing plans to existing customers if it works. In some ways, it's like working backward - litmus testing with new customers first.


Use industry benchmarks

Another helpful tool in assessing and understanding healthy levels of churn is to look at key competitors and see how your company fares against them. This only works however in the context of having a deep understanding of your own business, so it should be the final stage in evaluating churn, otherwise, your insights are likely to be flawed.



Actions to reduce customer churn

The second phase in reducing churn is to take proactive measures, informed by your evaluation stage. Again, we recommend three key action areas to focus on:


Segment your at-risk customers

Perhaps the greatest benefit of digitization for businesses is that you have far greater insight into customer behavior. Using platforms like our customer portal, you can track a customer's interactions with your business and gain insights into their experience with you. This, combined with analytics will help you to identify customers who are at risk of leaving and take actions to encourage them to stay. That might mean offering an incentive, for example. 

Importantly, subscription businesses need to be mindful of the need to retain customers from the moment they first sign up for a subscription business. That means making sure they're on the right plan to meet their wants and needs, being aware of their usage levels and what might change going forward, and ensuring they have the best experience for them.


Prioritize existing customers

As we have already mentioned, it’s easier and more cost-effective to maintain multiple revenue streams from existing customers rather than new customers. New customers are costly to acquire, and although they are essential to business growth, existing customers should be prioritized when it comes to ensuring customer satisfaction.

Studies have shown that acquiring new clients is five times more expensive than keeping existing customers, and a report from Accenture found that over half of consumers have said they will spend up to 57% more on a brand that they are loyal to. However, the same study also found that 71% of customers said loyalty programs didn't engender loyalty - which is an interesting piece of information for those creating strategies for customer engagement. With that in mind, investments made in your existing customer base may yield substantially higher returns than those spent on your acquisition cycle.

It's important that existing customers feel engaged and valued. Achieving this means being mindful of the impact of wider socioeconomic events and how they may impact your customers is also a considerate way to approach your customer service and marketing. We recommend setting schedules for regular engagement activities such as surveys to find out how customers feel about your services or have monitored events that trigger engagement actions within the customer portal.


Create a refined cancellation process

It's inevitable that some customers will leave your business, but going through that process can be an important learning opportunity for your business. Creating advanced subscription cancellation flows can help to stop customers from exiting. However, they are also a chance to gain valuable insights that you can leverage in the future to create better solutions and improve your offering or processes. 


Learning from customer churn

The key to reducing churn in subscription businesses is to embrace the data you have access to, and use it to optimize your systems and your customer experience. Consider it an exciting puzzle to solve - you have all this information at your fingertips, how can you use it to keep customers motivated? 

Using a sophisticated software solution provides the tools and capabilities to understand customers and action your insights in a strategic manner. The other key element is having a mindset and company culture that seeks to learn, understand and improve in order to drive positive business and user outcomes, seeing the two as inextricably linked.

Think of it in two core steps:

1) Collect and organize data to provide insights into your customer motivations, and predict how to focus your attention to meet their needs before they leave. 
2) Leverage the customer-centric mindset and set the foundational subscription management efforts to support your processes today as well as in the future.

keylight offers a modern subscription business platform with capabilities to track customer events and prevent voluntary churn. These include segmentation tools for managing customer accounts and automated processes that monitor customer actions and trigger corresponding churn prevention measures.




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