Churn is arguably the most pressing issue for subscription box companies. In a business model that depends on recurring revenue, a high churn rate can quickly sink your business.
Throughout my time working with a number of subscription box companies, interviewing some of the world’s best subscription box entrepreneurs, and consulting many more subscription box entrepreneurs in the, I’ve learned a thing or two about how to keep your churn rate under control.
Today, I’m going to reveal the seven most effective ways to lower your churn rate.
This is Step #1. If you don’t have a product that people absolutely love, don’t even bother reading the rest of this article. It’s that important. The reality is that there are no secret churn strategies or underground marketing tricks that are going to make up for a bad product.
Your product should do two things: solve a market pain point and have a strong Unique Selling Proposition. The days of throwing a few items into a box and marketing it as cheaper than what it would retail for are over. To survive in today’s subscription box industry, your product must provide inherent value in and of itself. Consumers are bombarded with advertisements from subscription box companies with sub-par product offerings, which means that it is getting more and more difficult to break through their mental ad-barrier.
You know your product stands out if it’s something that people would actively seek out outside of a subscription box. Develop a great product and then back it into a subscription box model.
Customer feedback is key here. I recommend sending quarterly feedback surveys to your members so you can understand the pain points that people are having with your product. A great survey to run is a Net Promoter Score (NPS) survey. This is survey that has your customers rate their overall satisfaction with your company from a scale of 0-10. Customers who rank your company from 0-6 are '“detractors,” customers who rank your company from 7-8 are “passives,” and customers who rank your company from 9-10 are “promoters.” You then subtract the percentage of detractors from the percentage of promoters and receive a score from -100 to 100. So for example, if 55% of your customers are promoters and 10% are detractors, your NPS Score would be 45. You can then compare your company’s NPS Score to the industry standards to develop an understanding of how your company matches up. The best practice here is to include your quantitative questions at the beginning of your survey and ask some qualitative feedback questions at the end of the survey to ensure you actually understand the reasoning behind the quantitative feedback.
You may be surprised at the feedback that people have. Often times, there are things that you didn’t even think of that your customers are really struggling with. It’s also a great way to understand your market and improve your acquisition strategy.
Your on-boarding experience is the first impression your customer has of your company. A poor on-boarding experience leaves a bad taste in the customer’s mouth and significantly increases the likelihood of early churn. However, getting your on-boarding experience right can make all the difference in how your customers perceive your brand. This means that from the moment they order, everything needs to be seamless. In fact, the process should actually delight them.
The on-boarding experience is broken into three main sections: Pre-Delivery, Kick-Off, and Post-Delivery.
This phase of the on-boarding experience occurs from the minute the customer hits “checkout” to the second the package is dropped off at the doorstep.
This is an absolutely critical part of your on-boarding experience. The customer has finally taken the step towards conversion. You have won their trust and they have decided to give your company a shot; however, it’s important to understand that this trust is extremely fragile. Do this part wrong and it doesn’t matter how great the rest of your on-boarding experience is, you will have already shattered the customer’s trust and now they are looking at your company through a negative light. Do this right; however, and it will amplify the positive emotions they experience throughout the remainder of your on-boarding experience.
Here are some things to consider in the Pre-Delivery phase of the on-boarding experience:
This phase of the on-boarding experience occurs from the second the package is dropped off at the customer’s doorstep to their first interaction with the product.
Assuming that you already have a great product, this is a phenomenal opportunity to delight your customer.
Here are some things to consider in the Kickoff phase of the on-boarding experience:
The Post-Delivery phase of the on-boarding experience occurs from their first interaction with your product to their first renewal date.
Yes, you read that right. The on-boarding process doesn’t stop until they have officially decided to continue doing business with you. At that point, the customer has fully experienced your brand and is officially indoctrinated into the community.
Here are some things to consider in the Post-Delivery Phase of your on-boarding experience:
Shipping time is a huge part of your on-boarding experience and it should be treated with equal importance. Same-day shipping for Box One will do wonders for first-box churn, which will ultimately carry over to your aggregate churn.
Find an e-commerce platform that allows you to integrate with shipping software that enables same-day shipping. It’s also extremely helpful to leverage anniversary renewal dates from the day the customer orders, which makes the entire experience much easier for the customer.
There’s a famous case study where Facebook found that users who were able to make seven friends within the first 10 days of creating their account were more likely to remain a member. This is called the “activation point.” This same principle holds true for subscription box companies; however, it’s important to understand the difference between correlation and causation here. Many companies make the mistake of saying, “the data says that if customers do X, then Y.” In reality, this only proves a correlation between X and Y, not a causation. The reason that Facebook was successful with this was because X actually improved the product experience. More Facebook friends actually adds value to the Facebook product, which causes them to enjoy the product more and increases the likelihood that they stay a member - resulting in “Y.”
As a subscription box company, you can try to identify actions that your lowest churning customers are taking that actually improve the product experience. From there, create a system to funnel customers to that activation point.
A bad example of this might be making an assumption like, “Our most profitable customers visit our website an average of 10 times after purchasing, so that means we should try to get all of our customers to visit our site 10 times after purchasing.”
This example wrongly assumes causation. Visiting the site has nothing to do with the product experience, so it is highly unlikely that the number of site visits causes higher retention.
A good example of this might be something like, “Our data shows that customers who watch our on-boarding video that explains how to properly use the product are more likely to stay subscribed. How can we get more people to watch our on-boarding video?”
This is a better example because watching the on-boarding video has a direct effect on their experience with the product. Without the on-boarding video they may have no idea how to use it, but with the on-boarding video they could have a great experience. See how that works?
Identify some potential activation points that actually enhance the customer experience and put systems in place to funnel new members toward these activation points.
Often times, people cancel not because they are dissatisfied with the product or service, but for personal reasons - financial troubles, moving cities, don't have enough time at the moment, etc.
Were it not for these personal dilemmas, they would LOVE to stay subscribed.
Make it easy for them to stay subscribed by personalizing your cancellation process.
Start by identifying the top 5 reasons why people cancel. You will quickly see that many of them are personal reasons. Once you have identified the top 5 reasons that people are cancelling, create save offers for these top 5 reasons.
Here are some examples:
Cancellation Reason: I'm having some financial trouble right now, but I plan on re-subscribing later on.
Save Offer: Oh, I'm sorry to hear that, but I completely understand. Would it help if I were to give you 15% off for the next two months? That could ease some financial difficulties and ensure you don't miss the awesome boxes we have coming out.
Cancellation Reason: I'm moving cities, but will re-subscribe once I'm officially relocated.
Save offer: Oh, how exciting! Would you like me to update your address now and put your account on hold instead? That way it will automatically pick back up once you're relocated and your package will ship to the new address.
Once you have identified your top five cancellation reasons and developed save offers for each one, it’s time to implement. There are a couple of ways to do this. The best way to do this is to develop a “Call To Cancel” program. You can require customers to call your customer service reps to cancel their accounts and ensure your customer service reps are armed with save offers to try to save every cancelling customer. If you don’t have the customer service capacity yet, search for an e-commerce platform that will enable you to automate this by building out cancellation flows in the customer dashboard. With this method, you will have now personalized the process to save members who would otherwise love to stay subscribed.
BONUS: This is also great to collect data and proactively address certain issues.
What month do you see the highest spike in churn? Is it month 3? Month 4? Identify your weak spots and do your best to add some value around these areas. Maybe in your Month 4 box you can add a nice surprise or a discount.
Pay attention to your data and make the necessary changes!
Involuntary Churn is not often talked about, but it’s a very important issue to address. In fact, involuntary churn makes up about 15% of your overall churn on average. This is caused by credit card declines and other payment issues. Involuntary churn happens when the customer is due for renewal but their payment can't be processed.
The strategy to combat involuntary churn is broken up into dunning and messaging. Dunning is simply the process of auto-retrying the payment several times after failure. If your e-commerce system allows it, be sure to customize this in a way that makes sense for your business. A proper dunning system will do wonders for recovering involuntary churn.
The messaging part is a very important area to focus on as well. When your dunning system fires, each payment retry should trigger an email that gets sent out to the customer. This email should say something along the lines of "We tried to process your payment, but it failed." It's important to create a sense of urgency in this messaging. After all, if they don't update their card their account will be cancelled.
In summary, Churn is something that every subscription box company needs to prioritize if they really want to succeed. The bottom line is that if you create a great product and then create a phenomenal experience around every customer touch point with your brand, you’re off to a very good start. Listen to what your data is telling you and be ready to iterate and make adjustments when needed!