Can Auto-Renewal Help Tackle Customer Churn in Subscriptions?

Customer churn is disastrous right? And specially when the subscription business is small and growing, you can actually see when someone decides to opt out and walk out of the door.

Oh the pain!

But the natural tendency of customers is to drift apart or how it’s called in the subscription economy - to churn!

What’s even worse is when a customer doesn't really want to unsubscribe but that ends up happening anyway because of reasons such as:

  • Involuntary churn (more about that later).
  • If it’s too complicated to extend a subscription (can happen).
  • Or if it requires extra effort from the customer to extend the subscription (customers are lasy and attention span is limited)
A way to counter customer churn in subscription is auto-renewal. But it is crucial to approach auto-renewal from both a legal and ethical perspective.

auto renewal subscription

Key Takeaways

  • Customer churn in subscriptions is a result of a number of reasons from voluntary churn and involuntary churn to complicated extension steps and active time spent thinking whether a service is needed or not.
  • Insight about customer churn is crucial so that necessary actions can be taken. Insight will help you figure out things like, (a.) is customer churn for your product seasonal, (b.) is it because of lack of knowledge on how to use the product or (c.) is it because of the product itself - maybe it breaks down way too often.
  • Auto renewal can tackle involuntary churn to some extent. Especially if churn results from unnecessary communication between your customer and you.
auto renewal subscription
Different categories of customer churn

What is Auto-Renewal?

Auto renewal or automatic renewal is when a paid subscription of your product or service is automatically renewed at the end of a definite term for a subsequent term.

In other words tt is a billing model where the customer’s payment details (bank account, credit card, payment account) are automatically charged without any action from the customer.

Note, the keyword here is WITHOUT and the keyphrase is WITHOUT ANY ACTION FROM THE CUSTOMER.

circuly subscription management software
When does a subscription lead to extension and when to cancellations.

When and Where Is Auto-Renewal Applicable?

There are different types of subscription billing models where auto-renewal is applicable.

Number 1: Cancel when you want subscription billing model.

Typical example is Netflix.

Netflix collects payment from its users every month and also gives them the option of cancelling anytime they want. Netflix users are billed on the date they signed up for Netflix. If they cancel, they are allowed to watch netflix until the account automatically closes at the end of the current billing period (which is pretty awesome if you ask me).

Did I tell you how many times I ended up cancelling my Netflix subscription and reactivating it after a few months? More than I care to admit. (I had my reasons! Geez! Cut me some slack. Somehow binge watching Stranger Things seemed like a perfect thing to do, two night before my exam)  

The benefit of this approach: as a customer, it’s super easy for me to return to Netflix whenever I want. Pretty sure i’m not a fan girl/boy (you’ll never know my gender #evillaugh) but I do have some respect for netflix for making it super easy to leave and come back.

Technically speaking auto renewal is happening on a monthly basis with the possibility to cancel every month.

Number 2: Free trial followed by a X-month subscription.

Typical example, most softwares.

This is where things can start to become a bit hazy. Keyword CAN! Unless it’s easy to cancel a free trial, such subscription billing models can be a nightmare for the consumer. Signing up for a free trial doesn't necessarily translate to “I love your product/service! I want it in my life forever”. The nightmare starts when the customer sees an auto-renewal charge appearing on the credit card or the payment method without any warning, continues when the customer has to climb a confusing hill of either finding account information to cancel the subscription or to deal with customer support that sends them on a new adventure altogether - hence cancelling an “unwanted” subscription becomes impossible.

Such “clever” renewal tactics may be legal but they are definitely not ethical. You may win the battle in court but you’ll end up losing that customer and soon more who feel the same way.

The better option: Free trials are great! They let your customers get a feeling of your product or service. If they like it, they are most likely going to subscribe to it. If they don’t, they deserve to be able to cancel it. If they don't end up using it then sooner or later they are going to churn.

Simply send an email to your customers when the free trial is about to expire. To make churn rate as less as possible, a clever thing to do is to say something like, “your free trial is about to expire in x days. If you’d like to continue, you don’t have to do anything. Simply sit back, relax and enjoy {insert product name}. If you wish to not continue, click here to cancel.”

Legally correct. Ethically correct.

Number 3: Minimum subscription duration. Possibility to extend or buy out.

Typical example, subscription for physical products.

Most commonly seen in subscription models for physical product subscriptions like cars, electronics, bikes, furniture etc. Some physical product subscriptions have a minimum duration attached to it. The minimum duration means that customers have to subscribe to the product for at least x amount of time before they can cancel, return or extend it. At the end of the minimum subscription period, three conditions can kick in:

  • Condition 1: customer wants to buy out the product (awesome for you)
  • Condition 2: customer wants to cancel the subscription (well, try to find out if it was because they didn't like the product or don't need it anymore. The latter reason is better than the former)
  • Condition 3: customer wants to extend the subscription (awesome and fantastic)

Making the extension process easier is key here. Which brings us to our next topic: why do customers fail to renew their subscriptions.

Why do customers fail to renew their subscriptions?  

Your customers may fail to renew their subscriptions because of a number of reasons. Voluntary churn is when the customer actively decides to opt out from a subscription plan.

There isn't much that can be done about voluntary churn besides treating it as a learning opportunity. Collect info and ask your customers why they are leaving. Try to win them back later.

It’s really about insight and action. Not only do you need to know what will make your customer go away but also take the right actions to change that outcome.

And then there’s involuntary churn, which hurts! This type of churn is mostly related to payment failure of some kind. The third kind of churn can happen when your customer has to make some kind of effort to renew their subscription like sending an email or getting in touch with customer support.

Subscription Auto-Renewal with circuly

The Problem 😣

If your customers, for whatever reason, are given a few minutes to think, “but do I really need this subscription?” or have to manually do something like send an email or get in touch with customer support to renew their existing subscription, what do you think will be the result? You know the result as well as we do; cancelled subscriptions.

This happens more often than we care to admit. The question, “but do I really need this?” decides if you win or lose the battle, depending on which side you are on. If you are the customers, it’s probably a win for you. If you are the seller, well, for you it's a loss.

Implication 🙈

Spending time thinking about renewing a subscription can result in cancelled subscription, the implication of which is a higher churn rate. Manual renewal process adds up to significant time investment.

Solution 🥳

Circuly enables you to auto renew subscriptions even after the subscription period or the minimum subscription period has ended. Automatic renewal in the circuly operations backend prevents forgotten payments and unnecessary back and forth communication between your customer and you. Simply include auto renewal policy in your terms of conditions and circuly takes care of the rest.

Don’t of auto renewal

We advice not to cross the ethical line of reducing customer churn with questionable churn reduction tactics like:

  • Renewing customer subscriptions without properly informing them.
  • Making it difficult to cancel subscriptions.
  • Hiding the cancellation button.
Read more: churn in physical product subscriptions and how to prevent it (actionable solutions)

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