Consumer Insights

How To Lose Subscription Revenue — And How To Get It Back

Subscription Retail Gets Broken Down

It doesn’t matter if they sell snacks, cosmetics or a collection of nerdy knick-knacks – subscription retail programs have taken the market by storm. There’s not a retailer out there that wouldn’t jump at the chance to automate and optimize the steady revenue that these services provide, but with such eagerness to enter the race, some merchants often forget that while subscription programs may seem easy, they’re far from a set-it-and-forget-it type of doing business.

On the contrary, a new research report from subscription management firm Recurly broke down all the ways retailers are finding their ways in the wide world of subscription retail. To reach its findings, Recurly examined a sample set of 25 million transactions that occurred in 2015. Of these, 24.1 percent comprised B2B sales of subscription plans, while the majority 72.9 percent were B2C (with the remaining 3 percent occupying both categories). The report also found that 90 percent of physical goods transactions are in the B2C category.

Knowing what consumers are buying through subscription plans is only half the battle, though. Getting them to sign up is a whole other story, but Recurly found a curiously strong correlation between certain days of the year and promotion redemption rates that encourage sampling and trials of full-fledged subscriptions. Q4 2015 emerged as a particularly strong driver of coupon redemptions, with 15 percent of customers pulling the trigger.

On Cyber Monday alone, though, customers redeemed three times the number of promotions as any other day in a two-week stretch including Black Friday.

So there it is – if retailers running subscription programs want to get more customers in, there’s a clear time of the year and day of the holiday shopping season where they should focus their efforts.

But for every batch of customers to sign up for a subscription, there’s another one that heads in the opposite direction. That churn rate – a retail swear word if there ever was one – can define the long-term success of a subscription service, with some categories at a higher risk than others.

Recurly found that on the whole, subscription services with physical goods (10.6 percent) have higher churn rates by several percentage points than their all-digital counterparts (8.2 percent). That’s almost 20 percent more customers on physical subscriptions lost to the weeds. Q3 proved to be the quarter with the most churned customers for physical services at 11.1 percent, while digital merchants’ abandonments peaked at just 8.7 percent in Q1.

The solid majority of churned customers did so willingly, but Recurly also identified a number of involuntary churn incidents caused by credit card declines and other hiccups in the payment process. While just under 88 percent of the 25 million transactions studied processed successfully, average decline rates based on the dollar value of the transaction involved appeared to increase as the quarters progressed, topping out at 15.9 percent in Q4.

Recurly shared its likely hypothesis: The more shoppers rack up on their credit cards in the months before the holidays, the greater the chance that the next sizable charge might not go through. In fact, it found that decline rates increased almost exponentially alongside order value. Charges to B2C companies between $29 and $48 were declined at a 13.1 percent rate; for $49 to $88, that figure rose to 15.7 percent; for orders over $99, it spiked again to 20.9 percent.

It’s obviously a serious problem for subscription retailers that don’t have the consumer in front of them to prompt for another card. These card-not-present transactions can sink a seaworthy subscription program if it’s not careful, but even if retailers navigate into choppy waters, there are specialized ways to recoup some of that lost revenue. In fact, businesses were able to recover about 11 percent of that lost revenue through a combination of retrying originally submitted credit card information, updating information with a proprietary Recurly tool and simply resubmitting transactions that initially failed.

As a final note, the Recurly report emphasized that for some declined transactions, the rate of revenue recovery can be much higher than the average. For example, charges declined due to insufficient funds were salvageable in about 31 percent of all cases. Daily limit overages hovered around the 27-percent-recoverable rate, while temporary holds (about 13 percent recouped) proved the most resilient to retailers’ efforts.

TRENDING RIGHT NOW