The subscription box market is booming. Regularly delivered goods offer consumers a predictable, convenient, and easy-to-use shopping experience. And for you, the business owner, the subscription box business plan allows you to enjoy predictable income and consistent customers month over month.
Despite the consistency, subscription-based businesses offer, there will also be some amount of customer churn, either voluntarily or involuntarily.
Losing revenue (and customers) will always happen to a certain degree in every business. However, you’ll want to minimize customer loss as greatly as possible.
That’s why today we’re covering how to reduce customer churn and win back failed payments because a low customer churn rate is vital to the health and success of your company.
But first, let’s get into the nitty-gritty of why churn rate matters and what’s actually considered a poor churn rate.
The Subscription Box Definition & Why Customer Churn Matters
By definition, subscription boxes are recurring delivery of consumer goods at monthly, quarterly, half-yearly, or yearly intervals.
Due to the nature of the business model, subscription box businesses often have high customer lifetime values — and the same goes for all SaaS businesses. The model is very unlike the traditional model where a customer purchases an item and may or may not come back for more.
Globally across all industries, the value of a lost customer is $243… so it’s worth it to try to ensure as best as possible that every customer stays subscribed with your business.
It costs a lot more to gain new customers than keep the ones you have.
Check out this subscription box calculator that shows you what your expected monthly recurring revenue is depending on how many customers churn.
What’s the Average Subscription Churn Rate?
Because customer turnover is bound to happen in all businesses, you may be wondering at what point your customer churn rate becomes problematic.
Luckily, you have business averages to help you benchmark where you fall in relation to most businesses. However, it’s important to note that averages should be taken with a grain of salt.
Churn rates will vary greatly between B2C and B2B businesses, as well as companies across different industries.
However, generally speaking the average churn rate ranges from 2–8%. That makes the average retention rate somewhere between 92–98%.
For a more accurate gauge of how your churn rate compares to other similar businesses, do an industry-specific search on average churn rates.
6 Reasons Why Customer Churn Happens
Voluntary Customer Churn
Voluntary customer churn is what most of us think of when we’re talking about customer attrition. These customers are the ones who intentionally logged into their accounts and clicked the ‘Cancel Subscription’ button.
There are many reasons a customer could end up making this decision, some of which include:
What do your marketing campaigns advertise? Do they accurately represent all that your subscription box offers? You can have an amazing product, but if your marketing doesn’t reflect all that you offer, you’ll set up incorrect expectations for your customers or simply attract the wrong customers.
When this happens and your customer realizes after purchasing that they’re not getting what they thought they would, they’ll likely leave your service. Their expectations were different from what you delivered.
On the other hand, you can have stellar marketing and a subpar product, so if a customer expects a high-quality service based on your five-star marketing but doesn’t receive that, they’re also likely to churn due to unmet expectations.
Change in Life
It’s also possible that your customer experienced a change in their life that makes your subscription box service no longer applicable to their lifestyle.
Sell a subscription baby box? Well, when the baby grows up, the parent likely won’t need to continue their subscription.
Offering a subscription box for college students? It won’t be so helpful when they graduate.
Your customer could love what you offer but find it no longer applicable to them.
Incorrect or unmet expectations as well as changes in life are just a few of the reasons a customer may choose to cancel their subscription box.
Then there’s involuntary customer churn, when customers don’t decide to click that ‘Cancel Subscription’ button...
Involuntary Customer Churn
While no type of customer churn is “good churn,” there is one upside to involuntary customer churn. With involuntary attrition, your customer didn’t intend or want to cancel their subscription service.
Instead, you lost this customer’s revenue as a result of a failed payment.
There are several reasons a customer’s payment may fail, but some of the most common reasons are:
Expired Card Information
In most countries, credit cards expire every three years due to anti-fraud laws.
That means at some point a customer will need to edit the billing information for all of their subscription services linked to that credit card.
One of the main benefits of a subscription service is you don’t have to put any time, effort, or even thought into maintaining the service.
So, it’s easy for a customer to forget to update their billing information when a credit card expires — until, of course, they don’t get their subscription box.
Credit Card Reported Lost or Stolen
In most cases, an expired card is the only reason you’d need to update the billing information for a credit card.
However, if a credit card is reported lost or stolen, the bank account will immediately shut down that account and issue a new credit card number.
That also means customers need to update their billing information for all subscriptions associated with the account.
Credit card theft continues to rise, and when it happens, it creates chaos in consumers’ lives, so it’s easy for customers to forget to update their information in the shuffle of dealing with a lost or stolen credit card.
Occasionally, you’ll also experience a failed payment because a bank account believes a customer’s credit card information has been compromised and they’ve put a hold on the account preemptively.
If your payment fails to go through Stripe (or any other payment processing system) before the customer realizes what the bank has done, they’ll have no idea their subscription box won’t be showing up on their doorstep.
Insufficient Funds in the Account
If a customer has $50 in their bank account, and you’re trying to charge them $75 for their subscription, this can result in a failed payment.
Sometimes it won’t… But if the customer has overdraft protection turned on, it will.
This feature that some banks offer prevents consumers from spending money that isn’t in their bank account (or “going into the red”). Many customers will turn this on to avoid any accidental overdraft fees that can be pricey.
At the same time, if a credit card has reached its limit, a translation won’t go through.
Insufficient funds, stolen or lost cards, and expired information are three of the most common examples of customer churn that accidentally (or involuntarily) happens.
Just because it’s an accident, though, doesn’t mean you can’t win back the payment. Here’s how...
How to Reduce Customer Churn & Win Back Failed Payments
1. Email Customers with Failed Payments
A billing failure occurs on 10–12% of credit card transactions, and these billing failures can become a significant part of your churn rate.
To help solve these billing issues and recover lost revenue, you’ll want to email each customer who fails to pay their subscription.
If you’re in the beginning stages of a start-up company, you may be able to handle this process manually in-house. However, if you’re a larger company, you’ll want to invest in a solution that can automatically send these failed payment campaigns.
Working with companies like Gravy Solutions will help you recover a significant portion of your lost money automatically.
Reaching out to customers to ask for their missed payment, a process called dunning, requires empathy and tact.
Many companies do a terrible job of this and fail to follow customer service best practices while trying to get customers to pay their subscription costs.
The problem is that the best way to win back lost revenue is to put the customer first — always. In every communication with the customer, be empathetic and understanding toward their billing issues. Don’t place blame.
Simply explain why their payment didn't go through in as much detail as possible and outline the next steps for them to continue doing business with you.
Using poor communication tactics and being unsympathetic toward billing issues isn’t a great look for your brand, and it doesn’t make the customer want to stick around. Always put your best foot forward.
And if the dunning process seems overwhelming to you, consider hiring an expert third-party company like Gravy Solutions to offer your customers an empathetic person-to-person experience with your brand. Gravy can recover up to 80% of failed payments.
2. Collect Feedback from Cancelling Customers
When a customer decides to cancel, do your best to collect as much information about why they’re leaving as possible. Use automated emails or place a multiple choice box on your cancellation page to understand why they wanted to leave.
With these insights, you’ll be able to notice patterns over time and discern what the biggest factor in your customer churn is. Then, you can leverage this data to build a better system to maintain your current customers… and to win back lost ones.
Bonus: In your emails or on your cancellation page, give customers incentives to stay. For example, you can offer them a targeted limited-time discount to keep using your service for a bit longer — in hopes of getting them hooked.
3. Don’t Make Leaving Difficult
If you've sent over three to five emails without hearing back from the customer about their failed payment, stop and terminate that customer’s subscription.
By not responding, they’ve given you a clear indication that this is the next best step. Again, it’s important to remember even in these final moments of doing business with your customer to provide excellent customer service.
By not pushing your customers or nagging them, they’re more likely to consider purchasing from you again in the future.
4. Evaluate Marketing and Customer Service
Hopefully, you’ve collected feedback from any customers who voluntarily canceled their subscription box so you know some of the factors that contributed to their decision.
Maybe they mentioned marketing or customer service. Maybe they didn’t. Either way, these are two of the biggest reasons a customer may decide to cancel their subscription.
If several customers mention that your product didn’t live up to their expectations, or that they didn’t achieve the results advertised, this is a sure sign you should reevaluate your marketing efforts.
On the other hand, if a customer mentions not being able to get help, having trouble figuring out how to use your product, or other comments along these lines, you’ll want to evaluate your customer service experience.
To help prevent future churn, it’s in your best interest to audit these areas of your business before any customers negatively comment on them.
Accurate marketing and attentive customer service are key to keeping customers happy in the long run.
Experts predict the subscription box industry will continue its boom from 2021–2026. The opportunity to acquire new customers and grow your business is exponential. However, that doesn’t mean you can neglect your current customer base.
Reducing customer churn and winning back failed payments is key to long-term success for your business.
Due to the nature of subscription box logistics, it’s easy for customers to forget to update their billing information and lose out on their subscription — even if they don’t want to.
Failed payments make up 50% of all customer churn. Start deep diving into your customer churn rate today and set up processes to help capture these failed payments, with Gravy Solutions or your internal team, and have a thriving business for the long haul.