As subscription services in all walks of business increase in popularity, so too does churn rate, but a new study shows that good, high quality content, price point, promotion and packaging are now the key drivers to retention in all subs businesses.
According to the its 2023 State of Subscriptions report, based on data from more than 2,200 Recurly merchants that support more than 55 million active monthly subscribers around the globe, the increase in the average overall churn rate from 6.6% year-over-year to 6.8% in 2022 can be attributed to economic factors, namely the pandemic and rising global inflation.
The report reveals that access to exclusive content, brand preference and discounts are primary drivers of subscription signups, while price increases and perceived decreasing value have the opposite effect. This means that subscription businesses must intentionally communicate both the value and relevance of their product or service and remain conscious of the impact which pricing decisions can have on churn.
“This report is the ideal barometer for subscription-led companies looking to navigate the ever-changing turbulent socio-economic challenges we’re facing across Europe. Particularly as Europe has seen the most significant increase since 2018, with 21% growth in active subscriptions from 2021 to 2022,” says Oscar Wall, General Manager EMEA, for Recurly.
“Over 40% of merchants are making many adjustments to their plans in reaction to changing consumer behaviour. With merchants in the Digital Media and Entertainment, and Consumer Goods and Retail industries making the most plan changes in 2022.”
The three Ps: pricing, packaging and promotions
The report reveals that successful subscriber acquisition is three-fold, emphasising pricing, packaging, and promotions. In 2022, consumers took advantage of almost 35M free trials globally from 851 participating subscription sites managed by Recurly’s merchants alone. Overall, the average site-level conversion rate was 38.1%, demonstrating that consumers are more likely to try new services if those services include a discount or trial.
Flexible payment options are key. Debit cards are a primary form of payment across Europe and North America, accounting for 52.9% of global transactions for Recurly’s merchants. Credit cards follow with 26.7% of total transactions, and PayPal comes in third overall as the most popular alternative payment method (APM) worldwide. Taken together, the data reveals that consumers expect choices. The report also found that decline rates have remained steady, but are lowest for credit cards and highest for debit cards. Furthermore, APMs resulted in a 1.5% lower rate of fraudulent declined transactions when compared against credit and debit cards.
Personalisation of services and prices point boosts growth
Personalisation of plan and price drives growth. Roughly 40% of Recurly merchants make plan adjustments each year because consumer-oriented industries necessitate dynamic adjustments. Recurly found that dunning emails, which are sent to customers to remind them a payment is due, are an effective marketing tactic for post-subscriber acquisition, responsible for recovering $214 million in revenue in 2022 alone.
“Benchmarks and best practices are a critical part of how we partner with our customers. The State of Subscriptions report provides key subscriber insights, trends and analysis by industry,” said Dan Burkhart, co-founder and CEO at Recurly. “Subscription-based businesses can use these findings to evaluate their own performance against industry benchmarks, but also identify efficiencies and execute strategies which will help them level-up in 2023.”
In addition to teasing out broader trends, the report analyses the impact of businesses with subscription revenue by geography and sector, including digital media and entertainment, consumer goods and retail, business and professional services, education, healthcare and software.