Implementing a customer retention strategy however is a great way to maximize customer lifetime value. In a previous article I discussed 6 ways to boost customer retention through customer communication.<\/p>\n\n\n\n
In this article, I\u2019ll breakdown how to look at churn as well as why people stop their recurring orders and what to do about it.<\/p>\n\n\n\n
Churn measures how many customers who sign up for subscription stop their subscription service.<\/p>\n\n\n\n
Every business is different but an \u201cacceptable\u201d churn rate for a vitamin and supplement company is around 6-7% monthly. Of course it depends on the recurring acquisition offer and the price of the monthly charge. But that\u2019s generally around $39 – $49.<\/p>\n\n\n\n
But what most marketers miss is that not all customer churn is equal.<\/p>\n\n\n\n
The way I look at churn when working with vitamin supplement D2C e-commerce clients breaks down into 2 categories.<\/p>\n\n\n\n
- \n
- Active Churn<\/li>\n\n\n\n
- Delinquent Churn<\/li>\n<\/ol>\n\n\n\n
Active Churn<\/strong><\/h2>\n\n\n\n
Active churn is when customers make a conscious decision to cancel their subscription.<\/p>\n\n\n\n
Customers usually cancel a supplement subscription for the same few reasons. Here are the top ones.<\/p>\n\n\n\n
They never wanted to be on recurring in the first place<\/strong> – Many first time buyers will take your subscription offer as a way to get a cheaper bottle. As subscriptions are typically discounted by 10 – 15%. Some of these buyers had no intention of sticking on recurring. These buyers need post sales nurturing on the benefits of sticking with the product. Many people however simply object to the fact that there is a monthly charge. Depending on your customer, many fixed income buyers have difficulty justify the expense. Your price might be fine however. Chances are they probably are. Again it comes down to a post-purchase value proposition problem. You haven\u2019t conveyed the value for dollar strongly enough.<\/p>\n\n\n\n
They find a better deal<\/strong> \u2013 Often times the better deal comes from you rather than a competitor. If you have a promotional email for large quantities at a discount greater than the subscription price, customers will cancel their recurring orders to stock up. This can be easily avoided by segmenting your email promotions and not advertising it on your home page. <\/p>\n\n\n\n
They don\u2019t need your supplement anymore<\/strong> \u2013 Your supplement may have solved their health problem and therefore they no longer need it. Or your supplement may be the type that is short term. Like a cleanse supplement. You can\u2019t avoid this but you can have a backend of other supplement products that expand your offerings. So you can sell them on the next thing. <\/p>\n\n\n\n
They\u2019ve switched to another supplement<\/strong> \u2013 If you\u2019re in a supplement niche like weight loss or body building those types of buyers are always switching. They are in a constant state of looking for the next best thing. Or they may have added a new supplement that contains some but not all of the ingredients yours has and there\u2019s a conflict now. Think B vitamins here. Many supplement formulations include it as part of their ingredients but if the customer adds a new supplement that is also loaded with B\u2019s they are suddenly taking too many B\u2019s.<\/p>\n\n\n\n
But not all your churn comes from customers making a conscious decision to cancel.<\/p>\n\n\n\n
Passive Churn<\/strong><\/h2>\n\n\n\n
Passive churn is the loss of customers, who leave a recurring payment plan, because of some problem with charging. Usually a credit card that is expired or does not have the room to charge more funds, failing to clear out a charge on a credit card for unknown reasons, etc.. it\u2019s more or less a billing problem. Here are a few of the top reasons for passive churn.<\/p>\n\n\n\n
Expiring Cards<\/strong> \u2013 It takes a lot of effort for customers to login and update their credit card information once the card dates expire. Since credit cards expire every three years. An average of one third of your customers will have to update their card information every year. That can account for quite a bit of churn.<\/p>\n\n\n\n
Limit Failures<\/strong> \u2013 Many times a card may be maxed out. Cards go in and out of the limit when your recurring charge cycle comes round. Credit cards that are over their limit causes churn.<\/p>\n\n\n\n
Processor Problems<\/strong> \u2013 There are many reasons why the billing system or credit card company could fail to process a payment. These failed processes cause all sorts of problems for monthly payments.<\/p>\n\n\n\n
False Fraud Prevention<\/strong> \u2013 The credit card company could flag the payment as a false positive in their fraud prevention system and deny the charge.<\/p>\n\n\n\n
These passive delinquent buyers churn out without taking any action. To no fault of their own. They likely still want your supplement since they have not made any active decision to cancel. It\u2019s simply the default option with with any of the four reasons above. <\/p>\n\n\n\n
Delinquent churn could represent a large portion of the buyers who are leaving you. Without digging into the numbers you\u2019ll never really know. <\/p>\n\n\n\n
So to get a true handle on your churn rate, you\u2019ll need to sort by passive and active churn. Counting only the active churn as your true churn rate. Once you\u2019ve done that you can use that percentage of passive churn and discount your future churn rate as a quick back of the envelope way of calculating future churn.<\/p>\n\n\n\n
It\u2019s important to know this because the difference could be massive.<\/p>\n\n\n\n
Let\u2019s say your total active and passive churn cohort combined has a monthly churn rate of 5%. <\/p>\n\n\n\n
But now imagine you broke that up into two cohorts of customers. <\/p>\n\n\n\n
One cohort includes all of your passive churn. Anyone who\u2019s churned due to any of the four reasons above.<\/p>\n\n\n\n
And you find out that passive cohort accounts for 2% of the total churn. <\/p>\n\n\n\n
The second cohort of active churn people then have a monthly churn rate of 3%. <\/p>\n\n\n\n
That 2% churn per month difference is lower than your actives, so you might not see that as a win.<\/p>\n\n\n\n
But you have to realize that 2% loss is each and every month over the year. So a difference of 2% in churn rate in month 1 becomes a difference of 16% by the end of the year. <\/p>\n\n\n\n
If in that first month you acquired 100 customers, with a 5% churn rate only 54 will still be customers by the end of their first year. If you are able to cut your churn rate down to 3%, you have 70 customers still paying at the end of the year. That\u2019s a massive difference.<\/p>\n\n\n\n
Keeping Customers Longer Will Obviously Grow Your Supplement Business<\/strong><\/h2>\n\n\n\n
It\u2019s less expensive to get a current customer to buy from you again than it is to get a new customer.<\/p>\n\n\n\n
Nowhere is that easier than with dietary supplements. Retention is naturally built into the product because it\u2019s a consumable.<\/p>\n\n\n\n
The reality is that, your current customers are the best asset your supplement business has. They already know your brand, and your products.<\/p>\n\n\n\n
There are a lot of pre-dunning products on the market to help with passive churn.<\/p>\n\n\n\n
But I prefer to put my focus on retaining buyers and improving their experience for my supplement brand clients. That\u2019s the most powerful way to supercharge your revenue long-term.<\/p>\n\n\n\n
And the best way to do that is to segment your churn into two buckets. The people who actively churn should be treated differently than the passive churners.<\/p>\n\n\n\n
Recapturing active churners is also one of the best ways to delight your customers. <\/p>\n\n\n\n
The easiest way to do that is to survey your churn list or call them individually to find out why they canceled.<\/p>\n\n\n\n
For those customers who switched to another product, find out why a competitor product appealed to them. You may need to make your product better.<\/p>\n\n\n\n
For those that left because of price or they never really wanted to be on recurring in the first place, it\u2019s a value proposition problem.<\/p>\n\n\n\n
The expression of the value your supplement offers may not be clear or you may not have reminded them of it at key points in their recurring journey.<\/p>\n\n\n\n
Successful supplement brands are invested in their customers success.<\/p>\n\n\n\n
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