22 Feb How customizing subscription billing cycles help with customer retention
Some subscription companies are shooting themselves in the foot by following the one size fits all method of monthly billing. Although monthly cycles are industry standard for subscription companies, it’s not necessarily the most efficient model for all.
A monthly cycle makes a lot of sense for standard, “necessary” bills like cable, rent, insurance, mobile phone, utilities, and so forth. This is especially true because many of these are continuous services that have a higher barrier to entry because of set-up fees and security deposits. For instance, you likely wouldn’t be able to pause or skip a month of rent because you’re not going to use your apartment.
Subscription businesses, however, don’t have to be handcuffed to the monthly model. In fact, a monthly model can actually be detrimental to your business’ success. Unlike many standard bills, most subscription-based services are designed to be easy to cancel or pause, lest potential customers shy away from the commitment of a long-term subscription. This, then, increases the risk of cancellation due to even the slightest reason, including timing of the billing or subscription renewal cycle.
What’s more, most eCommerce subscriptions offer incentives to sign up to get the first product, which makes looking at when the customer requires the second product even more important. There is an initial push in receiving the first shipment that isn’t there when it comes time for the second, which makes timing extremely important. Let’s say your business uses a monthly billing cycle, and has an average subscription length of 41 days – that is, most of your customers tend to churn after 41 days. This means that the average customer paid for the first shipment, received it, and liked it enough not to cancel. Then, a month or so later, likely after receiving the next month’s shipment, that customer canceled.
The question is: why? For some customers, it could just be coincidence or external reasons that led them to churn. If the 41 days is enough of a pattern, however, it might be time to analyze your billing and renewal times. Perhaps the amount of product sent per month is too big of a shipment for your average customer; after receiving two shipments back-to-back, the customer decides it’s simpler to purchase at the store when the need arises.
With this data, a possible solution might be to fine-tune the amount sent in each shipment so that it would roughly last for 30 days for your customers. That said, this takes a lot of adjusting and testing, and doesn’t take into account the other segments of customers that 41-day rule doesn’t apply to. In short, it might not work.
The smartest way to handle all your different customers’ needs in this situation, then, is to provide different tiers of subscription cycles. Have customers fill out a questionnaire to help them determine which cycle would work for them best, whether it’s for a 30-day period or a 90-day period, or even a 20- or 40-day period. That way, shoppers can decide for themselves what kind of shipping and billing cycles meets their needs.
This works as a tactic to prevent churn, as well. By analyzing your customer data, you can determine which customers would respond best to more frequent or infrequent shipments and billing schedules. As customers churn, provide a tailored suggestion to adjust their shipments and billing instead of canceling completely.
If you’re managing a subscription business or looking to start one, it’s crucial to understand the right increment for shipping and billing to proactively reduce churn and increase the future profitability of the business. Looking at customer data to determine when a customer requires the second product is a great baseline to modify the monthly subscription model to better fit your business’ specific customer behavior.