Reducing Churn in a Subscription Economy

Digital technology is evolving at a rapid pace. Business needs are in constant flux. And organizations are looking for flexible solutions that can evolve with their needs. This has resulted in subscription-based products and solutions being given preference over pay-per-product models. “Subscription businesses are proliferating because billions of digital customers are increasingly favoring access over ownership”, writes Tien Tzuo, CEO of cloud-based solutions company Zuoro, in his book, ‘Subscribed’.¹

“Subscription businesses are proliferating because billions of digital customers are increasingly favoring access over ownership”

The Emergence of the Subscription Economy 

Tien Tzuo referred to this emerging trend as the ‘Subscription-based Economy’, as organizations looked for flexibility and scalability in their applications and IT solutions. This trend gave rise to SaaS tools, and demand for them increased. MGI Research Forecast Report on Subscription Economy SaaS Tools estimates a $102 billion total addressable market (TAM) from 2016 to 2020.²

Churn 

However, the Subscription Economy presents its own problems. Without legacy investments to worry about, businesses now have the power to change suppliers at the click of a button on their computers, making customer churn an overhanging threat that businesses have to deal with.

Churn could happen due to various reasons including poor product quality, difficult user experience, or lack of support. This is called voluntary churn. In a study done by Gainsight,3 39% of respondents said the top reason for churn  is a product or service not meeting their expectations.

Involuntary churn, while not as prevalent in a B2B scenario as in B2C, often arises due to the cancellation of subscription because the customer was not prompt in renewing it. According to the subscription-management company, Recurly, involuntary churn invariably happens because customers forget to update their payment information once it gets outdated.4

Steps to Reducing Customer Churn 

Here are two steps that you could take to reduce churn.

•  Develop a Customer Success  Management (CSM) team

• The main aim of the CSM team is to improve customer retention . This is the team responsible for understanding the issues that your customers might face.5

• They start by talking to customers to get an insight into their business needs.

• The CSM team helps you understand what customers like and do not like about working with your solutions, and you as an organization.

•  In due course, the CSM team becomes the voice of your customer within your organization.

• This team should be able to diagnose issues where a possible customer churn might take place.

• They should work on a customer success report card and share it with the rest of the organization on a regular basis.

Manage Your Customer Lifestyle 

With regular inputs from the CSM team, marketing and sales should have a better picture of the changing needs of the customer, bringing to the fore the need to manage the relationship to grow the business further. Managing your customer lifecycle would mean the following:

• Shifting focus fro m one-time transactions to long-term, recurring customer relationships.

• Providing pricing and services that meet each of your customer’s needs.

• Implementing and managing flexible pricing and packaging.

• Bringing subscription awareness to your front office, including renewal plans and usage information.

• Developing customer retention metrics for not only subscription renewals, but also for upselling and cross-selling.

The cost of churn  can be significant, particularly for businesses competing in the subscription economy. Companies must take all possible steps to minimize customer disengagement and strive toward building a life-long relationship with them.

References: 

“Subscribed: Why the Subscription Model Will Be Your Company’s Future―and What to Do About It”, Portfolio Penguin, 2018

https://www.zuora.com/resource/mgi-report-subscription-economy/

http://info.gainsight.com/rs/jbarasoftware/images/Gainsight_Diagnosing_Churn_Infographic.pdf

https://blog.recurly.com/what-is-involuntary-churn-what-you-can-do-about-it