Subscription businesses often struggle to manage their churn rate as business grows.
The problem is—you have to bring in the same number of new customers to keep your monthly recurring revenue (MRR) consistent. Fail to do so, and your revenue can drop. On top of that, if you want to set KPIs for growth, you need a strategy for both acquiring new customers and boosting the Customer Lifetime Value (CLV) or existing subscribers.
If your ecommerce brand uses a subscription business model, you’re probably keen to drive down churn rates while maximizing your monthly recurring revenue (MRR).
So, how can your subscription business achieve this important business goal?
The answer is simple but often overlooked: Dig into your subscription analytics. The data has all the answers for you.
Peel's analytics platform automates complex data for you by capturing data points directly from your store’s transactions. This gives you the detailed insights you need to attract, engage, and retain customers—all the factors you need to decrease your churn rate, sell more, and have a higher lifetime value (LTV).
Here are three strategies, driven by Peel subscription data, to improve your ecommerce subscriptions:
1. Acquire new subscription customers with data insights
Getting profitable qualified customers is the first step in maximizing your monthly revenue. If you're spending too much on acquiring customers and just breaking even, it'll bring down your monthly recurring revenue (MRR) by a huge margin.
By having in-depth data of your campaigns and customers, you'll make sure you're not killing your profits. Here's how:
Start by determining the exact ad budget: How much can you actually afford to not make any losses? How much should you spend to break even? How many customers do you need to make profits?
You already have the key metrics that you need to identify these numbers:
- Average order value (AOV): This is the average amount a customer spends on each order with you.
- Customer lifetime value (LTV): The lifetime value of your customers is the amount a customer spends with you throughout their entire lifecycle with your company. You can calculate this by a simple multiplication of their AOV and the average number of orders they make with you. For example, if the AOV is $10, and they order 12 times a year, for 2 years, the LTV becomes 10 × 12 × 2 or $240.
- Customer Acquisition Cost (CAC): This is the total amount you spend to acquire one customer.
The good part: You don't have to do any heavy lifting when calculating this data. Peel optimizes your data analyses through automation.
To have a profitable subscription business, you need to have a higher LTV than CAC, which is the LTV to CAC ratio. Experts recommend a 3 to 1 LTV to CAC ratio. Depending on your industry, it can vary a bit.
Having this data at hand will allow you to segment customers by attributes like products, SKUs, discount codes to maximize the profitability of the ads. This type of customer segmentation is invaluable for digging into your most granular data. According to a report by McKinsey & Company, personalizing ads according to individual customer needs can increase sales by up to 10%.
You can then find new ways to attract higher-value customers by discovering how new customers are ordering, which channel they're coming from, and how returning customers are purchasing from you.
For example, if the CAC on Facebook with a certain kind of ad is lower than other channels, but the LTV generated from those customers is not as profitable, you’ll have to look for another channel that maintains a healthy LTV to CAC ratio.
2. Build data-driven campaigns to maximize subscription profit
Just like every customer is different, each product will perform differently. Your task is to identify the ones that perform the best. You can easily do this by analyzing subscription analytics like the LTV of your customers, the retention rate, and the repurchase rate (which are just a click away with Peel Insights).
Lean into the products giving you the maximum sales and profits and push them through all your marketing channels.
Next, take note of the customer journey and how your segmented customers (cohorts) are developing over time.
Is there a certain interval after which customers are placing the orders or leaving them? Determining metrics like purchase intervals will help you engage them better in the time interval, leading to increased repurchase rates in a shorter period of time with actively engaged customers.
Again, not all products are the same. While some are best-selling, others are more profitable. You have to create a balance between selling popular items and maximizing your profits with profitable items.
For profitable items, find creative ways to bundle them into subscription packages. You can also upsell and cross-sell them on different opportunities like your email marketing campaigns.
Pro-tip: Use your most popular item as the entry bait for your customers to buy from you. After gathering and analyzing their data, you can upsell them at a later point. This increases the chances of them buying a higher-priced item because they’ve already experienced your product, and you can serve products that are best suited for them.
For example, Grammarly uses this method to entice their existing customers to subscribe to a paid plan:
3. Retain more subscription customers
Customer retention is what actually pays for your hard work of optimizing the customer acquisition process. If the customers you acquire leave before completing the average lifetime cycle, your profits are cut short. As a result, your CAC becomes higher for the leaving customers.
Driving down churn rate is not as difficult as it sounds. You can leverage the data of your returning customers to identify the kind of customers coming back. Is there anything in common among the returning customers? Identify the similarities to create better cohorts.
Finding out the intention of a repurchase is also necessary. It helps you target the audience according to their needs and motivations. For example, you can analyze your repurchase rate and segment your customers by:
- First product purchase: Having a cohort segmented by their first product purchase will provide you with the most enticing product of your catalog. You can use this data to ensure customers come back frequently.
- Discount codes: If you’ve run a campaign with a specific discount code, you can identify when the customer made the purchase and analyze what encouraged them to make the purchase. For example, you can run a campaign with a discount code for the customer’s next purchase to make sure they’re coming back. Customers love to feel appreciated by special pricing and additional offers. You can also run email campaigns centered around discount codes, like sending a discount code when the next purchase date comes closer (based on the data you get from purchase intervals).
Sell more with data
Analytics tools are the key to running a successful subscription-based business model. In their absence, you’re left in the dark about your customer data, making it even more difficult for you to maximize profits. But it doesn’t have to be difficult. Peel’s powerful AI-driven dashboard gives you access to all the subscription metrics you need to acquire customers, maximize your profits, and retain more subscribers for your ecommerce business.