Passive Churn: Unintended Lost Revenue
Churn is a natural part of running any sort of subscription business. Whether intentionally or not, people stop being a customer of yours and their subscription ends. At least once a month, I get an email that says that someone has churned from A Media Operator. I hate to see it, but it’s also basically a fact of life.
But not all churn is created equal.
There are two, broad categories of churn. Active is where a user has made a decision that they no longer want to receive the publication. Most churn is categorized like this, especially if you’re selling a monthly subscription. Passive is where a user hasn’t made a decision, but still unsubscribes from your publication.
At the core of it, passive churn is when payments fail. There are a variety of reasons for it, but a common one is that data linked to the credit has changed (like an address) or the card has expired. I don’t think about what credit card is on file for any of my subscriptions. They just get charged. But if I lost my wallet or my card expired, I’d get an entirely new card and none of those subscriptions would work anymore.
For obvious reasons, it’s incredibly important to minimize any churn, but especially when it’s passive. With active churn, you know something’s wrong with your product. Either they don’t want the content anymore or they don’t need it anymore. Either way, it’s a direct reflection on the perceived value of that content. But with passive, this is lost revenue for no reason other than technicalities.
Having a solid foundation to any subscription business requires reducing churn as much as possible. It’s cheaper to keep a current customer than find a new one. It’s horribly cliché, but it’s true.
There are a few ways to reduce churn.
Most people that churn don’t know they’ve churned. The only way they find out is if you communicate with them. Dunning is the process of communicating with your customers in an effort to get them to pay their bills. In the case of a subscription business, it’s trying to reclaim their business.
This process starts before the reader churns. At churn, the work gets harder; so, if you can prevent it from ever occurring, you’re in a much better place.
A couple of weeks before the end of the subscription, shoot the reader an email that basically lets them know that their subscription will renew in a couple of weeks and to confirm that everything is good with payment processing. The message could read like this:
Your subscription to A Media Operator renews in two weeks. There’s nothing you need to do, but we wanted you to know ahead of time. If your payment information has changed because your card expired or you got a new one, please go here to update that information.
The “please go here” should point to their user profile page where they can then go in and update their credit card. You can send a similar email one week before and one day before renewal. If, however, the user has taken an action between one of these emails, don’t send a follow up. In other words, if at the two week mark, they do click over to update their information, remove them from the automated campaign. We don’t want to spam them.
There are two benefits to this. First, people appreciate knowing when their credit card is going to get charged. Sure, it may remind a few to unsubscribe, but my suspicion is that it’ll build more goodwill with the audience. Second, by explicitly calling out that the credit card information might have changed, the user is reminded if that’s a reality for them.
In the event a failed payment does occur, it’s important to not relent. I use Stripe and every once in a while, a payment fails from one of my readers. It happens for a multitude of reasons. A few days later, Stripe tries again. And then it tries once more before finally cancelling the subscription. Any of these failed attempts at charging the card are worth sending a quick email.
This message could read like:
We haven’t been able to process your payment for your subscription. It might be because your credit card information has changed since you subscribed. Can you update your information here, please?
It might seem repetitive, but if the renewal isn’t happening because of failed payments rather than the user explicitly unsubscribing, constantly reminding the user to update their information could mean the difference between a lost subscriber or not.
Another way to reduce passive churn is to consider adding PayPal as an option for people subscribing. At first glance, this might not make sense, especially when there are better payment processors out there like Stripe.
But it helps to think through what PayPal offers. Unlike Stripe, which is just straight payment processing, PayPal allows users to send and receive money, hold balances of cash (and crypto), and is treated a bit more like a bank than just a pure payment processer.
Part of PayPal’s onboarding is to ask users to give a backup payment. In many cases, this is the user’s bank account. So, if a user subscribes to something, it might pull from the credit card; but, if that fails, PayPal automatically pulls from the backup payment method. This prevents any sort of churn from occurring because there are multiple ways for the user to pay.
In late 2019, I got a research report from PIano, a subscription management system built for publishers. It’s used across hundreds of the largest publishers out there. A few interesting statistics jumped out to me.
First, PayPal became a bigger percentage of total subscriptions as time went on. For example, let’s say there’s a cohort of new subscriptions. PayPal might account for 22% of this. At renewal, PayPal would account for 29% of the subscriptions. Second, PayPal retained nearly twice as well at the annual renewal compared to standard credit cards and Apple Pay.
In both statistics, the reason is the same… PayPal allows for a backup payment, which ensures that if one fails, the subscription will still get paid.
The final thing you can do is execute a paid win-back campaign. With your dunning, you’re sending follow-up emails and trying to remind the user that they are going to churn if they don’t act fast.
A paid win-back campaign is used to target those users with advertising to try and get them to renew. A passive churn might not have wanted to unsubscribe. Therefore, if they see an advertisement for a great story, it might pull them back in. They’ll then realize that they were unsubscribed and that could convince them to reengage.
You’ll obviously want to test this out and balance the estimated LTV of that subscriber relative to what you’re paying to reacquire them. Nevertheless, it’s an important step if all else fails and is worth some investment to try and win back some of your subscribers.
The reality is, churn is a fact of life when running a subscription business. We all lose people for a variety of reasons. And the majority of that churn is active. People choose to stop doing business with us.
But according to Piano, 34.2% of said churn is passive. These people didn’t explicitly make a choice to stop subscribing. With the right engagement tactics, half of this passive churn can be saved. If you’re losing $25,000 a month in churned revenue and $8,500 of that is passive, you could find yourself reclaiming $4,750 every single month. Spread out over a year, that’s $57,000. That’s real money.
Growing a subscription business is incredibly hard. It’s even harder when you’re losing subscribers every single month. Identify where there is passive churn occurring and plug those holes. Many times, a simple email letting a user know what’s up can save the business.