Subscription renewals

How to Maximize Subscription Renewals Ethically

Successful subscription renewal is critical to the survival and growth of your subscription business, as it is the ultimate indicator of how well you’ve managed the customer journey from discovery to usage, and how efficiently your business’s billing and payment systems are functioning.

Undoubtedly, the renewal stage is where the true test of your overall subscription success lies which is why, in this blog, we’ll delve into the intricacies of subscription renewals – exploring common reasons for failure, as well as strategies for maximizing renewal success without resorting to unethical tactics.

Subscription Renewals: The Basics

In the recurring revenue model, a subscription renewal refers to the process of successfully extending a customer’s subscription for another billing cycle.

When a subscription is renewed, the customer is usually billed for the next period of service and continues to enjoy access to the subscription product or service.

Renewals fall under two types:

1. Automatic Renewals:

These renewals are auto-charged at the start of every billing cycle unless the subscription is canceled by the customer. The best use cases are products with fixed renewal charges and shorter contract lengths such as your Netflix or Spotify subscription.

2. Manual Renewals:

These renewals require customers to manually resubscribe or reenter payment details at the start of a new billing period. The best use cases are variable renewal charges and longer contract lengths such as contracts signed between businesses that are billed annually.

Renewals have a heavy impact on your customer lifetime value (LTV), monthly recurring revenue (MRR), annual recurring revenue (ARR), and, ultimately, your bottom line. This is why the importance of having a strategic plan to maximize subscription renewals cannot be overstated.

Types of Churns and What Causes Them?

Subscription renewals and customer churn are flip sides of the same coin. This is why when we want to figure out how to maximize subscription renewals, we must also look at what type of churn is standing in the way of these renewals and the causes behind it.

Churn can broadly be divided into two types:

1. Voluntary Churn

Voluntary churn signals a customer’s conscious decision to leave. This may be caused by a poor onboarding experience, dissatisfaction with customer service, or an expectation from the product/service that it did not meet.

2. Involuntary Churn

Involuntary churn refers to a subscription termination caused by payment failure, without any confirmation from the customer that they wish to leave. There are many different causes of payment failure including expired cards, insufficient availability of funds, incorrect payment information, etc.

Read More: Top Strategies to Manage Subscription Payment Failures

Maximizing Renewals: Foul Play to Avoid

Some businesses resort to unethical tactics to trick customers to renew subscriptions. This may improve renewal in the short term but has very bad consequences on your reputation and growth potential in the long run.

Here is a list of legal, but unethical, strategies to avoid using to maximize renewals:

1. Complicated Cancellation Process:

Not having a clear cancellation option or requiring customers to call you to cancel their subscription would be included in this category. This involves programming deliberate inconvenience into the customer subscription journey and gives a terrible impression of your business’s relationship with its clients.

2. No Trial-End Notification:

Charging customers at the end of their trial, without any notification of their trial ending, is also a sneaky way to push conversion. But this is not sustainable as the customer feels betrayed and may well demand a refund against sneaky charges. It is always a best practice to keep your dealings with customers as transparent as possible.

3. Auto-Renewal Without Consent:

Auto-renewal is common but must be consensual. It can backfire in the form of chargebacks if customers demand refunds for unauthorized auto-renewal. Businesses using this strategy will hide the renewal terms in the fine print and charge their customers without their knowledge. Generally, tricking your customers into staying doesn’t prove profitable to your business in the long term. Feeling deceived will only make them want to terminate their relationship with your business with a new-found passion and destroy your company’s word-of-mouth reputation.

Instead of resorting to these tricks that make you look bad, there are ways to encourage subscribers to renew their subscriptions without compromising your business’s integrity in the process.

Ethical Strategies to Maximize Subscription Renewals

1. Provide Stellar Customer Service

The quality of customer support you offer has a huge impact on voluntary churn. It is important to provide multiple channels of support so your customer doesn’t feel abandoned, lost, and forgotten at any stage during their subscription lifecycle. Offer stellar customer support to effectively increase customer lifetime value (LTV) and promote subscription renewal.

2. Communicate Renewal Terms and Pricing Upfront

Nothing paints a worse picture of a business than a lack of transparency in its terms and pricing. Don’t make this mistake, if you want to grow a legitimate business. Inform your customers of everything they need to know about terms of use and when they can expect to be billed. Keep it clean and watch your customers stick around much longer than when they feel deceived by incomplete communication.

3. Offer Personalized Recommendations

Offering personalized recommendations, inherently increase the value of your offering to your clients which is what makes it a leading sales trend in 2023.  Businesses can leverage customer data to gain insights into their usage patterns, preferences, and interests. This information can then be used to tailor recommendations and incentives that are relevant and compelling to each individual customer.

Think about it: Would you stick around to pay for a generalized, possibly value-adding service or a service catered to your needs, where you feel you get your money’s worth? No brainer.

SubscriptionFlow tracks usage and leverages machine learning (ML) for predictive analysis to identify which customers are most likely to churn. This high-risk group can then be offered a targeted promotion or discount to encourage them to renew subscriptions.

4. Reward Loyalty

Another approach to maximize renewals is to offer loyalty programs to customers who renew their subscriptions. This includes offering discounts, free trials, gift subscriptions, or other perks that are exclusive to loyal customers. Providing customers with tangible benefits for their continued loyalty builds a stronger relationship with them and increases the likelihood of their sticking around.

5. Engage Customers Through Targeted Messaging

In the subscription economy, businesses are not just selling products but building relationships. Regular engagement with customers is an important aspect of convincing them to renew subscriptions. By staying in touch with customers, businesses can ensure that customers continue to see value in their subscriptions and are utilizing them to the maximum possible extent.

One effective way to do this is through targeted messaging and content. For example, businesses can send personalized emails to customers with recommendations based on their past usage or preferences. This can help increase their engagement with the subscription.

Another approach is to use data analytics to gain insights into customer behavior and preferences.  If a customer has not used a particular feature or benefit of their subscription, the business can proactively reach out to them with tips or guidance on how to use it effectively.

6. Conduct Exit Surveys for Product/Service Development

The importance of product-led development cannot be stressed enough. Voluntary churn caused by product limitations cannot be reduced without an active product team constantly improving the quality of what they offer. Using exit surveys is a good way to learn what customers need and how you can improve the product/service you are offering.

In the words of Robbie Kellman Baxter,

“You want to convey that you are interested in learning, not selling.”

This approach will encourage users to share valuable insights that you can implement to prevent churn from happening again for the same reason. This is a critical strategy to sustainably improve your renewal rates.

7. Provide Alternatives to Cancellation

Providing customers with a clear, easy, and simple exit route has the opposite effect of making them want to stay. SubscriptionFlow’s self-service portals to upgrade/downgrade and cancel subscriptions are a great way to let your customer know that they’re at the steering wheel and in complete control of their subscription.

To take it one step further, consider providing customers with the option to temporarily suspend their subscription instead of outright canceling it. This keeps the door open for their return and ensures that they don’t have to go through the hassle of setting up their account from scratch when they return.

8. Offer Flexible Payment Options

Involuntary churn caused by subscription payment failure is a huge obstacle in the face of maximizing renewal rates. Orchestrating frictionless payment processing by integrating with a robust payment gateway that provides multiple payment options can help. An optimized payments space can have a huge positive impact on renewals in a variety of ways including account updater services, backup payment methods, and optimized retries.

Read More: The Ultimate Guide to Handling SaaS Failed Payments

In conclusion, the success of a subscription business hinges on its ability to retain customers. Maximizing subscription renewals involves understanding the different types of churns that exist, providing excellent customer service, communicating renewal terms and pricing upfront, and offering personalized recommendations.

While some businesses resort to unethical tactics to maximize renewals, such as complicated cancellation or auto-renewal without consent, these practices can be detrimental to the company’s reputation and long-term growth. By focusing on ethical strategies, subscription businesses can increase customer lifetime value and monthly/annual recurring revenue, ultimately leading to long-term success.