5 tips for keeping the revenue churn rate low
Thus far, we have examined how revenue churn identifies the amount of MRR your company lost last month.
This is a critical question since the subscription business model is built around retaining as much MRR as possible.
The reasoning behind this concept is that it cost more to acquire a customer than to keep them. So even if you are acquiring new customers—bringing in new MRR monthly—it's hard to attain sustainable growth if you can't lower or manage your revenue churn.
How to do the lowering? Here are five tips to get you started.
1. Optimize pricing
Your first step is analyzing your current pricing strategy and using insights to optimize it.
One way to do this is to identify subscription packages with unusually high gross revenue churn rates. Then, analyze them to determine underlying causes.
Look at the cancellation or downgrading insights garnered by your pricing software. Go over customer feedback on your site or aggregate review sites. What are customers saying? Did they cancel because the plan was too expensive? Were they switching to a competitor?
Then use these insights to optimize your pricing.
The good news? You don't have to do it all. Let Price Intelligently deal with all the hassle of collecting, analyzing, and gaining insights from customers' feedback. Our tool helps garner pricing insights from your target users. Then, deploy a relative value algorithm to break down your functionality, features, and positioning that adds or subtracts value relative to said insights.
2. Prevent contract cancellations
Preventing contract cancellations is another sure-fire way to lower churn. But how do you go about it?
One, you can reach out to users who have cancelled their contract before the end of their subscription period to try and sweeten the deal to return. For instance, if the customer is cancelling because your plan is too expensive, you can offer them a discount or offer to downgrade their plan to a cheaper one.
Now, you don't have to try such alternatives for every customer who cancels. Do it only when it makes sense, like when it involves big-ticket customers.
You can also prevent contract cancellations by striving to sign longer contracts. After all, subscription companies with more customers on annual contracts experience lower revenue churn rates than those offering monthly contracts.
The reasons? Annual contracts give users fewer chances to renew, which translates to fewer chances to cancel. Think one chance to cancel in an annual contract compared to 12 chances in a monthly contract.
Longer contracts also attract high-end customers who believe in you and your product and are thus less likely to churn.
You can encourage people to sign longer contract terms by:
- Offering a discount for selecting an annual package
- Offering a discount on annual plans over monthly packages and highlighting the associated savings
3. Offer incentives for contract upgrades and cross-sells
Another way to lower revenue churn rates is by shifting your mindset. Instead of focusing on how to prevent customers from cancelling their contracts, you can redirect attention to the best ways to increase revenue from existing customers.
That means incentivizing:
To sell customers a more expensive version of what they are currently using, demonstrate value. This is why it's important to nail down your value metric.
To help understand this concept better, let's take Wistia as an example.
Wistia's video hosting platform understands that its value lies in just that: hosting videos. So the brand chose to highlight a metric that best communicates that value to customers, which is the number of videos uploaded. Its positioning of the metric was clever: "make a couple of videos with our Free plan, make more videos with our Pro plan, and then make even more with our Premium plan."
This product positioning allowed Wistia to come up with packages that speak to its targeted customer segments. When marketers start producing videos, they'll typically make a few and gradually increase that number over time. Wistia capitalized off this trend by aligning its package offerings with the typical journey of its customers.
The good news is that your brand can do this too. Align your subscription plans with your customers' growth path and make each package a natural progression from the previous one.
Alternatively, you can offer a sizable discount for existing customers that switch to a larger plan.
Cross-selling is all about giving your users additional value with extra features or products. One company that nails this is Xero. This accounting software regularly highlights add-ons that boost the core functionality on its pricing page. For example, the Gusto payroll add-on streamlines the calculation of pay and deductions while simplifying compliance and account updates for entrepreneurs.
For you to nail cross-selling, you must understand your customers and their needs. Then, be proactive in providing solutions that meet those needs and position them in a way that communicates their value.
4. Improve user onboarding
Once on board your brand's boat, don't leave your customers without a paddle. Customers should not have to email or call your organization three to four times just to get a response. Poor customer service causes U.S. companies to lose $62+ billion annually.
Offer a helping hand and friendly face by investing in customer support initiatives. Proactively demonstrate to users how to derive value from your product. You can do this via tutorial videos, articles, newsletters, and eBooks.
5. Boost user experience
The final tip on our list is to get better at analyzing customer feedback and use these insights to deliver a better user experience.
An enhanced user experience makes it more fun for customers to use your product. The more they use it, the more they'll recognize its value. Subsequently, the more attached they grow to it, the less likely they are to churn.
Even better? You don't have to accomplish all of this on your own. ProfitWell's got your back.