Shweiki Media teams up with Kathy Greenler Sexton, CEO and publisher for Subscription Insider, to present a two-part webinar on magazine subscription renewals. In Part One, we discussed how renewals and subscription businesses are a hot business model. Today, Part Two will cover specific retention reports of magazine subscription renewals.
Renewals increase profits, growth and brand relationships. For the subscription business, the key element of subscriptions is renewals. According to Fortune magazine, “It’s a subscription economy and you’re just living in it.”
Measuring Retention Effectiveness
With magazine subscriptions, it is important to focus on measuring retention effectiveness. In order to understand retention opportunities and trends, you must have a simple way to track retention patterns. It is important to have a methodology that accommodates different billing periods and the fact that some customers pay for only part of a term, then cancel.
In an ideal world, you want your reporting system to be able to break up performances by channel, perhaps by the initial offer, free trial offer and also through billing terms. Each of these variables separate subscriber bases into different groups with different retention characteristics that have different leverage points. Make sure you are able to track different groups within the business and create a shared language of renewal rates across the organization. What will your standard time frame for renewals be? Almost all billing terms are 12 months or less and fiscal years are defined by 12 months. Therefore, 12 months is the most logical time frame to use. The reason why retention rates can be so complicated is because many businesses measure it differently.
Simple Retention Rates
A simple retention rate is a metric that freezes a group of subs and follows their attrition over time. First, you measure how many people from that group that are still standing. Some of them are paid members after a certain period and then divide them by the number of people who started. So, if you started off with four and ended with one, then you had a retention rate of 25%.
When would you want to use a simple retention rate and why? The strengths of a simple retention rate lies in its simplicity and readily available data. It is also important for budgeting and creating casting purposes because it tells you how many people are available to be renewed at the end of the year. It does not truly reflect the retention rate in terms of revenue associated with individual revenue subscriptions. For example, people who cancelled mid-year or after the first quarterly billing period may not be reflected well in a simple retention rate calculation. To account for those, you do an annual equivalent sub concept. This is the most accurate method of measuring retention because it represents a cumulative offer on subscriber volume and revenue is based on pooling all the months served and recalculating them in years. Each of the years count as a whole subscriber.
When and why would you use the annual equivalent sub metric? It is best to use this metric when aggregating offers into a single number or explaining revenue changes. It’s like counting eggs. Suppose you take an inventory of the egg supply and you have to describe it in terms of the number of full egg cartons you have. However, some of the egg cartons are only partially full. You would take all the eggs out of the carton and put them in one pile. Then, place the eggs into each carton and count the full ones. As a formula, the annual renewal rate is calculated by the total months served of all months of the period divided by the number of months in the period divided by the number of subs in the beginning of the period. This will get you to your true retention rate.
What can I do with this type of information? Take data and the information to start leveraging it so you can understand specific drivers within your subscription business. There are three retention yoga positions.
- Look for the Gap: The causes for gaps are generally driven by a single lifetime event for something that routinely occurs at the same time for each subscriber based on the number of months they have been a part of the service. Review activity across all teams to understand what is driving this.
- The Fingers Pattern: Numerous groups show a drop in most recent months producing a series of downward lines that look like fingers. This is usually related to single calendar event that affects all subscribers simultaneously such as service outages or system problems.
- The Downward Slide: This is a slow trend that affects a significant number of start groups in comparison to historical averages. It often begins as a subtle change that becomes more pronounced over time.
Basic retention yoga uses retention metrics that provide good overview for what’s happening in your subscription business.
Detailed retention gymnastics are reports that enable you to track all the key drivers of retention and behaviors of subscribers.
When you are setting up your bank statements and renewal notices, even if they are automated, make sure they are not ugly. It is important to understand what your customers are seeing because many ignore what their bank statements and renewal notices look like. They should have the right company name on it, be legible, and has the product name. This way you are re-emphasizing value propositions of why people bought the subscription in the first place. It is a great marketing opportunity to re-engage.
It is also important to leverage analytics. It is the intelligence you can use to drive subscription business by understanding active and inactive subscribers. You will be able to quickly enact different programs through your renewal marketing efforts to really make sure renewal rates are being maximized.
Renewals are why subscriptions are such a great business model. It takes a lot of work and many companies ignore the whole art and science of renewal marketing to focus solely on acquisitions. That is a shame because renewals are where the profitability and growth engine are for subscription business. Take care of your golden egg, focus on renewals and you will have a profitable subscription business.