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How To Improve Retention
Hello friends — welcome to a fresh edition of Growth Croissant, and a special hello to everyone that signed up from Notes. For the new folks, here’s a page with more info about Growth Croissant and me.
We’ve discussed how to measure retention and the importance of obsessing over decay curves. The next few posts will unpack how to better retain subscribers and lengthen customer lifetime (i.e., “elevate the decay curve”), a key lever to increasing customer lifetime value (“CLV”) and driving long-term revenue growth.
We’ve already hit on the value of segmentation when trying to understand fluctuations in retention rates, including separating out those that cancel right away from those that cancel further down the road. It’s also essential to segment by the two primary flavors of paid cancels:
Voluntary cancels — when the subscriber chooses to cancel their subscription.
Involuntary cancels — when the subscriber’s subscription ends due to a payment-related issue (i.e., the subscriber doesn’t necessarily choose to cancel).
It takes different tactics to reduce voluntary and involuntary cancels. To set expectations, it’s challenging to have a meaningful impact on reducing voluntary or involuntary cancels. But the value can be massive: in both cases, by keeping a paid subscriber from canceling, we’re saving a longer-term cash flow, not just one additional renewal.
Further, improvements to retention usually have a compounding effect. By reducing involuntary cancels, you strengthen your payment infrastructure and improve the rate of successfully charging future renewals (and, in some cases, initial payments). Even better, reducing voluntary cancels usually means improving your product and delivering more value to your subscribers, making your product more compelling to existing subscribers, but also prospective subscribers — a key lever to sparking new subscriber growth.
Usually, mindshare and effort shift toward retention as a business reaches a higher share of the folks interested in buying the product (i.e., “addressable audience”), and growth in new paid subscribers starts to slow down. Earlier on, it’s usually better to focus on acquisition and building consistent growth patterns. If you’re just getting going, these posts may be helpful to read and keep in the back of your mind, but I wouldn’t encourage shifting your focus away from identifying your core audience, sharpening your value proposition, and finding predictable ways to bring on new subscribers.
Improving retention is an intricate topic, so let’s break it down into a few separate posts:
How to reduce voluntary cancels — the growth tactics
How to reduce voluntary cancels — delivering more value
How to reduce involuntary cancels
Let’s start with how we can start to chip away at voluntary cancels.
How to reduce voluntary cancels
Reducing the rate at which people choose to cancel mostly boils down to how much value subscribers get from your product relative to what they’re paying. There are two large problem spaces to consider when reducing voluntary cancels.
At one end of the spectrum, there are harder-to-do, less-measurable tactics that focus on delivering more value to a subscriber before they even consider canceling. Delivering more value doesn’t always mean doing more stuff. Sometimes, it’s about helping subscribers discover value, or guiding them toward habits that help them consistently get value from your product.
On the other end of the spectrum, there are various growth tactics that help chip away at voluntary cancels right before a subscriber chooses to cancel or their subscription expires. These tactics bend the product slightly toward better retaining subscribers, especially those who are on the fence about canceling.
Let’s start with a few more tractable, growth tactics that can help chip away at voluntary churn.
Preventing churn in the cancel flow
Thankfully, the idea of making it hard for customers to cancel is a relic of the past (well, almost — some products still make folks call to cancel).
The goal of the cancel flow isn’t to add friction and get in the way of customers trying to cancel. But there are times when you can use the cancel flow to better understand why a subscriber is canceling and, based on their reasoning, help them discover features or parts of your product that solve their problem.
Below is an example from the earlier days at Spotify. If a subscriber chooses to “switch to Free”, Spotify emphasizes all the features they will lose if they cancel (e.g., offline listening, no ads, ability to skip songs). By today’s standards, this is dancing on the line of too much friction, but I like the general approach of trying to quickly solve the customer’s problem and reminding them of what they lose if they cancel.
Another common tactic is introducing a special offer in the cancel flow, which can help sway folks on the fence about canceling. It’s ideal to avoid surfacing the special offer to everyone canceling. If word gets out (as it often does), you could see some subs try to cancel to get a free month, or you main train folks that they can expect to get a free month every time they try to cancel.
When we first shipped this at Hulu, we offered a free month to 25% of subs canceling, prioritizing the most valuable paid subs (e.g., had been paying for more than six months), or those that had a better shot at sticking around after the free month (e.g., had watched something in the past 30 days). We saw roughly 25% of folks redeem the offer and about 33% convert back to paid. Most importantly, subs that converted to paid after the free month had strong retention.
Another effective tactic is allowing subscribers to downgrade to a lower-priced subscription tier before canceling. Sometimes customers don’t need all the bells and whistles of higher-priced tiers, and they may feel like they’re overpaying for a bunch of features they don’t use. It’s possible to save some of these subscribers by providing an off-ramp to lower-priced tiers in the cancel flow.
Below is a look at Netflix’s cancel flow, which provides the option to “stick around” on the Standard plan. In the streaming world, I’d expect to see off-ramps toward lower-priced, ad-supported subscription tiers become a regular fixture in the cancel flow.
Another typical move in the cancellation flow is to offer the ability to pause subscriptions. Pausing subscriptions can be valuable, but it can create quite a bit of overhead associated with payment issues, requiring attention from support and engineering. It may be valuable to experiment with pausing before committing to having it as a permanent part of the product. For example, Netflix initially supported pausing but has since deprecated it; while they seem to occasionally experiment with pausing, it still isn’t a global feature.
For those who want to give pausing a shot, it’s usually best to position the opportunity to pause next to canceling on a subscriber’s account page, or potentially in the cancel flow before a subscriber finishes canceling. Here’s how Hulu shows pausing on the account page:
Right after a subscriber chooses to cancel, Hulu shows another prompt to pause on the first screen of the cancel flow. There’s a good argument that this step is redundant — they just bypassed the option to pause — and too much friction.
The cancel flow presents an opportunity to solve the subscriber’s problem before they finish canceling, and gives us a shot at saving those on the fence about canceling. But introducing too much friction in the cancel flow can generate negative word-of-mouth and significantly reduce the rate at which canceled subs return. (Bringing back former subscribers becomes an increasingly important acquisition channel over time.) When you try any of these cancel flow tactics, aim to balance retention improvements while minimizing any harm to the user experience.
Notifications to prevent churn
One fairly low-effort, high-value tactic is to let subscribers know their subscription is about to expire and remind them of the value they’re about to lose. It’s valuable to send these notifications — which usually work well as cohesive messages across emails/SMS, in-app/in-product messages, and push notifications — for non-recurring products (e.g., gift cards or gift subscriptions) that are about to expire, as well as free trials and paid subscriptions that are set to cancel and are about to end.
These prompts to get subs to flip back to renew are especially helpful for annual subscriptions. With consumers taking on more subscriptions, we’ve seen growth in demand for annual plans, but we also see many of these subscribers choosing to cancel right away. Often, folks that immediately cancel annual plans say, “I have every intention of renewing; I just want to make a conscious decision to renew for the 2nd year.” Given the gap in time, it’s important to remind these subscribers when they’re about to renew and that their subscription is still set to expire.
Below are a few examples of trying to get paid subs to flip their paid subscription or free trial to renew.
Encouraging annual plans
Compared to monthly plans, annual subscriptions provide the following benefits:
More cash upfront (vs. payments spread out over time)
Better retention and customer lifetime value
Lower transaction fees
Annual plans are especially valuable right after you launch your product or service. For early subscribers, annual plans give you time to improve your product before their next renewal date. The upfront cash is also useful early on.
Usually, the best way to take advantage of the benefit of annual plans is to have it as the default in the subscribe flow. If you’re providing special offers, you can limit those to annual only. Here are a few examples:
But encouraging annual plans is another tactic some folks take too far. If you offer an annual plan, it’s valuable to offer a little discount to encourage folks to take it over the monthly plan, but not too much of a discount that you end up sacrificing revenue. Annual plans are still a notable upfront payment — only folks more set on buying your product are likely to buy an annual plan, not those on the fence.
The most common pricing strategy with annual plans is to offer a 17% discount relative to the annualized price of monthly plans (e.g., a $100 per year plan alongside a $10 per month plan). If you discount the annual plan too much, like much more than 17%, you may sacrifice revenue from folks who would have likely paid more. But when priced effectively, encouraging annual plans can have a tangible impact on improving retention without sacrificing long-term revenue.
Retention is essential to driving growth, so these tactics are at least worth considering. But if you press any of the tactics too far, you could severely harm long-term revenue growth. When done right, you'll save many of the folks on the fence about canceling without harming the experience of those looking for the exit.
In our next post, we'll dive into the harder-to-measure efforts aimed at improving retention, including how to guide subscribers to maximize the value they get from your product and how you can deliver more value to your subscribers.
In the meantime, let me know what you think. Given a wonderful group of new product and growth folks joined from Notes (welcome!), what insights or learnings have you picked up from trying to improve retention? What's worked, and what hasn't worked? Have you ever experienced pushing any of these tactics too far?
As always, thank you for reading,
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