Subscription businesses are on the rise.
When shoppers were pretty much forced to buy their essentials online during the pandemic, it became an easy way to get much-needed products delivered every month. Nobody wants to run out of loo roll, deodorant, or razors at short notice.
But subscription boxes also became a valuable way to treat ourselves during endless lockdowns. A fresh selection of wine delivered every month that we could quaff with our latest Netflix binge? Yes, please! A box of arts and crafts activities to keep us busy when we couldn’t see our friends? Absolutely.
And now, even though lockdowns are lifting, consumers are still keen to get monthly deliveries from their favourite brands.
In fact, subscription-based businesses have been growing 100% year on year for the past five years. It makes sense that this business model is the go-to for many eCommerce brands since 80% of your future sales come from 20% of your existing customers.
Here’s the catch: 72% of eCommerce subscription customers don’t make a second purchase within six months of their initial transaction. So how can you keep people coming back and ensure they eagerly anticipate their monthly delivery?
How do you retain customers for subscription boxes?
Customer retention is crucial for subscription box brands. Capturing new subscribers is only the first part of the struggle.
Once you’ve secured that initial payment and the first box has been shipped, the real task begins: ensuring the customer continues to renew their subscription every month and continues to get value from their monthly delivery.
We’ll cover some key ways you can increase subscriber retention rates later in the piece, but first, let’s take a look at what retention rate actually looks like in this eCommerce business model.
Retention vs churn rate: what is a good retention rate for subscription businesses?
Retention rates will vary depending on the kind of products you sell and who you’re selling them to.
Research by Recurly shows that consumer goods have an average subscriber churn rate of 8.56%, while a “box of the month” has an average churn rate of 9.41%.
Another piece of research shows that the best subscription businesses manage to retain more than 65% of their revenue after one year. From this, they gather that retention above 50% is in the top quartile, while 42% is the median. The majority of subscription-based businesses have a retention rate somewhere between 40% and 45%.
How to calculate subscriber churn rate
To work out whether your churn rate is on par with others in your industry, you need to know how to calculate it.
Use this formula:
Customers lost over the month / number of customers at the beginning of the month x 100
For example, if you started the month with 1800 customers and lost 60 throughout the duration of the month, the subscriber churn calculation would look like this:
60 / 1800 x 100 = 3.3%
Your churn rate in this instance would be 3.3%.
How to calculate subscriber retention rate
As well as knowing your churn rate, it helps to understand your subscriber retention rate - that is, how many people stick around each month. To figure this out, use the following formula:
(customers at the end of the month - new customers acquired during the month) / number of customers at the beginning of the month x 100
For example, if you started the month with 1800 customers, acquired 100 new customers, and ended the month with 1750, the calculation would look like this:
(1750 - 100) / 1800 x 100 = 91%
Your subscriber retention rate in this case would be 91% (a.k.a. amazing!).
Why is retention important in subscription business models?
Not only does strengthening your retention rates mean you can generate a steady stream of revenue, but it also indicates a high level of customer satisfaction–people are unlikely to come back if they’ve had a bad experience with you.
Retention is important for growth and, because it instills trust and builds credibility, it makes it easier to promote new products to people and attract new customers based on social proof and brand awareness.
Let’s look at the nitty-gritty:
- Better affordability: it costs five times more to acquire new customers than it does to market to existing customers, reducing your ROI and outgoing costs.
- Increased ROI: improving retention rates by just 5% can increase your revenue anywhere between 25% and 95%.
- High-quality referrals: satisfied, loyal customers are likely to refer your brand and products to their network who are likely to be your ideal audience.
- More sales: existing customers spend more money with you and buy more, which means you can upsell and improve revenue without generating any new customers.
- Increase CLV: the higher your retention rates, the better the lifetime value of your customers will be.
The bottom line is this: if you’re not focusing on increasing retention rates, you definitely should be! If you don’t know where to start, we’ve got you covered:
Tips to increase your subscription retention rates
Personalise the experience
In a study by McKinsey, 28% of subscribers said that a personalized experience was the most important reason for continuing to subscribe.
Consumers today want an experience geared towards their own unique wants and needs and, even if you sell and ship just one type of subscription box, you can still make it personal to each subscriber.
Birchbox is renowned for its customization options that let customers choose products based on their skin type and beauty regime. Likewise, wine subscription brand Firstleaf personalizes customer boxes by providing an initial quiz to curate the perfect wine experience.
Offer customers flexibility
Consumers hate feeling locked into long-term payments they can’t control, and it makes them far more likely to churn at the first opportunity. Remove this option by making it easy for subscribers to skip, edit, cancel, or delay subscription orders at any time.
You can do this by SMS, providing a personal and quick route to edit their subscriptions in real-time. Take a leaf out of Ghia’s book. They let customers move their subscription order forward (or push it back) with one simple text message.
Continue to engage subscribers
The deal isn’t done the moment a customer signs up. To keep them coming back, you have to continue to engage them throughout their lifetime with you. Try using the following methods to create conversations and secure long-term loyalty:
- SMS marketing: deliver personalised promotions and rewards, share interesting tips, and open up a two-way dialogue with subscribers
- Content: create content that tackles their pain points and helps them get even more value from their subscription boxes
- Newsletters: stay in touch via email by sending out regular round-ups of your latest content, new products, and insider news
Ghia sends its subscribers curated playlists to stay front of mind and add another layer to the subscription experience.
Reward loyal customers
Everyone likes getting recognition, and rewarding customers that keep coming back will cement their trust in you and help turn them into referral ambassadors.
Rewards don’t just have to come in the form of money off or freebies. Instead, think about offering the following:
- Private groups for customers where they can ask questions and share their experiences
- Giveaways or contests open only to your best customers
- Referral programs that reward subscribers for sharing your products with friends and family
- Action-based rewards, like a discount for providing a review or a freebie for upgrading a subscription
Make renewal easy
One of the biggest causes of churn is expired credit cards.
People forget to update their details and, come renewal date, their card gets declined and their subscription gets cancelled. This is known as involuntary churn (which accounts for up to 40% of subscription churn) and can be avoided very easily by making it as easy as possible for subscribers to update their payment details and renew their subscriptions.
Offer incredible support
For 86% of consumers, a good customer service experience can turn them from a one-off buyer into a long-term brand fan. On top of this, 93% of shoppers are likely to make a repeat purchase with a brand that offers excellent customer service (an important stat for subscription box brands).
Provide a great experience by answering common customer questions, creating fact sheets and help desks for customers who want to self-serve, and responding to complaints and queries as quickly as possible.
Get subscribers involved
Subscribers are more likely to stick around if they feel like they’re a part of something. Creating a sense of community around your subscription boxes might look like sharing user-generated content, encouraging customers to post unboxing videos, inviting reviews and feedback, and interacting with customers on social media.
Stationary subscription box Papergang re-shares customer content about its boxes on Instagram.
High retention rates are the holy grail for eCommerce subscription businesses
If you hadn’t already gathered, retention is crucial for subscription businesses. The whole model relies on getting customers to return every month and renew their subscription while growing your user base from the front end. Blueprint’s SMS messaging feature can help open two-way conversations with subscribers, engage them throughout their journey with you, and personalise their experience.
Blueprint integrates with leading eCommerce subscription platforms - including Recharge, Bold and Smartrr - to enable subscribers to flexibility manage their orders via SMS. Book a demo today to see it in action.