The cost of living crisis means subscription companies are seeing a dip in retention and acquisition which is hitting the top and bottom line.
Many companies with subscriber business models are feeling the effects of current cost-of-living crisis in the form of rising cancellations. Retaining customers and reactivating subscribers has never been a bigger priority.
Customers in a cost-of-living crisis
In our experience, company executives ask lots of questions to understand how customers are engaging with the brand and its products. Now, there’s more questions, more frequently and those questions are more urgent.
Here’s six questions that without fail come up in key stakeholder meetings. Business units should use tracking and reporting to answer these common questions instantly – if you can’t quickly surface up-to-date results in the meeting, you’re already behind.
Let’s take a look at these burning questions that’ll need swift answers.
A primer on Customer Lifetime Value
CLTV = Average order value X Number of Transactions X Retention Time Period X Profit Margin
Customer Lifetime Value or CLTV is a primary metric that helps businesses answer maaanny questions and also helps to understand what value your relationship with a customer can bring to your bottom line over time. Knowing your CLTV can help you define efficient strategies with proper budget planning.
To calculate CLTV, you must understand your customer journey. Through the customer journey, you can get data on customer behavior and engagement across different stages and through multiple touchpoints. Below are two approaches to calculating CLTV:
Historical CLTV: The gross profit earned by a customer to date from transactions/purchases made. This gives an understanding of a customer’s profitability to date.
Predictive CLTV: Based on current transactions, modeling can forecast the actions a customer will take in the future, and then calculate the gross profit earned based on forecasted data.
As CLTV considers multiple metrics, this KPI is used by different personas in the business and helps them in making strategic decisions.
Now on to the main show!
1. What is our current retention rate and how do we keep customers
Retention rates vary across physical subscriptions, digital readership, and SaaS, so it’s important to benchmark yourself across the average retention rates in your specific industry (along with market segments) – and where churn happens across the customer lifecycle.
Example: a recent study examining Conversion Rate By Trial Offer found 86.1% first-month retention for monthly offers without trials, 82.1% of paid trials converting to full price, and just 61.7% of free trials converting to full price.
Example: In SaaS businesses, it’s estimated that churn for small and medium-sized businesses (SMBs) sits at 3-7% monthly, and 21%-58% annually. For mid-market, that’s 1-2% monthly and 11%-22% annually, and for enterprise, monthly at 0.5-1% and annually 6%-10%.
Strategies to reduce churn:
- Employ strategies for increased customer success (e.g. training, webinars, 24/7 service)
- Differentiate from competitors’ early
- Ensure customers are signed to the right plan at all times
- Introduce longer periods (e.g. 3 and 6 months)
- Give fast discounts
- Follow-up failed transactions quickly (e.g. credit card bounce)
- Incentivize in-company referrals
Retention rate = (Customers at the end of the period – customers acquired during the period) / customers at the beginning of the period
2. How many new acquisitions have we had in the last month and what strategies are we using to grow this figure?
A new acquisition is a brand new sales conversion – someone who’s never been on the books and is now a gold mine of new data on what is working (and what isn’t) in current marketing and sales tactics.
Depending on your market saturation, new acquisitions can be easier or harder to come by. If saturation is high, a better metric may be the re-acquisition of churned customers, or increased customer lifetime value.
To create insight around your new acquisition metric, consider:
- New acquisitions from specific marketing campaigns (organic or paid) – which are the most successful and why?
- New acquisitions on a freemium, discounted, or limited offer program (may result in limited Monthly Recurring Revenue) after the time period expires
- New acquisitions from referral programs, including customer referrals and other affiliate programs
- The number and type of touchpoints across the customer journey before acquisition
Depending on your market saturation, new acquisitions can be easier or harder to come by.
3. How can we reduce our Customer Acquisition Cost?
Customer Acquisition Cost refers to how much you’re spending on bringing on that new customer.
Strategies for reducing customer acquisition cost include:
- Reconfiguring spend across digital marketing campaigns (including paid marketing, salaries, tools, and infrastructure)
- A/B testing of copy, design, customer journey, etc. to determine most successful marketing strategies and tactics
- Hyper-focus on conversion in paid marketing (does the page lead direct to purchase?)
- Automate the funnel to eliminate excess spend on headcount
- Optimize landing pages and messaging by highlighting (simply) how you solve specific pain points
- Segment your strategies based on demographics. What works for a Boomer in upper management in Winchester won’t work for a Gen Z contractor in Manchester.
- Explore new avenues; is TikTok viable?
Customer Acquisition Cost can be calculated using the formula:
Customer acquisition cost = £ spend / number of new customers.
4. What is our engagement score and how can we increase the content usage of customers?
A customer engagement score generally is from 1-100, and by segmenting customers into higher and lower scores, you can examine the behaviors of customers that always renew, sometimes renew, drop off and then re-engage, and drop off altogether – as well as high-value accounts.
You can then develop new marketing and sales strategies, tailored to be effective with customer engagement in different segments, such as:
“To calculate a customer engagement score, begin with inputs — such as frequency of usage, depth of usage, specific actions taken, clickstream information, and key performance indicators.”
– What is a Customer Engagement Score?, Salesforce
5. How can we identify our most valuable customers and retain them?
Depending on your subscription model, identifying your highest value customers is easy. Take a look at both the Historical and Predicted Customer Lifetime Value, and, if a business customer, whether they are increasing seats and purchasing additional features.
Now you have your most valuable customers identified – great!
However, the world and competitors move quickly and can muscle in on those MVCs if they offer a better experience, deal, or more personalized service. Here are some strategies to help continue to stay ahead:
- Provide exceptional customer experience (and service) to these customers. The happier they are with your interactions, the less likely they’ll want to look elsewhere.
- Personalize deals and experiences, especially for them. Going the extra mile ensures they know they’re a valued customer.
- Seek feedback about product features they are interested in. Leveraging the wants of high-value customers may identify how to attract others.
- Partner with similarly useful companies to build ecosystems that your customers can’t resist, sweetened by partner deals.
- Provide kickbacks, rewards, etc., for their valued custom. These may be tickets to exclusive events, beta programs, first access to advertising opportunities, etc.
Take a look at both the Historical and Predicted Customer Lifetime Value, and, if a business customer, whether they are increasing seats and purchasing additional features.
6. What product variations are available and how can we personalize products and offers to attract more customers?
Time to do an overhaul of your subscription packages? There are plenty of ways to test what works for what markets and more targeted market segments.
Do periodic competitor research: Unless you are offering a far superior product, user experience and/or better customer service, your pricing model must be at least comparable to competitors. This may mean focusing on market segments rather than what you deem the ‘total addressable market.’
Partner with value-add services: Don’t have the in-house specialty to develop features your customers are asking for? Develop strong two-way relationships with additional providers. Utilize APIs and automation services to ensure the two are integrated for maximum ease of use.
Read the room: Look at macro market trends to evaluate trickle-down effects to your business and subscription modeling. Will you be one of the first products or services customers cut in a recession? What’s the plan to stem that attrition?
Hyper personalization: Utilize AI to develop hyperpersonalization down to the singular customer or user. For example, Netflix uses a number of AI recommendation engines across its rows to display streaming options catered to individual users’ tastes, previous selections, and trending among their segment.
Look at macro market trends to evaluate trickle-down effects to your business and subscription modeling.
The final word
Optimizing the right metrics for increased revenues within the right markets is a rolling process. While execs will typically ask the same questions in catch-up meetings, having the right information at your fingertips and strategies ready to select from will ensure you’re primed for success over the coming periods. Analyze your data, test your theories, learn from your results and evolve to respond quickly changing external market factors – the scientific method is the way to win.