Subscription Business Flywheel: understand Churn Management

Business models with monthly billing, in which customers sign up to participate, are known as subscription business. This is enjoying increasing popularity worldwide - in various industries. 

The reasons for this are on the one hand the convenience and flexibility for the customer, while at the same time preserving liquidity. Providers of subscription models appreciate the scalability of their sales.

This flexibility also means the disadvantage for the provider that customers can terminate their contracts (according to the individually agreed conditions) at any time.

What is churn and churn management?

The turning away of a customer or their switch to a competitor is called churn. A term of art made up of "change" and "turn".

For companies in the subscription business, MRR (Monthly Recurring Revenue) and churn are common and frequently used words, because the company's success is highly dependent on monthly revenue and the length of time customers stay with the company.

What is a churn rate?

The ratio of churn in relation to existing customers is called the churn rate. The churn rate is not measured in relation to the number of new customers. The churn rate is therefore always an important indicator of how successfully a company can retain its existing customers.

Companies can only grow in the subscription business if they have more new customers and upgrades than churn. 

It is easier and cheaper to retain existing customers than to acquire new ones, so this aspect should not be neglected.

Then the monthly revenue will increase steadily and continuously. Churn must therefore be avoided. What a company does to achieve this and how it interacts with customers is called churn management.

What can you do to avoid churn?

Of course, you can deliberately make it particularly difficult for customers to cancel or switch, for example by high switching costs. However, anyone who has ever forgotten to cancel their gym contract or newspaper subscription and had to pay for another year without taking advantage of the offer knows that this approach does not necessarily generate satisfied customers.

The better alternative is satisfied existing customers who are even happy to recommend your company to others. To do this, you need to carry out measurements:

• Which customers are switching
?
• When and how do customers switch?
• Why do customers switch?

It is often quite mundane things that deeply disappoint and annoy convinced customers. Such as poor availability or difficulties with the payment process or the payment plan.

A standardized cancellation process has enormous advantages and lowers the churn rate. So you can and should always carry out measurements and actively ask customers why they have canceled.

Sometimes they then reconsider if you can eliminate the reasons discussed and at least they feel appreciated and don't leave in anger.

Any customer who wants to leave can and may give us good reasons for leaving. This can be done by phone or with an informal email. This will help you to understand the reasons why customers leave and to avoid them in future.

How to identify churn risks by behavior

If you can recognize customers who have internally quit and are about to churn, you can also reduce the churn rate.

A churn score is the metric that indicates how likely the customer is to churn.  However, it is only effective if we have created it in such a way that:

1. makes a plausible statement and we
2. use this churn score at the appropriate touchpoints in the appropriate places in practice
.

What can you keep in mind when calculating the churn risk?

• Is the entire service or individual paid features hardly used?
• When, how often and for how long do users log in?
• Are customers satisfied with the service? (customer satisfaction surveys)
• What do customers often do before they cancel?
• How do loyal regular customers usually behave?

These are all questions that hardly any company in the subscription business can answer correctly. It should be in your own interest to find out as much as possible about your customers and their behavior.

Example Netflix

Customers are notified by email (based on what they have recently streamed) of new series and films. As a result, they check back in.The risk of perceiving the subscription as "useless" is reduced. This is perceived as added value and personalized customer service rather than advertising.

Every new insight is an opportunity to become even more customer-friendly, make customers more satisfied and thus improve churn management.

Of course, churn cannot be completely prevented. But it would be nice to have "The ultimate churn hack" for all areas of application in the subscription business. More on this at the end of the article.

What makes the decisive difference in a subscription business?

• The right CRM system, customer relationship management 
• The analysis and use of existing data and user behavior 
• The marketing automation 
• The ultimative churn hack

The four topics mentioned above are of course closely related in the subscription business. We want to help you understand what you need to consider here.

The much-desired sub-discipline or marketing discipline that is highly relevant in the context of the subscription business is "The Ultimate Churn Hack".

First things first: there is no such thing as a real hack. But we will shed light on one aspect that is particularly relevant for churn management.

As you will soon see, there are many factors involved.

© Taipan Consulting

Churn Management and the Subscription Business Flywheel

These are the right thinking models to analyze and optimize the individual aspects with a lot of momentum. Wikipedia says: "Churn management involves addressing customers at risk of churn in good time before their contract expires and persuading them to stay"

To do this, I need to know what the risk of churn actually means for me and my customers and how I can recognize it in good time.

You need two data sources that are very important:

• The master data of the customers.
• The behavior. 

"At risk of churn" means that we have to analyze in some way and recognize in some way what the data means and act accordingly in a timely and correct manner. 

How can we recognize "customers at risk of churning"?

Very simple: by their behavior. However, this is an aspect that some CRM systems have tended to neglect or manage carelessly. This is precisely what quickly becomes a danger in the subscription model. 

In the past, CRM systems were more about recording and storing master data and resubmission, i.e. contact data and socio-demographic factors and, at best, appointments and purchase data. 

However, when it comes to analyzing customers under the keyword "at risk of churn", we also absolutely need information on the current behaviour of our customers. Not every CRM system is prepared for this. Only an open CRM platform, such as HubSpot, is suitable for this.

We often talk a lot about the customer journey, i.e. a customer's journey with us and our company. From the first contact to the purchase or enrollment in a subscription model. 

© Taipan Consulting

Over the hopefully many years together as a loyal regular customer who often and gladly recommends us to others. This is something we marketers have actually always done. We look at behavior, at the flow of customers through the customer lifecycle.

We try to retain customers for as long as possible and generate as much revenue as possible over the entire lifecycle. We make every effort to ensure that the customer is satisfied and remains so for a long time, and we make purchasing decisions easy and the purchasing process simple.

We offer remarkable support and take care of the customer as best we can.

If problems arise with the product or service, we use them as an opportunity to make customers even more enthusiastic about our offering.

Subscription models make it very easy for customers to become customers

But also very easy to switch providers again. Think of telephone contracts or monthly rental instead of buying software. (SaaS) 

Providers that are firmly integrated into their own customers' processes have a higher chance of loyalty, but ultimately the market decides whether a customer stays or not.

How can churn management prevent cancellations?

Critical aspects of the subscription model for the CRM system are to "recognize" the current behaviour of customers, evaluate it and act accordingly.

In times of the pandemic, we ourselves have clearly felt how much it restricts us humans when we can no longer see some of the facial expressions of our counterparts. The aspects of person-to-person communication can also be wonderfully transferred to online business, you just have to observe people's behavior.

People's behavior is a very important factor, but unfortunately it is often dramatically neglected in current projects and so far in the consideration of CRM projects.

If you want to focus on churn management intensively, then you need a customer management system in which you can collect both master data and data on people's behavior. Can your current CRM system do that?

Why the funnel and pipeline are not enough!

Differentiate between inbound marketing automation and a pipeline. Of course, you can reduce people's behavior to observing how consumers, prospects, people and users move through the individual phases of the customer journey on your website.

The most well-known model in online marketing is the marketing funnel or the customer journey. This means that you assume that you will deliver the right content in the respective phase, i.e. the right content, but also trigger the corresponding reactions through a call to action (CTA).

You then observe how well the prospective customer interacts with this content. In the first phase (Awareness), you offer the prospect content to get to know and appreciate the topic. In the second phase (Consideration), alternatives are then shown, and in the third phase (Decision) you offer specific price comparisons.

If you can see that your prospective customer spends several minutes on the price comparison page (phase 3), looks at it repeatedly and also uses the quote calculator I offer, then this is behavior from which I take a clear signal: He's obviously about to close. 

In a B2B situation in particular, there is the classic pipeline model: With profits and losses calculated accordingly. You qualify your sales opportunities and have opportunities calculated as a percentage for these different phases. As we all know from Solution Selling Forecast conversations.

But at the end of a project, there is still more. For us in the subscription business, it's absolutely fatal to stop thinking after the customer has signed the contract. We can't get lazy now. Of course, we are delighted to have gained a satisfied customer, a "New Logo". But now the subscription business is just starting to get exciting. 

The flywheel model using Amazon as an example

Amazon has introduced us to the idea of thinking in terms of a flywheel. There are individual phases that fuel the following phase, i.e. use and drive the momentum in this flywheel.

So how can we create momentum and push the model unchecked and without delay?
The selection, i.e. a selection of products, leads to the customer experiencing an outstanding customer experience. (Customers who bought A also chose B). As a result, they spend more time on the website or in the store and generate more traffic and orders.

The more traffic there is on the store, the more attractive it naturally becomes for external sellers who can present themselves well on this platform. And the more sellers there are, the more attractive the available offer in the Selection area becomes for individual customers.

© Amazon

This is the flywheel thinking of Amazon and HubSpot.

These market players have fundamentally changed the contemporary marketing theories.

You can say that it is much more sensible to move from the old funnel thinking to flywheel thinking. I therefore advise everyone to look at this aspect when selecting a CRM system today.

From this example of a mindset, I have started to develop a model that I call the Subscription Business Flywheel, because I firmly believe that the Flywheel thinking, the flywheel thinking, also makes much more sense for us in the subscription business. 

We like to offer customers a certain amount of choice. This makes it easier for them to become our customers. And they experience a corresponding customer experience with us in our Subscription Business System, in our Subscription Business Model. This, in turn, means that they stay longer and consume more, and that we can observe correspondingly sought-after traffic on our system.

>>In other words, if we combine churn management with the flywheel as a thought model, we can observe different triggers and signals in the system and of course act accordingly.<<

This is totally exciting because it represents the recurring element in the business relationship.

Subscription Business. What exactly does the customer's behavior mean?

You can interpret different customer behavioral signals from different phases very well.

• DISG color model
• Demographic data
• Net Promoter Score
• Customer service data
• Select and Expand Phase
• Analysis of the signals of the RFM segments

The DISG color model of buyer types 

Is the customer/prospect a red-yellow-green-blue type? If I know the buyer types and have ideally also noted them accordingly in the CRM, then I can align my communication towards my customers or potential customers according to psychological aspects and have less wastage to worry about 

Or I can perform an analysis based on demographic characteristics, which I can interpret and use accordingly.

The classic customer service data

In the area of traffic:

• The usage intensity - how often and how intensively does the customer actually use my business system?
• How is the payment available?
• What additional downloads does the customer have?
• Is he an active user?
• Which social media signals can I interpret around the traffic and
• What search queries does the prospective customer or customer make on my website?

The Select and Expand Phase

That is, what does it mean when the customer comes back, enters the next step, orders additional features, or even makes another purchase. 

Analyzing the signals of the RFM segments 

You take a close look at the RFM segments, the segments that stand for Recency, Frequency and Monetary Value.

R- Recency: When was the last time the person bought? How recent is it?

F- Frequency: How often and how regularly does the customer buy from me? 

M- Monetary Value: Which average shopping cart value, which average customer lifetime value is behind the respective customer? 

The RFM segments are an empirical method that is heavily dependent on data from analyses and from the CRM system. 

While many marketing approaches simply look at demographic data, RFM analyses add the enormously important component of behavior to the strategic aspects of campaigns. 

For this purpose, the purchasing behavior is considered and precisely analyzed.

This means that typical signals are also considered and offer the opportunity to view the classic e-commerce KPIs (key performance indicators).

In the context of subscription business models, this means, for example, consumption-based components or upgrades, up-sells, cross-sells.

Upgrades and upsells are then positive follow-up decisions for your customers. As a basis, the intensity of use always provides the decisive factors and signals. Does the customer use my product regularly? Or does he actually only use it sporadically?

I want to communicate particularly intensively and particularly frequently with consumers who use my product regularly for good reason. For those who only use it sporadically, on the other hand, I suggest new possibilities and ideas. 

To anticipate an important interpretation: If someone hasn't been in your system for a long time and hasn't used and deployed a system for a long time, then that could be a signal that they are hugely churn-prone. And there are actually very few exceptions.

I am currently looking after a customer where there is a very drastic exception in this area. You can't conclude that the intensity of use in their system necessarily has anything to do with churn or not. But in pretty much all other situations it does. 

The more intensively a customer uses the system, the less likely they are to churn and leave your system.

So fewer logins and less use of individual content are an alarm signal.

Of course, you still have to take this interpretation with a grain of salt. You can't make an absolute linear connection. Just because I haven't logged into my streaming site or my news paper site for 14 days doesn't necessarily mean that I'm at risk of churning. It could be that I was ill or on vacation. But it can be interpreted in combination with other factors.

We can combine many of the visible behavioral factors quite wonderfully. And only then can we make the right conclusions.

Could it be that we need a lot of marketing technology for this?

A lot of software modules and artificial intelligence to be able to make precisely this interpretation in the first place?

Not necessarily. But it does mean we have to carefully collect and evaluate the data from the individual systems, such as CRM systems, such as the appropriate ticket or hotline management system. Almost everyone has their keyword, such as the right content management system or their store system or order system. 

How can you combine the individual components with each other?

For one customer, we had the objective of ensuring that customers who had placed an order in the online store were emailed their tracking information in the shortest possible time, that they were then removed from the retargeting logic in the marketing automation system and then immediately registered as a new customer in the customer service system. As a result, they are immediately recognized when they call.

The sum of the factors are the ways in which we take churn management into our own hands, pick out the right interpretations and establish the right workflows.

What makes a good CRM

In addition to the usual resubmission and the setting of appointments according to purchase dates, there are classic "if-then" assumptions. This is how a workflow is mapped

Sticking with the topic of churn management: I have to combine my customer data smartly. 

To do this, I need not only the master databut also behavior-oriented data from a wide variety of segments. I need this data from a wide variety of areas. Define who is a decision-maker and who is a sponsor. Store it in the CRM. But I can only find out whether this decision-maker also has a high NPS score by tracking customer experience data.

Which customers have more than 80 percent quota consumption?

This is of course very interesting information that my team needs, or customers who have a contract renewal in the next X days and much more.

These are factors that I need as a basis for my marketing campaigns. I touched on the DISG model earlier. Red-green-blue-yellow type. In other words, is someone more of an adventurer or is he the one who makes quick decisions?

This is information that we can feed back into the system in order to then trigger interpretations of how our flywheel can turn faster

Or in the next phase, we look at ideas on how to use interpretations and workflows to better interact with our customers in the customer experience phase.

The right CRM is able to store and maintain both master data and behavior-based data. It is based on an API Economy. This means that it can be easily integrated via a wide range of APIs with a wide range of current and future systems. A simple and flexible automation interface is important.

Expanded ad retargeting 

CRM-based advertising means: I use the data that I have collected in my CRM system to control the corresponding retargeting on the various advertising platforms.

Specifically, if I can see from the behavior and usage intensity that, for example, the contract is about to enter the renewal phase or that someone is at risk of churning because they no longer use the system frequently.

This can then be an interesting basis for controlling appropriate retargeting advertising. Or I can offer individual value-added services based on the information.

I can also use this type of information from the subscription management system wonderfully in an expand phase to control my booking systems and my CRM systems. 

This is even possible in small, very small environments, e.g. in the combination of a Shopify store with a Klaviyo email marketing system that sends me the signals by email.

So it doesn't have to be rocket science. You can start with very small means in the world of the Subscription Business Flywheel and gradually add more complexity and collect more information.

© billwerk.de

Why the subscription business flywheel is a very complex but
rewarding topic

The NPS score serves as a working basis for interpreting the workflows and thus the links and signals. The only important thing is that you can also store this information in a structured way in your own CRM system.

In different situations, I often find myself weighing up Salesforce and HubSpot, and it's always a neck-and-neck race and comes down to nuances as to which is more suitable in each individual case.

Which values the manager should see in the Subscription Business on the dashboard

It is interesting to see which high value or "VIP" customers are currently using the knowledge base intensively. There must be a reason for this. Either they are not getting on well with my system at the moment, or they are latently looking for an extension.

Or new customers who can't complete the onboarding program in the allotted time and for whom the number of open tickets is therefore perhaps significantly higher than average.

The churn score, i.e. the ranking of how likely a customer is to churn, can also be used as a trigger for the telephone queue. In particular, a permanently overloaded customer service department must have some form of control over the order in which calls are answered

Should the person wait a long time or not wait so long, should they perhaps skip the queue? How would it be if churn-prone customers could get their turn faster? A customer service employee should also immediately see this as the first piece of information when speaking to a customer. "Be careful, this person is currently dissatisfied or even at risk of churn."

How to evaluate customer conversations?

For example, structured questionnaires can be used to prepare the unstructured information in such a way that it can be interpreted and used in the system.

Another step would be to express congratulations or thanks. For example, if low-value customers have used 100 percent of their quota. Perhaps they can be activated to upsell. Or a high-value customer with a sharp decline can be reactivated through direct contact and tips. This increases the customer live-time value.

Accounts receivable, invoicing and payment also generate transaction data, which provides a wealth of (information), particularly with regard to the RFM segments.

Just like the calculated risk of churn, the revenue development of a customer should be easily visible in the CRM and you need insight into the Monthly Recurring Revenue HeatMap. 

Is the company struggling? Is it dissatisfied? Ultimately, you can use this heat map to provide customers with appropriate support and to operate churn prevention professionally.

© billwerk.de

How much will the flywheel and all processes docked to it be restricted by GDPR, e-privacy and cookies in the future?

Many interpretations can be made without us having to assign the behavior to an individual customer profile. This means that I only need to know relatively generically what percentage of my customers are a red type, for example, in order to design the newsletter.

Or I need to know relatively generically which categories the individual customers fall into. This means that I don't even have to assign many of the interpretations to an individual profile.

Data protection naturally plays a major role, no question about it. This means that we will comply with all rules without ifs and buts.

There are regulatory requirements, that is clear, especially in the context of personalized data. This is precisely when a modern CRM platform is important.

Conclusion and the most important tips

Although we've said that there isn't really one ultimate churn hack, here's my favorite named first:

• Don't underestimate your customer reviews Take a closer look at the customer reviews. Pay attention to what customers say or write about your program, your offer, your software as a service.

is perhaps the right review platform for a consultant. In the consumer sector, it's

or other platforms in any context.
• It's interesting that for every additional star on Yelp, the revenue of the company cited increases by 5 to 9 percent.
• Customers spend 31 percent more when a business has positive reviews. 68 percent of customers write a review if they are only asked to do so. So ask your satisfied customers for good reviews more often.
• Try out how you can work out the shopper types by color and a kind of health index for each individual customer and use this information in customer service. Visualize your KPIs on a dashboard for all employees to see.
• Make an audit in which you identify the sum of all churn management touchpoints for your company 
• Define the action areas that need to be done in order to then implement a customer review in Workflow, for example. 

I hope you were able to take away a lot of helpful impulses from reading this article, on the basis of which you can now plan effective further steps for your own churn management. Give me a call if you have any questions.