During last year’s sale, you gained more customers. And thanks to that, a group of new customers subscribed to your services. It has been your team’s goal to provide the best products since the beginning. And now, after one year at the time of renewal, only a few of those customers have renewed their subscription.
This sounds terrifying, doesn’t it? Even after putting in the best effort, many businesses still fail to lower the churn rate of existing customers. However, that doesn’t mean subscription businesses are failing completely. I mean, take a look at the 74% customer retention rate of Netflix in 2020. And how Disney Plus took the crown with 78 percent of the company’s bundle subscribers retention, and 74 percent of monthly subscribers retention.
As a small business owner, you can still master the retention game just like Netflix or Disney. How? Well,
Start by knowing,
What is a subscription renewal?
Subscription renewals are payments made on a regular basis by customers to keep access to a company’s products or services.
The types of subscription renewal-
There are 2 types of subscription renewal-
1. Automatic Subscription Renewal – Automatic Subscription Renewal is an automated service that allows your product subscription to renew before it expires.
2. Manual Subscription Renewal – For manual subscription renewal, the company won’t automatically renew the subscription until the customer manually renews it. In this case, if the customer fails to renew within time, her/his access to the service will be stopped.
But before we jump on the solution, let’s find out what’s the problem, and see-
5 reasons why customers fail to renew subscription
You may think I did everything from marketing to interacting with customers, and still, they left us. Is it 100% true? Or is there any other factor involved in the high churn rate? To lower the churn rate, first, you have to know which factors lead to higher churn rates, then you can cater to them appropriately. Let’s see 5 possible reasons that customers may have faced and didn’t renew their subscriptions.
- Lower usage of product or service:
This is probably the main reason customers don’t renew their subscriptions. Customers who aren’t getting the results they want from your product are more inclined to not renew the subscription. Or maybe they just stopped using the product or service completely.
- Credit card security issue:
Credit Card security issues are continuing to rise. Some customers may have faced these kinds of problems in the past. Even if it’s not from your business, an unpleasant experience always leaves a significant mark on future decisions, too.
- Expired credit card information:
Credit cards have a time period of 3-5 years (no of years depending on the country). After which, the credit card expires. And many customers may forget to re-enter their payment information. This leads to a higher churn rate.
- Forgetting subscription ending date:
Some customers choose to renew their subscriptions manually. And many of them forget when their subscriptions expire. That’s why they forget to renew their subscription as well.
- Subscribing to better products/services:
If your company fails to deliver quality products or you are just offering the same features year after year, customers are more likely to unsubscribe your products and subscribe to products/services that have more features and are less expensive.
Why is retaining customers important?
Did you know that gaining new customers is 5-25% more expensive than keeping your existing customers? By increasing customer retention rates by 5%, companies can increase profits by 25% to 95%. The thing is, even though these numbers are substantial, business owners have an old idea: “Why should I serve my old customers when I can attract new ones?” Is it even important?” Stats are saying a big YES. Here’s why-
- Repeat profit – Due to reciprocal trust with your brand, old customers are 50% more willing to test new items than new customers. Also, they are more likely to believe that your products are superior to others. Old customers also believe that your company aligns perfectly with their choice and preference. This is how old customers help to repeat profit for your company.
- Word of mouth assurance -These loyal customers are also expected to promote your company by telling people how good your service or product is. Guess the cost of this promotion? 0$. Yes, you heard it right. 92% of people have great trust in their family or friends’ recommendations. So this is an immense advantage that you can acquire for free.
3. Lower marketing costs – This goes hand in hand with the previous point. You have to spend 4 times more on marketing to attract new customers. Do you know what the BCG reports say? Marketing to an existing customer costs about $7, whereas it costs around $34 for a new client. All these statistics indicate that old customers already believe in your product and trust your services. While you have to first build trust with the new customers. That’s not only time-consuming but also expensive.
4. Valuable Feedback – When old customers build trust with your company, they are more likely to give constructive feedback to enhance your product or services. We at MultiVendor X have experienced this first hand. Many of our product enhancements happened because of the feedback of our loyal customers.
5 ways to increase customer retention rate
Customer loyalty requires a great deal of work. So the last thing you want is to lose a customer you have enticed into your ecosystem. If your business prioritizes customer retention as a key performance indicator (KPI), you can make sure your priorities are the right ones. Here we came up with the top 5 simple tips you can use to increase your customer retention rate.
- Notify customers before renewal time:
You need to notify the customers 3-7 days before their subscription ending date. Along with the reminder, you can also attach the subscription renewal link. And if the customer has enabled automatic renewal, always notify the customer before processing the payment. Remember, you don’t need to send thousands of emails. 2 is more than enough. Or else customers will be irritated.
- Offer grace periods:
As humans, we tend to forget things from time to time. The same goes for your customers. Don’t cut off their access immediately after the subscription ends. Give them a grace period of 2-3 days. This not only builds a friendly relationship with the customers but also gives them time to update their payment information.
- Optimize the renewal process:
The renewal process can be a headache sometimes. Because some renewal processes are lengthy and complicated. Customers may not renew their subscription if the process is time-consuming and complicated. Make sure to have a simpler template and easy renewal process to lower the churn rate and increase customer retention.
- Offer multiple ways to renew:
To maintain your consumers, you should provide them with the option of renewing their subscriptions in the manner of their choice. They may renew automatically, or manually. You only need to make all of the choices transparent and assist clients in selecting the much more appropriate renewal option for them.
- Keep upgrading your products and services:
Always remember no matter how convenient your renewal process is or how many times you notify them to renew their subscription, if your products and services are not up to the mark, no one will renew their subscription. Customers always prefer up-to-date, feature-enriched products. So keep upgrading your product’s quality from time to time to increas customer retention rate.
Now, as we promised earlier, it’s time for an extra tip-
We just talk about customer retention KPIs being an important one. But how will you calculate that. Here is one way:
(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
For example, if your business had 500 customers at the beginning of the month and lost 20 customers by the end, you would divide 20 by 500. The answer is 0.04. So your churn rate is 0.04.
But don’t be obsessed with it. You don’t need to count the churn rate every day. Monthly or quarterly measurement is good enough.
Accept churn, but learn from it:
You have to also understand that no matter what you do, some customers will always leave. But you can learn from it.
Well, you can add a section asking “Let us know what’s wrong?”, “How can we improve our product?” in the session expired mail. This way, even when you are losing a customer, you are gaining valuable feedback.
So there you go. Knowing the reasons why customers do not renew their subscriptions lets you take action to combat them. By following these 5 different customer retention techniques, you will be able to bounce back your customers easily.