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BizReport : Ecommerce archives : February 20, 2017

Expert: How to reduce involuntary churn

While the subscription space is showing strong growth, there are a few issues for which brands need to prepare. One is involuntary churn; one expert weighs in on how to combat it.

by Kristina Knight

Kristina: What is involuntary churn?

James Gagliardi, Digital River: Involuntary churn is the loss of customers who want to retain your product or service, but for some reason cannot. This passive dropping of a subscription may be due to a variety of customer circumstances. Identifying and mitigating these circumstances may require significant resources as they often are nuanced and yet significant to your bottom line.

Kristina: What factors can bring this about?

James: Involuntary churn can come about due to any number of factors:

• Onerous or tedious payment processes within the user interface
• Expired credit cards and accounts that need updated credit card information
• Flaws in the back-end management software that do not account for unusual payment circumstances
• Issues with software updates or hardware compatibility
• A lack of proper communication at a critical moment in the relationship between a brand and a subscriber

Kristina: How can brands identify involuntary churn?

James: Companies focus on voluntary churn -- when a subscriber takes action and leaves the service -- but the subscription-based model relies so heavily on renewals and retention for profitability that every single percentage point matters. We at Digital River have found that increasing customer retention rates by 5% can increase profits 25-95%. Inversely, a 5% decrease can have an equally dramatic effect.

We estimate involuntary churn accounts for as much as 50% of total churn. These are the people who drop off the radar every month. With this percentage in mind, companies cannot focus only on seeking new customers and addressing issues related to voluntary churn, such as pricing and customer dissatisfaction. Instead, it is critical that companies know how involuntary churn is happening and how to mitigate those churn rates in order to ensure long-term profitability.

More from James Gagliardi and Digital River later this week, including his top tips to reduce involuntary churn.

Tags: Digital River, ecommerce, subscription commerce, subscription service

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