Q: Who in your company is responsible for customer churn?
If you had to pause and ponder the answer, or if you felt that it was everybody’s responsibility…then you’re not alone.
When I was with eBay, it was far easier for marketing teams to focus on acquiring new customers than to identify an effective means to address customer churn. Customer churn is a 'wet bar of soap' problem, and therefore always seems to be ‘somebody else’s responsibility’, because it is a difficult problem to attack.
Consider these factoids:
It costs 6-7 times more to acquire a new customer than to retain an existing one
– Bain & Company
A 2% increase in customer retention has the same effect as decreasing costs by 10%
– Edge of Chaos, Emmet Murphy & Mark Murphy
55% of current marketing spend is on new customer acquisition. 33% of current marketing spend is on brand awareness. 12% of current marketing spend is on customer retention.
Most Executives Have No Idea What Drives Their Churn
Identifying the drivers of customer churn can be extremely difficult. Additionally, customer acquisition is infinitely more fun for marketers than retention marketing. [It is much more interesting and profitable for Ad Agencies to focus on driving brand awareness, positioning and expanding appeal than driving retention metrics.]
In our business of providing subscription billing, we frequently discuss the topic of customer retention and churn with our customers. Through this, we’ve learned that executives generally have a clear sense for their own customer retention and churn metrics, but they have very little idea what is driving it. Most will cite Net Promoter Scores (NPS), or customer satisfaction rates as the broad and diffuse driver of customer churn, but they have difficulty pinning down any single reason why their customers leave them.
Subscription Businesses - Plug That Leaky Bucket!
For subscription businesses, customer retention is driven by renewal rates. Improving renewal rates extends the ‘T’ in Lifetime Value (LTV), and this is an extremely sensitive variable in the overall calculation. The enemy of the renewal rate is your churn rate.
Q: What drives customer churn in subscription-based businesses?
A: [Assuming your product/service delivers good value] If you are a subscription-based business, the most immediately addressable, passive culprit is: Credit card errors and declines.
What Can You Do?
Examine Your Credit Card Decline Logs!
Ask your billing department to give you an output of the most frequently encountered error types being received by your payment gateway. [Every payment gateway is different, so you will have to locate the error code definitions for your particular payment gateway]
Sort the error codes so that you can rank errors in order of frequency.
Bucket them into ‘Hard Declines’ and ‘Soft Declines’ (‘Hard Decline’ meaning that the card has been declined because it has been reported lost or stolen).
Focus on identifying the most common ‘Soft Declines’, which are frequently – Expired Card, or ‘AVS Mis-match’ errors, etc.
Many commonly experienced credit card errors can be successfully remediated. Results will vary depending on your payment gateway/payment processor combination, but by beginning with your credit card error logs, and working backwards towards the solve, you will find that you can dramatically reduce your customer churn with proper error and decline remediation. However, if your customer credit cards are stored within a payment gateway, you will be limited in your ability to remediate many common errors.
If you have questions about Recurly’s standard error handling practices, and how we might help your business reduce customer churn, please contact us.