Do you know what is the churn rate and how does it affect your business?
In recent years we have seen an increase in subscriptions to online service platforms that have made this business model common. Today, 8 out of 10 people in the world pay for at least one service related to movies, music, e-commerce, wine or food clubs, transportation, gyms, cafes and any product or service that has recurring value for the customer.
Why has it been so successful? First of all, subscriptions are an effective way to build customer loyalty to a brand.
But in addition, the model represents a recurring and predictable income flow that in turn underpins the stability of companies by allowing them to make medium and long-term planning.
The success of this model has generated such interest in the market that today 88% of the leaders of the largest companies in Mexico consider that subscription-based business models are becoming the rule and not the exception, according to a report. that we made on Stripe last year.
Subscribers and the churn
Now, one of the key indicators to measure the functioning of the subscription model is the so-called churnan anglicism that refers to the number of customers who stop using a product or service during a given time.
Since it is not possible to improve what is not measured, having an adequate measurement of the churn and retaining your customers can be up to seven times more profitable than acquiring new customers.
The challenges and opportunities generated by churn They are related to its cause, that is, whether the subscriber's withdrawal was voluntary or involuntary. We have an area of opportunity in improving our product or service when customers leave by their own decision, whether they did not find value, are not happy with the service or decide to change providers.
On the other hand the churn It can become a problem and generate higher operating expenses when churn is involuntary and more related to payment. When an involuntary unsubscription occurs, it usually occurs for one of these reasons:
- The charge was made when the client did not have funds.
- The bank did not have the collection service available, or it blocked the automatic payment.
- The card was changed, and the customer forgot to update the data.
- Blocking a legitimate payment due to suspected fraud
Last January, our global data showed that 25% of terminations are involuntary, meaning they are related to payment problems. However, knowing, understanding and addressing these reasons allow companies to reduce the loss of income due to situations that can be avoided.
The importance of churn reduction
Currently, there are solutions available on the market that address the aforementioned reasons and help companies prevent subscriber loss from occurring. Through technologies, such as artificial intelligence or machine learning, these solutions can predict the moments in which the payment may fail, or update the cards automatically, when a new card is issued.
In fact, the reduction of churnshould be among the first objectives of companies, since a recovered subscription lasts at least another 7 months, which allows problems to be solved and customer loyalty for longer.
In summary, the control of churn It is not only vital for the financial stability of companies, but also for their sustainable growth and customer satisfaction. By addressing both voluntary and involuntary causes of subscriber churn, companies can reduce the churn and maximize the value of their subscription models. With a proactive focus on customer retention, businesses can build strong, long-lasting relationships with their user base, paving the way for continued success in the marketplace.