Imagine your subscription business at high risk of failing. Well, that’s the sad reality for SaaS companies with growth under 20%. And the usual culprit? Subscription churn.

With every churned subscriber, you’re making it increasingly difficult to sustain growth— endangering the future of your entire business. This is why understanding churn rates is crucial for managing subscription churn—as it helps you analyze the percentage of customers who unsubscribe over a specific period and then identify factors affecting these rates.

Sounds anxiety-inducing? The good news is—you can actually manage this metric. By understanding why people unsubscribe and implementing retention strategies, you can ultimately reduce your drop-offs. This article contains crucial information on:

  • why subscription churn matters
  • its common causes
  • effective strategies to reduce your monthly churn rate

What is subscription churn?

Marketing and sales team looking at customer churn rate of their subscription business.

Subscription churn refers to the rate at which customers cancel or unsubscribe. In the world of subscriptions—no question about it—this metric is a huge deal because it directly impacts your revenue and growth.

In essence, every lost customer means less recurring revenue.

The average churn rate for subscription services is 4% but 5-7% is still a good churn rate benchmark if on an annual basis. For B2C SaaS businesses, a churn rate below 5% is considered good, while for B2B SaaS businesses, a churn rate below 10% is considered acceptable. Maintaining a low churn rate is crucial as it positively influences Monthly Recurring Revenue (MRR).

Here’s how you can compute yours:

Churn = (Number of Customers Lost / Total Customers at the Start of the Period) * 100.

So, if you start with 500 subscribers and lose 50 during the month, the churn rate would be 10%.

There are two types of churn to be aware of:

  • Voluntary churn occurs when a customer decides to cancel their subscription on their own and;
  • Involuntary churn occurs when a subscription is canceled outside of the customer’s control or without them knowing.

Why subscription churn matters

Failed payment recovery team discussing customer feedback for strategies on how to improve the customer experience and reduce both voluntary churn and involuntary churn

Here’s the quick answer: Because churn subscription determines your business’s health and growth. Balancing customer acquisition with churn is crucial for sustainable growth. Let’s explain this in more detail.

It impacts revenue

Subscription churn rate represents lost recurring income. Not just your monthly recurring revenue (MRR) but potentially for years to come (ARR). Say you’re running a SaaS company with a monthly fee of $100. If you lose 10 customers, that’s $1,000 less revenue every single month. Over a year, that’s $12,000 gone. Now imagine that on a larger scale. 100 churned customers mean $120,000 less annual revenue!

Studies even show a small increase in churn can substantially affect your profits— a 5% decrease in churn can increase profits by 25-125%.  

It drops the lifetime value

Customer lifetime value (CLV) represents the total revenue a customer generates over their entire relationship with your business. If your average customer stays for two years at $50/month, their CLV is $1,200. But if churn subscription cuts that to one year, CLV then becomes $600. 

It adversely affects the long-term health of the business 

If your average subscription retention rate is high, you have sustainable growth. Understanding customer retention rates is crucial, as it highlights the importance of retaining customers to avoid high churn rates. When you have steady customers who keep buying your product or service (no “leaky bucket” scenario), you have more profits and the value of your company increases. With a serious customer base and strong financial position, you’ll have an easier time getting investors’ attention and also be better prepared for tough economic times.

Identifying the common causes of subscription churn

Marketing and sales team evaluating customer churn rates, customer lifetime value, and overall subscription churn

So, the subscription churn rate matters. But why does it happen? What are the common reasons subscribers hit the cancel button? Let’s see but since we listed two types of customer churn, let’s also divide this into two subsections as well.

Common causes of voluntary churn:

  • Poor customer experience is often the biggest cause of voluntary churn. In seven out of ten cases, a poor customer service experience caused customers to stop doing business with a brand.
  • Lack of product value or when your offering doesn’t deliver is another cause for customers to unsubscribe. Also, not keeping your product updated with new features and improvements can make your customers lose interest in your offering
  • Competitive alternatives. In today’s saturated market, customers have options. If a competitor offers more—better value or a superior experience, churn is nearly certain. 50% of customers switch brands if they’re not satisfied. 

Common causes of involuntary churn:

  • Payment failures: This is a big one. Payment failures happen more often than you might think. Some reasons include unconsciously reaching the maximum spending limit and needing more funds.  The tricky part is that customers often don’t even realize their payment didn’t go through and might think everything’s fine.
  • Expired credit cards This is another silent killer for subscriptions. When people forget to update their card details and the expiration date passes without the customer noticing involuntary subscription churn is bound to happen.
  • Technical issues: The danger here is that technical issues can affect many customers simultaneously. A single bug could cause a spike in churn. Examples are data syncing errors that cause missed or duplicate charges and glitches in your billing system.

3 strategies to reduce subscription churn

Failed payment recovery specialists discussing how to increase customer satisfaction in order to reduce average churn rate

Culprits identified. Now, it’s time to equip yourself in the battle against subscription churn. Here are some strategies to tackle it—both voluntary and involuntary churn itself.

1. Make customer satisfaction your North star

One of the most effective methods of reducing customer churn rate for subscriptions is delivering an exceptional customer experience. These are some tactics you can employ:

  • Personalization and customization: Leverage customer data to offer personalized recommendations, content, and product suggestions. 71 percent already expect this kind of service. Also, you should give your users the option of customizing their dashboard or interface. The more a product feels “theirs,” the harder it is to leave.
  • Proactive customer support: Reach out first, check in regularly. Use behavior triggers to spot potential issues. Creating a knowledge base with detailed guides and FAQs is also proactive customer support. But don’t just set it and forget it. Regularly update it based on common customer questions.
  • Regular feedback loops: Make gathering feedback a core part of your process. Send out surveys, however, keep them short and focused. Ask specific questions about your features that alleviate their pain points. But here’s the key, always follow up after customer support interactions.  

2. Enhance product value

To keep customers engaged, it’s essential to continuously enhance both the perceived value and actual value of your product or service. Here are some strategies:

  • Regularly update your product with new features, improvements, and bug fixes: Your product should always grow and evolve. Set a regular release schedule, even if it’s just small tweaks. It shows users that the product is kept up to date.
  • Clearly communicate the value proposition of your product: It’s safer if you never assume that users get the full value of your product. So that you regularly remind them of what your product is all about. Support this with case studies and success stories of how other customers are benefiting. 
  • Exclusive features for subscribers: Reward subscribers with perks (like creating “subscriber-only” content, advanced tutorials, or templates). Just make sure these are actually useful—not just fluff. 

3. Tackle involuntary churn

Let’s explore strategies to prevent these unexpected cancellations:

  • Smart payment retries: Don’t give up after one failed payment attempt. Implement a smart dunning system. This might try again after 3 days, then 5 days, then weekly. Adjust based on your typical customer payment patterns.
  • Automated payment reminders: For a surefire way of having automated notifications, reminders, and payment requests, use dunning management software. If these automated payment reminders work, make it dead simple to make a payment.
  • Up-to-date billing information: To tackle involuntary churn, make it super easy for subscribers to update their billing information. Use account validation services to check if entered card numbers are valid before saving them. This catches typos early. 

Tools and techniques to combat churn

Marketing team looking at data on monthly churn rate and customer retention

Those strategies provide a solid foundation for reducing your average churn rate. But in today’s data-driven world, there are powerful tools and techniques to improve your results.  

Analytics and monitoring

Knowledge is power. So, take advantage of customer behavior analytics to get customer feedback and identify early warning signs of churn like decreased usage frequency and increased support interactions. You can also consider using heat maps to see where users click most.

You can build models based on customer behavior data to predict subscription churn accurately with advanced analytics. By doing so, you maximize your chances of retaining a customer before they cancel.

Also, alongside customer behavior analysis, tracking metrics is another crucial tool for combating churn. Customer behavior analysis helps you calculate churn and identify red flags, but metrics quantify the problem. For example, behavior analysis might show decreased usage, but churn rate metrics tell you exactly what percentage of your subscribers are canceling. Some key metrics here are:

  • login frequency
  • feature adoption rate
  • time to first value
  • customer support interactions
  • revenue churn vs. user churn (because sometimes you lose low-value customers but keep high-value ones. So, track both metrics.) 

Customer retention programs  

Don’t let your existing customers feel neglected. Implement customer loyalty and programs to reward long-term subscribers. Here are some suggested techniques:

  • Create tiers of loyalty. As users climb the ranks, they unlock better perks. Gamifying the experience gives them something to strive for.
  • Consider offering exclusive discounts like an annual plan discount. “Pay for a year upfront and save 20%.” This reduces short-term churn risk. But be wary! This must be used strategically so customers don’t always expect discounts. Rather than offering them at random, offer them when appropriate.
  • Create lifecycle-based campaigns. What a new user needs is different from what a 2-year veteran needs. Adjust your messaging accordingly.

Payment optimization solutions  

Streamline your payment processes to minimize involuntary churn. Choose gateways known for high success rates because every failed transaction is a churn risk. It’s also best to opt for secure gateways that offer fraud prevention measures. 

Multiple failed attempts from the same IP? That’s a red flag. Let the protection against fraud work. Also, it’s best if a part of the process is to use Address Verification Service (AVS) and CVV checks. It’ll keep you from getting chargebacks, which can be expensive and hurt your reputation.

Another tip: Offer multiple payment options like credit cards, digital wallets, or even recurring billing through third-party services (we also suggest you accept local payment options, too!). This convenience can increase customer satisfaction and reduce involuntary cancellations.

Keep your subscription churn at a minimum

Failed payment recovery specialist with a thumbs up

Fighting subscription churn is building a sustainable, thriving subscription business. Though churn is inevitable, keeping it at a minimum is the best option. Just remember, every customer you retain is one less you need to acquire—and those retained? They often become your biggest advocates.

Here’s the thing, though. Not all customers who leave are unhappy. Sometimes, simple payment problems cause them to go. Experts in failed payment recovery can help you keep here. And that’s what specialists from Recover Payments do best. Book a call and stop the “involuntary’ leaks that eat your profits.