Customer churn is a major concern for companies with a subscription-based business model. The loss of a customer is not just a one-off financial hit but a driver of recurrent revenue loss. It generally costs 7 times more to acquire a new customer than it does to retain one, so companies that want to continue to see growth need to make sure they are approaching their customer retention with the right strategy.
Ideally, you want to prevent customers from getting to the point where they are considering or have decided to cancel. However, no matter how good your services are or how competitively you price them, you will always have some customer churn.
We will explore in this article the different techniques to manage cancellation requests, the mistakes to avoid and how to reduce your churn with a better cancellation process.
Table of contents:
1. How to handle customers who want to cancel?
There are different ways to handle customers who want to cancel. They generally fall into two categories: they must contact your team to cancel their plan or they can cancel their plan on their own.
The "Contact me" approach
The first approach is to conduct exit interviews or ask customers to contact you by email or chat in order to cancel. The goal is to save these customers and collect feedback. This method can work for some businesses that have a small client base but there are many disadvantages:
- It's time-consuming
- It leaves a bad impression for businesses with a self-service model because you made it easy for your customers to subscribe but difficult for them to cancel
- The client may not be honest if they have to do a face-to-face interview in order to cancel
- It's hard to analyze feedback to improve your product
The "Self-Serve" approach
The second approach is to have a button for customers to cancel their subscription in their billing settings. This approach allows for a slight reduction in churn without any particular effort. People like to feel in control and know that they have the option to leave.
There are 3 types of scenarios that can take place when the customer clicks on the "cancel" option:
- The customer is asked if they are sure about canceling their subscription
- The customer is redirected to an exit survey where the company collects their feedback
- The customer is redirected to a cancellation flow where the experience is more dynamic
We will see below why it is essential to collect feedback from people who want to cancel. A cancellation flow allows you to go further than an exit survey by collecting more personalized feedback based on previous responses or profile information and facilitates the implementation of retention strategies. Multiple companies that have implemented such strategies report to have reduced their churn by 15-30%.
2. Why should you make cancellation easy?
It is important to have a cancellation process that has as little friction as possible and that is simple for users to find. If users can't figure out how to cancel your service, it doesn't mean that they will give up and you have prevented churn. They will contact your customer support, and if they have trouble doing this they may turn to social media to publicly complain about your brand, or to other channels such as app stores, review sites, or forums. This can tarnish your company's image and prevent new customers from signing up. Hiding your cancellation process can, therefore, have negative consequences on churn as well as on future acquisition.
Losing customers is a reality of business and should not be looked at as a failure or a lost opportunity. You must instead look at the positive impact churn can have on your business. Customers who have canceled will be more likely to renew their subscription one day if they leave with a positive experience. Also, a customer that enjoyed your product but decided to cancel for reasons unrelated to your product's features can still be ambassadors who will share a positive experience of your service with their friends and colleagues.
Overall, it is important to be nice to your users and treat them with respect. Wish them good luck, thank them for their membership and show them that you are always ready to continue working with them.
3. Why should you collect feedback from customers who are canceling?
If you don't know or are not sure why your customers are leaving, you can't figure out what is wrong to fix the underlying problem. In order to reduce your churn, you have to learn from it and fix the issues.
Churn feedback gives you a better understanding of how well your product meets your customers' expectations and requirements and helps you prevent future cancellations. Even if your client is about to leave, don't miss the opportunity to ask your client's opinion on their experience, reasons why they left, and how your product could improve.
The best time to ask your customers for their reasons is at the time of cancellation. They are still thinking about your product, and emails sent after they have canceled generally have very low response rates.
4. How do you stop customers from canceling?
Here are a few strategies which are part of a subscription cancellation flow:
Remind them why they subscribed to your service and what they are going to lose (remorse bias)
If they choose to click on the "cancel" button, the first step is to remind them of the value of your product and what they will lose out on (as well as data, history, etc.). You may also show them their last activity and that some members of their team are still using the product. The goal is to help them remember why they initially signed up for your service.
Allow them to pause their subscription
Your customers may want to pause their subscription instead of canceling it altogether for many reasons. For example:
- they do not need to use the service for a short span of time because a project is delayed
- they are not present at their location temporarily
- they have had a cut in their budget due to temporary circumstances
When appropriate, customers should given the option to pause their subscription for 1, 3, or 6 months, otherwise, they will cancel their plan anyways and will be harder to win back in the future.
Find out their reasons for leaving and provide personalized reason-based offers
15-30% of your customers will churn for reasons that could easily be prevented with a quick fix or better communication. Here are some examples:
- They not been correctly on-boarded
Offer them an extra free month and schedule some coaching sessions with one of your team members.
- They are missing a key feature
Offer customers access to your roadmap. You can excite them about future releases and give them visibility into what's coming next. You should also ask which specific feature they are missing. You might already have it, have a workaround or you can probably win them back once this feature is implemented.
- They had a problem and the customer support team didn't answer properly
Apologize and ask them if their problem has been resolved or not. If not, offer immediate assistance (schedule a call, open a chat). You can probably save them too.
- Your product too expensive
They may not be using all your features and don't see the value of your product, or you could offer them to switch to a lower plan or offer them a discount.
- They were on a paid trial that was automatically renewed and wants to cancel
Offer to extend their trial period. They may be comparing different products and need more time before making their decision. This positive experience shows your commitment to the customer and can help make you stand out from competitors.
5. Identify at-risk customers and prevent them from churning
It's great when a good cancellation flow saves a customer. Nevertheless, it is essential to understand that customers saved by your cancellation flow should always be considered as being at a high risk of cancellation. They have already shown an intent to cancel because something went wrong. You may have managed to prevent them from canceling, but you haven't fixed the problem.
You need to contact them to understand their problems and get them back on track.
6. How come a customer hasn't churned when they cancel?
A cancellation does not necessarily mean that the user has churned. Most subscription plans are paid on a monthly or yearly basis. In either case, when a user cancels, they usually still have access to the service until the end of their billing period.
This means that there is still a window of opportunity to win them back. Working to win someone back who is still an active user or who still has access to your product has a higher chance of succeeding than trying to reactivate a customer that no longer has access to your product.
There are a number of different strategies you can adopt to address these users that are in the process of churning.
7. How to win back customers that have churned?
If you have a cohort of ex-customers who have churned for reasons that you have addressed or problems that have since been fixed, you have an opportunity to try to win some customers back.
For example, if a certain integration with your product was not available or a feature was missing and these have now been added to your product, you can build dedicated campaigns to inform previous customers who canceled because of these missing features. Other examples could be the poor user experience that has been reworked and improved, or the inability to provide the appropriate level of service for certain kinds of customers.
8. How to analyze customer feedback?
Feedback should first be categorized. This will allow you to get a clear view of how customers see different aspects of your business. The overall goal of segmenting and categorizing feedback is to identify the root cause of the problem in order to develop the appropriate solution.
You can learn a lot by aggregating & categorizing feedback, but to truly understand what the feedback means for your product and your company, you have to segment responses using key criteria such as:
- Subscription plan type
- Subscription payment plan (monthly or yearly)
- Subscription length
- Features used
- Company industry
- Company size
This is just a shortlist of criteria you could segment responses by as your segmentation criteria will depend on your product and business model. By segmenting feedback, you'll be able to identify which groups of customers are having problems, identify trends, and prioritize what problems need to be solved first based on the value of each customer group.
I hope this guide has helped you see more clearly how to manage cancellation requests and analyze churn. This process can have a huge impact on your company/product but is often neglected.
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