opinion

Burn the Churn, With Cancel/Keep Discounts

Burn the Churn, With Cancel/Keep Discounts
Cathy Beardsley

Like so many things in life, business is a constant balancing act. Imagine what it’s like for a tightrope walker. Their high-wire acts can look effortless even though they’re juggling many complex challenges like perception and motor skills. To be successful, they find their “sweet spot” or the perfect conditions to balance with little effort. It’s that sweet spot you want to find in business when it comes to customer retention.

You can offer your best service at the best price but you will still lose customers eventually. Recently, Recurly, a subscription-management platform, looked at more than 1,200 subscription businesses to determine churn benchmarks. The 12-month study looked at the median monthly churn rates by industry type. For Consumer Goods & E-Commerce the churn rate was 9.31 percent, Box of the Month Clubs were 10.76 percent and Subscription Video on Demand 11.85 percent. While you can’t stop all churn, you can take steps to minimize it, and retain some of those customers who otherwise would have left.

Even with the retention discount, the cost to keep a customer is far less than the cost to acquire a new one.

Segpay isn’t just a payment processor, we’re a customer support company, too, handling consumer billing inquiries on behalf of merchants for more than a decade. Good customer support is critical to keeping customers happy and minimizing churn, especially in recurring revenue models which depend on long-time customer memberships. Of course, even then, cancellations are going to happen. Which is why our merchants use retention offers — discounts or other incentives presented to customers at the moment they request cancellation. Since Segpay rolled out Cancel/Keep retention offers last year, the overall retention rate increased to 6 percent, with some merchants seeing rates as high as 10 percent.

Here’s how it works, Cancel/Keep offers allow merchants to create a discount (either a percentage or fixed amount) to present to a member who wants to cancel. These offers take only minutes to create, but the benefits can be substantial, saving merchants money in the long run, since the longer you can retain a customer, the higher lifetime value that customer brings to the business, while reducing overall customer-acquisition costs.

Even with the retention discount, the cost to keep a customer is far less than the cost to acquire a new one. Once you’ve invested in the marketing and sales efforts that brought that existing customer in the door, all recurring revenue from that customer is the gravy. Retention offers help keep that gravy train chugging along.

Segpay’s retention offers are presented whenever a customer requests a cancellation either online or over the phone. We also track the results of those offers. For customers who ultimately cancel anyway, we also track the reasons they give. If a large number of cancellations are because the service is “too expensive” you could increase your discounts at the point of cancellation. Since these members were going to cancel anyway, there is minimal risk with the potential for long-term rewards.

It took only three years for Cathy Beardsley to turn startup SegPay into a profitable company. As president and CEO, Beardsley oversees the day-to-day operations and long-term strategic planning for the company. SegPay is one of four companies approved by Visa USA to operate as a high-risk internet payment service provider in the U.S. Since 2005, SegPay has offered online merchants a state-of-the-art billing platform that provides realtime payment processing around the globe.

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