The Superpower Benefits of Recurring Revenue for a E-commerce business are easy to understand: reliable and predictable cash flow; loyal clients; and the freedom to focus on innovation and business growth. But what are the best ways to measuretrack and increase these recurring revenues?
In a recent webinar, “Mastering Recurring Revenue: Tips for Reducing Churn” Shannon MacLeod, Director of Strategic Growth has Verifone, shared its best retention strategies for recurring revenue, with a comprehensive overview of its core definitions and metrics. Shannon also presented tips and tricks on how to increase recurring revenue, showcasing proven strategies that help reduce churn.
Some definitions to remember
Shannon started with some basic terms that are commonly used in the renewal industry and are helpful to keep in mind when developing strategies to reduce churn and maximize revenue.
Retention rate
This is the percentage of customers you retain, using the formula: Number of subscribers at a specific time / Number of subscribers who initially purchased the product. Renewal rate is the percentage of eligible subscribers that you renew, according to the formula: Number of active subscribers at the end of the period / Number of active subscribers at the start of the period.
Automatic renewal
Means the subscription is automatically renewed at the end of the billing period, with the customer’s payment method on file. Average auto-renewal rates are 90% for monthly terms and 80% for annual terms, these are lower because credit cards are more likely to expire during the longer billing cycle.
Manual renewal
Means the subscription must be manually renewed in a basket at the end of the invoicing period by the customer; their payment method is not stored. Average manual renewal rates are between 30% and 60%.
Churn
Is the the opposite of retention; it is the percentage of customers lost compared to the total initially acquired.
Involuntary unsubscribe
Occurs when there is a problem with the automatic billing transaction and the subscription expires.
Voluntary unsubscription
This typically occurs when a manually renewing customer chooses not to take action to renew, or when customers cancel your subscription.
Monitoring performance of key indicators
Shannon points out that one of the most critical metrics to track is the mix of subscribers in automatic renewal and those in manual renewal as a percentage of your total subscriber base.
She pointed out that having more customers with auto-renewal means higher total renewal rates, and when they remain stable, a healthy mix lies somewhere. 82% on auto-renewal And 18% on manual renewal.
The geographic location of your customers can also have a significant impact on renewal rates, she noted. Renewal prices in the United States are systematically higher than rates in Europe, for example.
When looking at renewal rates, it’s important to track the auto-renewal rate and the manual renewal rate separately. Shannon pointed out: “If we only track the total renewal rate, we can’t see what’s moving the needle up or down. »
Other factors that influence renewal rates are ccancellation and refund rates; upgrades (which have a positive impact); the percentage of successful payment transactions, or authorization rates (which may vary by country, payment method and price level); and both customer lifetime (the average number of months on a subscription) and lifetime value (the dollar amount of that subscription).
A cohort analysis can help you filter through each of these factors to see where to focus your retention efforts, and Shannon provides some details on each.
Increase the number of auto-renewal subscribers: 5 tips
The bottom line, Shannon emphasized, is that increasing the number of auto-renewal subscribers will invariably result in higher renewal rates and, ultimately, higher income.
What is the best way to proceed? Shannon shared her top four strategies:
1. Show your customers the benefits of opting in (and/or not opting out) of auto-renewal for a service or product. Explain to your customer the benefits of flexibility and peace of mind that their service will continue without any effort on their part. Remind them that they will know 30 days before their subscription renews, after which they will have the option to cancel. This messaging can be transparent from the start, even in their shopping cart.
2. Test different signup styles for auto-renewal choices. Using A/B testing, you can find out which versions of the auto-renewal membership selector work best. She shares an example of variation that showed a 20% decrease in the number of customers opting out of auto-renewal.
3. Use migration campaigns to encourage manual renewing customers to switch to auto-renewal. The change can easily be made on the My Account billing page rather than through a shopping cart.
4. Offer a discount for auto-renewal. For example, you can offer a discount on the next auto-renewal billing cycle.
5. Use churn prevention campaigns when customers turn off auto-renewal. Sending messages and offering discounts on the billing page can help convince a customer to keep their auto-renewal status. The annual billing cycle can be reduced in various ways, or the timing of their billing cycle can be changed. Allowing a customer to pause their subscription is another option. Another idea, Shannon says, is to offer a free upgrade if they sign up for a more expensive premium subscription or upgrade to a cheaper one to convince them to stay.
Increase the auto-renewal rate to reduce unintentional churn: 5 tips
It’s clear that customers with auto-renewal are the most valuable, showing higher retention rates and improved lifetime value, as Shannon highlighted. Next, she shared her five tips for increasing auto-renewal rate, which reduces involuntary churn.
1. Contact subscribers whose payment methods have expired. “This is the number one driver of unintentional churn,” Shannon noted. Email and My Account messaging can remind subscribers to update their payment information if their card has expired.
2. Use a payment provider with advanced retry logic. “This involves multiple authorization attempts at specific intervals and frequencies,” Shannon emphasized. Be aware, however, that too many attempts (or two frequent attempts) can be misinterpreted as fraud. Fees can also be high for multiple trials, so choose your payment provider wisely.
3. Choose a payment provider with smart payment routing. Account Updater gets updated card information from the banking system so your customers don’t have to manually update their expiration date. Tipping payment processors are important because they ensure that payments are made; This can also be helpful when connection or technical issues arise. Geographic distribution is also key, she pointed out, as local payment gateways are known to increase authorization rates.
4. Monitor authorization rates and gateway messages. Shannon urged businesses to track trends and authorization rates, and analyze that data by order type, whether it’s auto or manual renewal, payment method, country, product or price level. Analyze payment gateway decline messages for additional information, she said.
5. Send follow-up emails if payments fail. Customers often have a 30-day grace period after payment failure to renew their subscription. During these 30 days, follow-up emails (suitable for automatic or manual renewal) and reminder emails in case of final refusal must be sent. Personalize the emails so that it is clear that it is not a phishing attempt.
Increase the manual renewal rate to reduce voluntary churn: 5 tips
1. Send renewal reminders early and often. Shannon recommends communicating 30 days in advance, then 15, 7 and the day of expiration. After that, even more frequent communication is important. Use multiple communication channels (email, My Account, in-product messaging). Be creative with your message.
2. Use various discount strategies. “You can test different discount strategies with a final offer, offering a larger discount at the end of the grace period, or a larger discount at the beginning,” Shannon pointed out.
3. Optimize the renewal cart. Use specific messages for renewal orders. A/B testing the impact of different cart layouts and messages on conversion rates. Show an exit modal when customers leave their cart without completing their renewal order.
4. Early renewals. Discounts may be offered if renewal is done early, up to 3 or 6 months before the subscription expiration date.
5. Extensions allow customers to extend their subscription upon renewal. “Add a year and save 50%,” Shannon offers as an example. Such extensions have been shown to improve customer retention and loyalty.
One last piece of advice: the power of reconquest campaigns
Shannon shares a bonus tip as a last resort to reduce churn. She recommends contacting all expired subscribers 30 to 90 days after their expiration date, offering them a discounted subscription.
It’s clear that recurring revenue is essential to the success of an e-commerce business, as Shannon made clear in her webinar. Recurring revenue:
A) provides stable and reliable cash flow;
b) helps ensure predictability and consistency through loyal customers; And
c) allows companies to focus on innovation and business
To view the full webinar with Shannon and learn more, visit our page.