High churn? You’re targeting the wrong customer

13th Nov 2018

Churn tends to be the focal point of the subscription industry, and for good reason: It’s an obvious concern for recurring revenue businesses that might not recoup the cost of a customer acquisition until several months into a subscription. But a mad rush to reduce churn isn’t always the appropriate response.

Research by McKinsey & Co. suggests that almost 40% of e-commerce subscribers cancel their subscriptions. Churn rates are similar for other subscription services based around replenishment, curation, and special access. What’s more important than the rate itself, however, is when customers decide to pull the plug on a recurring purchase.

More than one-third of subscribers will cancel in under three months. In the meal kit vertical, upwards of 70% will cancel before the six-month mark. Though the wealth of options is partly to blame, aggressive introductory offers attempting to grab market share in very competitive environments contribute as well. These companies need to rethink their customer acquisition strategies in order to rein in churn rates.

Playing the long game

Fishing with dynamite might be effective, but there’s a reason it’s illegal: It’s an unsustainable strategy that prioritizes quick wins over steady, long-term growth. It’s the huge introductory discount or the free trial that’s impossible to pass up, even for people who have zero real interest in a subscription offering.

When businesses work to reduce churn, they most often weigh the factors that contribute to the decision to cancel: customer service, curation tactics, value, communication, or product exclusivity. In reality, they must focus on the forest, not the trees.

When it comes to reducing churn, start at the source. Ultimately, the most beneficial practice is a deep dive into your customer acquisition strategy and those customers your business targets and converts. These three steps will make an excellent start:

1. Identify a target audience, but be flexible.

If you think your product or service is for “everyone,” you’ll quickly realise it’s for no one. You never want to launch a product without a target audience, but at the same time, you should never cling to that audience if it fails to demonstrate any real interest.

Identifying an initial target audience is important because it helps you figure out what need you should meet. After you launch, however, you should be ready to search for your biggest fans. When you find and identify them, use some of the many great tools and platforms out there to target other people like them.

2. Utilise digital marketing tools.

Digital marketing tools are widely available, and they’ve become extremely robust. Using platforms such as Facebook and Google, you can perform hypergranular tests of various niches, target audiences, messaging, and offers. Google Trends, for example, lets you see what searches are trending in your area, and Facebook Custom Audiences can help you match existing customer targets with similar target demographics on the massive social media platform.

3. Prioritise lifetime value.

Always back up your acquisition efforts with data. You might think the audience with the lowest customer acquisition cost is an ideal target, only to lose those customers mere months down the road.

In reality, making the investments necessary to win over your true target audience will result in a higher customer acquisition cost, but these customers will stay subscribed the longest. As a result, the higher initial cost will be outweighed by a greater lifetime value.

Finding subscription success requires constant interaction with your customers. Every touchpoint yields its own data, covering everything from customer satisfaction to shipping costs to cash flow. Only by capturing and aggregating this data can you get a complete picture of your business and ensure that your decision-making is oriented toward success.

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