Churn converts directly into lost revenue, and if churn outpaces your acquisition, then your app’s revenue is not growing or declining. The reasons for churn and the right tools to prevent it is key to business growth. In this article, together with Alice Muir and Paulo Golovattei from Phiture, we’ll review the approaches to measure, prevent, and decrease churn.
How to measure churn accurately
Identifying, measuring, and understanding subscriber churn is essential for an app’s growth strategy. There are a few essential questions you should consider. Without answering these questions, you risk wasting your time testing some random strategies. You can even make things worse if you are not properly measuring churn and LTV, and instead start haphazardly changing the pricing and features of your app. You may be losing revenue in the long run without even realizing it.
What is your churn rate?
The first thing you should understand is how to calculate churn rate. Customer churn is the percentage of users that stopped using your service within a certain timeframe. You can calculate the churn rate by dividing the number of customers churned during a certain time period by the number of customers you had at the beginning of that period.
Churn rate = Number of churned subscribers / Total number of customers at period start
For example, if you start the month with 400 subscribers and 20 cancelled their subscriptions during the month, your monthly churn rate is 5%. The churn rate directly affects your subscribers’ lifetime value (LTV), which is probably the single most important metric of your app. You should be focusing on maximizing the LTV. It needs to be higher than your subscriber acquisition cost.
LTV = Subscription price / churn rate
You can immediately see from the formula that the higher the churn rate, the lower the LTV. This is why measuring and reducing churn is so important. This formula works under the assumption of a linear churn, in which the percentage of churning subscribers is the same for every billing period. The reality, of course, is more complex. The churn rate of subscription apps is never linear, and calculating LTV can be much more complicated.
You can find more details on calculating mobile subscription LTV in this article. It includes the Excel template that you can use to quickly get your LTV estimates using your app’s historical data. You can also get the LTV projection based on several historical data points.
At what point are the subscribers churning?
The actual mobile subscription churn is not linear. Subscribers leave at a higher rate in the first billing periods. Here’s a sample churn curve for a monthly subscription plan.
Our data shows that the median churn rate after the first billing period for a monthly subscription is 42% and declines gradually with every month.
It’s clear by looking at this chart that it’s most important to focus on decreasing the churn in the first several billing periods as it provides the highest leverage compared to targeting later periods.
Another important piece of data concerns free trial cancellations.
Providing free trials has proved to be effective for consumer subscriptions. Our data shows that subscription plans that offer free trials drive 70% of the total apps revenue. The question is whether it’s necessary to calculate the trial cancellation rate into your churn metric somehow. Well, that’s up to you. You need to understand that, while free trials are an effective way of monetizing subscriptions and getting people to try your product, more than 50% of trials are canceled.
We have issued a subscription benchmarks report at Qonversion, and it shows the following. First, 40% trials are canceled within the first 24 hours after the trial starts, and second, between 70% and 85% of trials do not convert into paying subscribers. There isn’t massive potential to increase your subscriber base by addressing customers churning during a trial period.
What are the reasons for churn?
Now let’s have a look at the reasons behind churn. It’s important to distinguish between voluntary and involuntary churn. When a user cancels a subscription on a trial, that is voluntary churn. But a significant share of churn is attributed to billing issues: a user cancels a trial, but the app store isn’t able to charge the user’s payment method to renew the subscription or to convert a trial into a paying customer.
Our data shows that at least 10% of churn is due to billing issues, and the levels of involuntary churn rate significantly for different countries. The tactics to address this type of churn are different compared to the tactics that address voluntary churn.
Qonversion tracks data on all subscription status changes including events like trial billing retries, subscription billing retries, trial cancellation, and subscription cancellation. The chart from Qonversion analytics above presents the details of all of these subscription events. This allows you to understand the reasons why users do not renew their subscriptions and to distinguish easily between voluntary and involuntary churn.
Once you have the accurate data on changes to a trial and subscription status, you can automate customer communication using this data. For example, using Qonversion, you can detect events like subscription billing retries or trial billing retries almost in real-time. Then you can trigger a push notification or send a personalized email to that user to try to win them back. Qonversion provides push notifications, webhooks to build any custom logic on your side, and integration with MailChimp, for example, to communicate with clients with billing issues or similar trial or subscription cancellations.
Once you explore the ways to analyze your metrics, let’s dive into approaches to help you minimize churn. In this section we will explore the experience of Phiture – the top European mobile growth consulting agency working with the teams behind the leading apps like SoundCloud, Headspace, Deezer, and many more.
Tips to prevent churn and increase retention rate
Tip 1. Start from the foundations of your app’s lifecycle
The first thing that you should consider in order to monetize your users through CRM, is getting them invested in the product. In short, if you don’t understand the core values of the product, then users are unlikely to recognize these values either.
You should be carving out a holistic strategy that first focuses on getting users through the different areas of the app’s lifecycle, particularly in these two areas: new users and onboarding these new users.
You should focus on activating them as well, making sure that you are pushing them along the life cycle so that they’re creating a habit around your core value prop.
Once you’ve gotten users activated and excited about the product, your conversion experiments can begin to be the most successful.
It’s essential for you to lay the foundations of your lifecycle strategy in order to support a robust monetization program. Taking this into account, we’d like to highlight the importance of early user experience in value perception, which is a must to prevent churn.
From Phiture’s experience, people in the growth industry often focus on optimizing funnels present in the paid experience while neglecting free user experience, even though value perception begins as soon as the user interacts with the product for the first time.
When it comes to early user experience, there are a few factors that can contribute to churn reduction.
1. Free user onboarding. At this stage, you should provide your users with the very best of your free experience, guiding them through the core features of your product. Focus on the one or at most two most valuable “aha” moments or features to educate your users.
2. Feature education and habit formation. At this stage, it’s important to educate users about the different use cases of your product in a very brief and clear way. Keep in mind that different personas and different types of users will engage with your product in very different ways. Understanding the values of each individual user and tailoring the experience accordingly is key to retaining those users and even to driving them into starting a trial.
3. Trial onboarding. The goal during trial onboarding is pretty much the same as the previous section. Always guide your users through the most valuable features. In this case, guide your trialers through the most valuable features of the paid experience and always keep highlighting the benefits of your subscription.
Tip 2. Segment Users
Once you’ve got those foundations in place, you know how to get started with your lifecycle marketing, and you’ve got your users engaged and excited about your product, you’re ready to dive into your monetization strategy. What we would recommend is to generate a deep understanding of the different user personas in your app.
There are a few variables that can really affect your monetization strategy and sometimes set you on a completely different path than you originally thought you were pursuing.
1. Level of engagement. You can segment users depending on their level of engagement. In some cases, you could even show them different upsell columns based on their level of engagement. An example of this could be showing the annual subscription options to more engaged users versus showing a monthly subscription to users that are less engaged.
2. Country, currency, and language. We recommend asking yourself, “What are my focus markets? Are they actually going to produce a return on investment on our efforts?”. Particularly if the app prices are localized as well, we want to make sure that we’re looking into that return and investment question carefully. As lots of CRM managers will tell you, localization in itself is no easy task. We want to make sure that we have a plan to tackle that. To learn more about how to track your LTV by country, read this article.
3. Auto-renew on versus auto-renew off. You might also want to segment users based on whether or not they have auto-renew on their subscriptions. If they don’t, then you might even want to test some more aggressive CRM campaigns, particularly around the final month or two of their subscription
4. Acquisition traffic sources. Depending on your type of product, you could potentially serve different upsell communications. For example, you might want to serve users that have come in through tech talk ads, for example, with video features. You might want to look at different types of content to offer based on those acquisition sources as well.
Tip 3. Break up your monetization strategy by stage
Then once you’ve got all of this foundation place and you feel like you’ve got a strong, clear, and focused strategy, we recommend you break it down into different monetization stages.
Trial starts. This is probably one of the hardest stages, because you’re attempting to get free users to actually pay for your product.
Free trial onboarding. Once you’ve managed to convert users to start a free trial, the last thing you want to do is to just wash your hands of those users and never speak to them again. We want to make sure that we’re guiding those users through the product and showing them the value of the premium product.
Trial to membership conversion. Depending on how long your free trial is, you might want to have a specific strategy for those final days of the free trial onboarding to ensure that you have the best chance of converting users into paid subscribers.
Membership retention. Membership retention is not dissimilar to normal or general retention. We want to make sure that we’re continuing to communicate with users and personalize our comms to ensure that they’re getting the value from the membership as well.
Churn prevention and win-back strategies. For users that have lapsed in engagement with the product or potential users whose subscriptions have already lapsed, you might want to carve out a separate, perhaps more aggressive, strategy.
Validate individual hypotheses for conversion at each particular stage of the monetization cycle, and once you know what works, you can create a scaled and automated user journey or “canvas” which runs in the background while you focus on other areas of the life cycle.
Tip 4. Customer Retention: the most crucial part of churn prevention
It’s well known in the industry nowadays that retaining a current customer is much cheaper than acquiring a new one. For subscription-based apps, customer retention is quite tricky because subscribers are often reconsidering their purchase decision at every renewal period.
That means that nurturing your relationship with current subscribers, and consistently showcasing the value of your premium products, is paramount, particularly when you have subscription-based products that rely on recurrent revenue. You need to keep your customers satisfied so they will renew at every renewal period.
1. Apply personalization to increase the relevance of the messaging to the user
In cases where your users are making conscious decisions to cancel a trial subscription, you can follow the next steps.
- Detect churn events and then send the push action, showing in-app messaging asking for the reason for the user’s cancellation. You could have, for example, an in-app message with some pre-populated reasons and then an open text field as well so you could gather some open text field responses.
- Once you collect the responses and rank the cancellation reasons, you can address the most important of them automatically – send them triggered notifications or in-app screens. If your users cancel, for example, because the price is too high, you should experiment with pricing and durations of the in-app products that you are offering. If there are some features lacking, then you need to consider adding those features. The general idea is that you need to identify and address the most popular cancellation reasons first. You can also quote these in-app messages.
- Create a notification based on your data. You can use the answers to obtain specific data on users and develop ways to personalize the messaging or the way unsubscribers reflect the reasons for churn. Otherwise, you’ll end up with the same generic push notification for everyone.
When it comes to win-back initiatives, there are plenty of strategies that you can experiment with. Instead of focusing on “We miss you”, you can also explain the benefits that the user is missing out on. Leveraging users fear of missing out in order to re-engage your users that are lapsing or even present them.
There’s this thing called Next Best Action: depending on your users’ behavior and your users’ previous behavior, you can pretty much predict the next best action that this user will take in the app to lead to engagement. Test these ideas and different approaches.
Try to avoid the “We miss you ” or “Where are you?” messages. These are generic and don’t evoke any emotion in your user. Try to focus on the benefits that the user is missing, and also try to nudge the user by providing them with something that is relevant and personal.
Use personalization as much as possible to showcase the value of your premium experience.
2. Identify common actions that lead to high engagement and to disengagement and design the user journey accordingly
Our second tip is to analyze and identify common user behavior that usually leads to high levels of engagement as well as to churn, and try to optimize your user journey accordingly. We recommend that you dive into the top 25% most engaged users as well as the bottom 25% least engaged users, and then identify the behaviors that lead to high levels of engagement.
3. Double down your attention to involuntary churn
Involuntary churn accounts for a considerable share of customer churn for subscription-based apps, and most of them are due to payment failures. The complex nature of financial transactions means that they usually require a payment to be validated by various gatekeepers.
There are plenty of intermediaries presiding over the transaction journey and this creates plenty of room for error. Reasons may include outdated payment details or an issue with the card network. There are therefore many steps within the payment journey that can lead to involuntary churn.
We recommend you double down your attention to involuntary churn and try to map the milestones on your products’ payment journey, the main reasons that lead to churn, and design automated solutions.
Let’s have a look at the example of involuntary churn automated communication. In this case, you want to remind the users to fix their payment method on file with Apple, Google, Stripe, or credit card. Here is an example of such a communication from Grammarly. They point to the fact that they haven’t been able to receive the payment and they provide the link to update the user’s billing details. You can trigger such notifications automatically with Qonversion.
In this article we explored in detail how to measure churn for your subscription app, how to turn data into actionable insights, and techniques to reduce churn with real-life examples. We hope these insights were helpful. If you’d like to reach out to our experts, please feel free to join our Slack community.
Whether you’re looking to automate push notifications, get in-depth insights about your customers, A/B test your subscription pricing, or set up a cross-platform infrastructure, we’re here to help. So don’t hesitate to reach out and we’ll happily discuss how Qonversion can contribute to making your mobile app prosper.
If you need any consulting in ASO, Performance marketing, Retention/CRM and Subscription revenue optimization, then reach out Phiture.