How leaky is your subscription bucket? And what are you doing to plug those holes!?
When I first started in subscriptions at Armstrong Information, a niche B2B publishing business now part of Informa, my first boss was a former accountant who excelled at explaining the peculiarities offinance with simple analogies and everyday images.
One of the most memorable was his ‘leaky bucket’ analogy to explain the impact of non-renewals and the importance of lifetime value. Imagine you’re filling a rusting metal bucket with a hosepipe. As the bucket slowly fills to the top, you notice half a dozen small perforations through which water begins to leak. If as much water leaks out as you’re putting in, then the level never rises beyond a certain point. These leaks are your non-renewals. Each drop lost needs to be replaced by new water from the pipe to fill. The fewer leaks you have the more water stays in the bucket etc It’s a simple analogy but one which explains the importance of retaining as many customers as possible. Most subscriptions and memberships businesses operate on a 75%-90% renewal rate (by unit) which means 10%-25% of your customers leave every year. If you can reduce that loss by even a few percentage points it can have a dramatic impact on lifetime value (i.e. the number of years the customers stays with you). For example, if you start with 1000 customers and lose 200+ a year, that makes net growth that much harder. Increase your renewal/retention rate by even 5% and suddenly your growth rate accelerates with even the same number of new customers. Add in 5%-10% annual price increases and many quality businesses can get close to or exceed 100% renewal rate by value meaning that every extra new customer results in net growth in revenues overall. As my first boss was fond of saying if renewals are too low ‘fire the editor’ and if new members are not coming through in sufficient quantity then ‘fire the sales manager’. Too many businesses (let’s call them ‘busy fools’) focus all their efforts on customer acquisition, but the smart business owner realises the importance of retention and loyalty, working hard to create a solid base and foundation for annual growth. Finding new customers is hard and expensive. Taking the time to understand your customers, how they use your products and services, partnering with their long-term success and give them more of what they love, is key to success. Encourage your retention team to go beyond the standard “It’s not you, it was me” answers from those choosing not to renew (i.e. no budget, too expensive etc). If customers are not staying with you then it’s because your product is not delivering enough value or didn’t match their expectations (if it’s a first-year conversion).
As a business, you need to prioritise the collection of customer feedback at every opportunity, identify points of failure, fix customer service issues as they arise and aim to always over-deliver against expectations. As my old boss would say, first ‘take the time to fix those leaks’. If you spend as much time on retention as you do on new customer acquisition, then you’ll discover the secret to long and profitable customer relationships.
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