Fact: the nature of subscriptions leads to a natural focus on customer retention and maximising the lifespan of each subscription.
Why is this? Well, a good portion of it is just math. According to this study, it costs 5x more to acquire a new customer than to keep an existing one. Not only that, increasing customer retention by only 5% can increase profits by 25 – 95%! And it gets better – existing customers are 4x more likely to refer friends and 7x more likely to try a new offering.
So, subscription-first businesses obsess over retention strategies for very good reasons. When they get subscribers, subscription-first businesses spend most of their days, weeks, and months trying to make them happy. As long as each and every customer is happy and getting the value they signed up for (and more) each billing cycle, they will stay subscribed.
Meanwhile, transactional retailers sell one-time products and leave it up to the customer to decide whether or not to buy from them again. As a result, transactional retailers are overly reliant on customer acquisition strategies; they spend every day, week, and month getting a fresh supply of customers to replace the ones they just sold to who may or may not return.
The predictable result of this is that transactional retailers are forever on the proverbial customer acquisition hamster wheel. In this way, transactional retailers have to become expert marketers on top of being experts in their field. But because there’s only so many hours in the day, transactional retailers focus most of their time on the marketing tasks because it’s the lifeblood of their business; a failure to acquire new customers each month, means the business doesn’t exist.
However, for subscription-first retailers, the opposite is true. If your customers leave or unsubscribe, the business doesn’t exist. So the focus for subscription-first retailers is to make customers happy to prevent them from leaving. They do this by building great products, upholding high standards for quality, and delivering excellent service. A subscription-first retailer spends most of their time doing the work of their craft – coffee subscription retailers roast excellent beans; children’s education subscription retailers build high quality lesson plans and activities; food subscription retailers develop the next incredible set of recipes — all of them focus on the little details that make their customers smile. Thats what makes them subscription business experts.
Often, your results will speak for themselves — both in the form of recurring revenue and smiling customers. The key to making this a reality is an operational focus centered around boosting metrics that most traditional businesses tend not to prioritize, such as churn rate, monthly recurring revenue, and average revenue per user.
By focusing on deep customer and retention metrics, subscription-first merchants have different priorities and retention strategies that can be just as elaborate as the acquisition strategies that helped your business get its feet off the ground during the early days. This could entail technical improvements as well as human improvements – i.e. investing into a customer service team so well trained they can almost smell a potential cancellation before it happens. You almost need to develop a ‘subscription suspension spidey sense’.
Minimising churn is therefore key in the long term (as we’ve written about in more detail in a previous post), because a leaky bucket is hard to fill when the hole is big.
Effectively, if your churn is high and you’re not growing, you’re either stagnating, trying to replace each customer that leaves you, or you’re shrinking as a business. But it doesn’t have to be this way — following good practices from the beginning will make sure that the time you spend combatting churn stays low.
A low churn rate will help maximize your growth rate, and just like interest in a bank account, the effect will be exponential as time progresses, and you’ll be soaring ahead of the competition. Back to the main question – what should you be spending more time on? Perhaps the right question is what will keep your churn low? The answer: making your customers happy.
Subscription-first businesses are in a unique position to delight customers due to a variety of different reasons:
A major cornerstone of keeping your churn rate low is delighting your customers, day in, day out. To do this, you’ll need to keep your standards high across your business:
Anticipating customer needs is what separates the strong from the… well… not-so-strong, especially in the world of subscription businesses. There’s a few ways you can integrate this sort of customer-aligned strategy into your model. Discounts, altering shipping cycles, free products, access to unique opportunities – what might your subscribers want in addition to your products? Just put yourself in their shoes and/or use data to determine what they might want or need before they know.
For example, if you notice a lot of customers tend to cancel 4 months into their subscription, why not proactively offer a 25% discount on everyone’s 4th month before the thought even comes into their head? Or if you see that demand varies seasonally, with customers cancelling because they’re receiving too much/too little at certain times, why not alter package sizes/shipment frequency accordingly?
Anticipating what your customers are thinking — and serving them up a solution, even if it’s to a problem they have yet to encounter — is the key to making sure they stay loyal in the long term. And remember, once they’re on the path you want them to be on… thank them for being part of your journey, and continue to raise their excitement about the future they’re buying into with their loyalty!
Remember, it’s all about establishing a long-term, two-way relationship where your offering both helps them meet their goals, and evolves alongside them.
In the end, it’s much more efficient to create a process in which once a customer is in, they’re in, and have no desire to leave. Plus, the better their experience, the more likely it’ll be that they’ll act as ambassadors for your brand which may lead to some conversions without you having to do anything yourself – meaning you get to spend more time building your business, and less time worrying about replacing customers.
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