A study by Bain and Co. stated that increasing customer retention by 5% increases profits by 25 to 95%. What’s interesting is that this study done in the 90s still holds true today, despite dramatic changes to consumer behavior. In 2017, another study by financial modeling expert, Josh Chapman, stated that focusing on customer retention can increase revenue by 80% within 18-24 months. These studies prove that profits are not just about acquiring new customers—they’re also about retaining your existing customers.
If customer retention can help boost any company’s profit, it’s especially vital for subscription-based businesses that are bringing in recurring revenue. These businesses must double down their efforts toward retention, especially during a crisis situation like COVID-19 when consumers are trying to conserve their financial resources. If businesses manage to build trust and retain customers, the long-term benefits are not just limited to increased profit. It can also help with acquiring new customers through advocacy.
The scope of a recurring billing tool doesn’t end with invoicing and payment collection. A powerful recurring billing tool can help businesses increase customer retention, and that’s what we’ll be looking at in this article.
Begin with who and why:
When you focus on retention, it’s good to start with the current cancellation trends of your customers. By generating the churn report from your recurring billing tool, you can recognize how your cancellation numbers fluctuate over time and spot any anomalies. After understanding the trend, you can dive a little deeper and see if the cancellations can be grouped based on some basic factors—business size, demography, the chosen subscription plan, and so on. In addition to understanding your current churn trend better, this can also give you an idea of which group of customers are most likely to leave in the future.
After doing all of this, it’s time to figure out why your customers left in the first place. If the customers request to cancel their service through a phone call, your team can ask for a reason as to why they are cancelling. A good recurring billing tool will allow you to provide a self-service portal where the customers can view their invoices, make payments, and even cancel the service by themselves. When they cancel through the portal, you can ask them if they’d like to provide a reason so that you understand why you’re customers are leaving.
Subscription cancellations fall broadly into two categories:
- Voluntary churn, where your customers choose to cancel the service.
- Involuntary churn, where the billing system cancels the subscription primarily due to non-payment.
While steps should be taken to mitigate both kinds of churn, the priority should always be involuntary churn because these customers did not choose to cancel the service themselves. In other words, they still want to do business with you, but due to a payment failure, their subscription was cancelled. These payment failures can happen for many reasons—intermittent issues with the credit card network, decline by the payment processor or bank, insufficient funds, and so on. In these cases, subsequent attempts to charge the customer’s card or bank account can lead to a successful payment.
A good recurring billing tool will have dunning management, where the system will automatically attempt to retrieve payment from your customer’s account at a specified frequency. The best part is that it will also notify your customers about the decline and that a subsequent attempt to charge their account will be made. This allows the customer time to do what is needed for a successful payment.
In times of crisis, your prospects might be hesitating to commit to another recurring expense. They might be waiting to see another few weeks of their sales data, or waiting to see if this will all blow over. The key to retention here is to offer prospects the maximum value. The term ‘value’ is subjective, however, and might differ for each prospect. It’s best if you reach out to them, know what they’re looking for, and act accordingly.
Your recurring billing tool can help you filter the prospects whose trial period is about to expire. Your sales team can reach out and learn how they’re feeling about your application. With this information, your team has the opportunity to make tailored offers that target a customer’s needs and deliver the best value to them.
Here are a few examples:
- If customers feel they need more time to evaluate, you can extend the trial period by a week or two.
- If customers feel that the plan that best fits their needs is a financial stretch for them at the moment, you can consider offering the plan at a lower cost until the crisis passes.
A recurring billing tool can help you quickly make these changes, be it extending a trial period or offering a plan at a special rate.
If you’re facing an unusually high churn rate due to an economic downturn, it’s good to remember that these customers didn’t leave because they aren’t satisfied with your service. When you stand by your customers during tough times, you will prove that you truly care about them and their business.
- For the ones whose subscriptions are on the verge of cancellation due to non-payment, extending their subscription renewal date might be a good idea.
- Late payment charges usually encourage customers to pay on time. However, during an economic crisis, waiving it is a gesture of goodwill.
- Some customers might want their subscription to be canceled simply because they might not need the service for the upcoming weeks or months. It’s good to provide them an option to pause their subscriptions temporarily rather than canceling altogether. Your customers will have the freedom to resume paying when they need the service again.
A good recurring billing tool will allow you to perform all these functions quickly and easily without disrupting your existing billing and subscription management process.
Imagine that you’re one of your customers. What information would you like to receive from the businesses that you work with during times of crisis? It could be important information related to cancellation, refund policies, or their Business Continuity Process (BCP). Sending out a straightforward message to your customers will let them know that you’re there to ease their concerns.
Emails are a good means to share this information, but they might get buried under the many other emails your customers will receive. This is where additional channels of communication, like the self-service portal of a recurring billing tool, come in handy. A powerful billing tool will provide you the option to display brief information as a banner message within the portal.
Ease the cancellation process:
The reason for a customer’s cancellation might be beyond your control. In such cases, the best you can do is make the cancellation process simple. If they are happy with your product or service except for one crucial aspect and you impress them with an easy-to-follow cancellation policy, they’ll be more likely to consider your product when it has evolved to meet their needs. Most recurring billing tools allow your customers to cancel their subscription themselves through a self-service portal.
Customer retention doesn’t happen overnight. It’s a journey. A well-thought-out strategy coupled with a good recurring billing tool will help your customers see the additional value you provide and convince them to stay with you.