Reducing churn is the top priority for all subscription-based businesses. Or at least it should be. Yet, there are many misconceptions of what churn is, why subscribers churn and what can be done about it. In this article we simplify this discussion and look at why customers actually churn. To visualize this we introduce a churn root-cause model which we call the “Churn Tree”.
The goal of the churn root-cause model is to create a mutually exclusive, collectively exhaustive, visualization of the possible churn root-causes for subscription-based businesses. Is that even possible you may ask? Probably not, but that won’t stop us from trying. Use this model as you see fit and please give us feedback to improve it.
First off, all subscriber churn can be divided into Voluntary vs Involuntary churn.
Voluntary Churn
Voluntary churn occurs when the customer takes a conscious decision to terminate the service.
There’s a Superior Alternative
The most obvious cause of churn is that your customers found a better alternative. This can in turn be divided into four areas:
- Price – they found a competitor with a lower price than yours. This also includes temporary offerings and trial periods (which is a good way of luring customers from a competitor as it lowers the barriers of entry).
- Functionality – your service lacks functionality (or content) with regards to your competitors’ services. This aspect becomes more or less important, depending on the maturity of your industry. Some industries are heavily commoditized (and functionality therefore is less important), while some require more differentiation.
- Experience – apart from the actual functionality of your service, there might be other parts of the customer experience which causes your customers to churn. This includes your customer service, your digital experience, and more.
- Brand – an underestimated cause of churn is that your brand is inferior to your competitors. This can in turn have several causes – such as bad press for you, or good press coverage for your competitor’s brand.
It’s important to remember that customers don’t churn because your price is too high (for example). They churn because they found an alternative with a lower price. The same goes for Functionality, Experience and Brand. Keeping your customers is a constant battle with the market and your competitors. Therefore it’s even more important to understand the actual root causes of your churn.
There’s a Perceived Superior Alternative
This cause is closely related to the previous one, but we argue there is a difference. Sometimes there is an actual superior alternative, and sometimes that superior alternativ is simply perceived. Such perception can for example be pushed by your competitor’s marketing department.
For the customer, the line between perceived vs actual value is of lesser importance. However, for you it’s crucial to understand the balance to make sure you focus your mitigation efforts properly. Is it your product or your marketing which needs improvement?
Their Need has Exhausted
Sometimes, your customer simply doesn’t need your product anymore. Here are a couple of examples:
- For a B2B SaaS, the company might have shifted their processes resulting in that they can more efficiently fulfill their use case internally without your service.
- For a B2C streaming service, the individual might have found a new interest resulting in a lack of focus on your service.
They Lack Funds
Customers might love your service, but sometimes just don’t have the funds to keep supporting it. This doesn’t necessarily mean your price is too high, but it might present an opportunity to differentiate your product/pricing to cater customers with smaller wallets.
They Don’t Exist Anymore
This is an underestimated cause of churn, especially for some B2C-oriented services. Sometimes, your customers simply stop existing. For B2B, this might be caused by a reorganisation, merger or by a bankruptcy. For B2C, the leading cause of inexistence is – death. The latter is especially common for media subscription services with an aging customer segment – such as print-based newspapers.
Involuntary Churn
All involuntary churn is caused by some type of error, inaccuracy or misunderstanding. This can generally be divided into errors caused by humans, inaccurate data or pure system errors.
Human Errors
Human errors can appear both on the customer’s end and internally within your organization.
- Customer errors: Maybe your customer forgot to pay your bill or forgot to proactively transfer money to the right bank account before the recurring payment. Maybe they accidentally terminated your service while clicking around in your interface.
- Internal human errors: There are also human errors stemming from your internal organisation. Maybe your customer service terminated the wrong customer or maybe an attempt to clean up a database churned your customers.
Data Errors
Data errors happen when you have inaccurate information in your databases. In turn, these often stem from a previous human error – such as failing to update payment information or providing the wrong details.
System Errors
Lastly, there are pure system errors which can occur in your own systems or at your vendors. Perhaps a system update resulted in involuntary churn of a number of customers. Perhaps the payment provided declined the payment because of an overly sensitive risk model.
Finally…
As you’ve likely already considered, the cause of why a specific subscriber churn is often multi-fold. There is usually a connection between the causes which can be important to identify and understand. For example, if a subscriber is considering leaving your service for a competitor, and then end up being involuntarily churned because of a data error – then there is no way they will return to you.
How do you determine the root cause? Is it possible to simply ask the subscriber as they churn? Well, yes and no. Asking the customer might be one important piece of the puzzle. However, sometimes they don’t know themselves, they simply fill in the wrong information, or we might fail to structure the surveys properly. Having an exit survey is important, but you also need to look at other data sources and deep-interview your current and former customers.
How do you mitigate the churn? Well, that’s the $10,000 question – literally. Preventing and mitigating churn is a continuous, long-term effort, spanning all parts of your company. Having a solid process is key – something we’ve described in this article previously.
Finally – an underestimated way of reducing churn is the following: Acquire the right customers from the start. Too often we see companies spreading their sales and marketing efforts too thinly across customer segments which will likely never be a good fit for their service. Targeting your actual customers is a simple way of reducing your churn and focusing on the right priorities.
