It is frankly remarkable just how many publishing CEOs cannot tell you their subscriber retention rate, even as the proportion of their total revenues made up of recurring subscription revenues becomes more and more important to their overall revenue mix.
Not knowing this vital number should be as embarrassing to a publishing CEO as not knowing the price of a pint (milk or beer) is to any politician. Especially as your subscriber retention rate is not hard to calculate.
In its most simplistic form, your subscriber retention rate is the percentage of subscribers that choose to stay with you from the start to the end of a defined time period.
Here are seven reasons (there are loads more) why your CEO, and you, should know and obsess about your subscriber retention rate.
- It tells you if your subscription business has a financial future (or not)
- It links acquisition costs to lifetime value creation
- It tells you if your acquisition marketing is any good
- It tells you if your product creates subscriber loyalty
- It warns you if your subscribers are unhappy
- It indicates where you can increase prices
- It drives a customer centric culture
If your subscriber retention rate is low, you will spend a huge amount of money acquiring subscribers who fail to stay with you. This means you are unlikely to ever recoup the marketing money you have invested to acquire subscribers in the first place leading to painful and expensive failure. A recent survey by the Royal Mail revealed that an astonishing 59% of subscription box companies kept their subscribers for less than three months which helps explain the number of business failures in this sector.
As a rough guide, any subscription business should aim to create three times plus more revenue from a subscriber over their lifetime than the marketing cost of acquiring that subscriber. A high retention rate generates high lifetime value which in turn enables you to spend more marketing money acquiring subscribers and still hit the target 3 to 1 lifetime value to subscriber acquisition cost ratio.
Breaking down your subscriber retention rate so you can split out the retention rate for subscribers renewing for the first time, allows you to see if your acquisition marketing is successfully attracting subscribers who are likely to get ongoing value from your subscription product or service. If this first time retention rate is low, your acquisition marketers are mis-selling your product proposition or your product proposition is not strong enough to deliver ongoing subscriber value – or both!
One way of viewing your subscriber retention rate is to view it as a measure of subscriber loyalty. Products designed to specifically create loyalty tend to have high retention rates. New research suggests that a powerful way to create loyalty is to actively encourage habitual behaviour through product design. For example, commuters completing online puzzles within digital news products or integration of B2B data products into a corporate subscriber’s daily workflows.
If you see that the subscriber retention rate of your long term most loyal subscribers is beginning to drop, you know you have a serious problem with your product. Occasionally, such a drop will be as a result of a deliberate strategic decision to reposition a product but more often than not it is because the product or service has gone off the boil or not kept pace with the competition. Here, the long term subscriber retention rate acts as an invaluable canary in the coal mine giving you a chance to take remedial action before the whole thing blows up.
It seems counter intuitive but it is possible to have too high a subscriber retention rate especially if you are not growing your retained contract value or worse still, retaining subscribers at a price that fails to maximise your subscriber lifetime value. This can all get a bit technical and is something I have covered in more detail in the InPublishing Guide to Retention Strategies for Publishers but your subscriber retention rate can give you invaluable clues as to where you can confidently raise prices to subscriber segments that have a low price elasticity. This will drive significant revenues direct to the bottom line – something all CEOs love to hear!
Obsessing about your subscriber retention rate forces any publishing company to constantly evaluate how they are succeeding in delivering continuous value to their subscribers. This is a far more effective way to put the customer at the heart of a publishing company culture than any number of customer survey reports or customer review ratings. Once a publishing company starts to understand deeply the reasons their subscribers stay with them, they then find it a very natural progression to create new products to sell to those same subscribers. A customer centric culture creates higher average customer revenues and which CEO doesn’t want that?
Make sure your CEO becomes as obsessed about your subscriber retention rate as you now are, and then take credit when the bottom line grows.
Julian is the author of The InPublishing Guide to Retention Strategies for Publishers.