This is one in a series of Anti-Churn Tactic articles detailing ways to reduce churn and improve customer retention. In this installment, we'll talk about giving at-risk users a discount on their service in order to motivate them to stay.
For this series, let's assume we have an invoicing application named InvoiceViz and customers are signing up like mad because the app is beautiful and the prices enticing. But we're finding that those users aren't sticking around as long as we'd like. Something has to be done about churn.
The first thing we should do is find out why they're leaving and focus on any actionable feedback. That much goes without saying. But let's say we've done that and now are left with otherwise happy users who just need a little prodding and support to stay.
Let's give at-risk customers a discount to stay.
If our prediction models say we'll lose a customer at their current price point anyway, there's no cost to giving them a discount to stay. As long as we don't discount below the cost to service a customer, we're still making money from them if we convince them to stay. Of course, we have to be careful about our targeting so that we're not giving discounts to perfectly happy users who weren't going to leave, but that's what our prediction models are for, after all.
The most obvious discount is simply X% off next month.
Giving a discount forever isn't a great idea. Users get habituated to discounts and, anyway, our prediction model might have been wrong so we don't want to lock in that mistake forever. But one pretty simple discount we can offer is simply taking a percentage off the user's monthly fee for the upcoming month. If they were about to leave this month, they might choose to stay instead and at least we get one more month out of them. And maybe that one month turns into three or four or more.
But there are even less costly kinds of discount
Beyond a straight-forward discount on monthly fees, we can choose other kinds of discounts that will feel the same to the user but actually cost us less in lost revenue. All other things being equal, these kinds of discounts are preferable.
We can upgrade the user to a higher tier at the same price.
Everyone loves to feel like they're getting a bargain. We can give the user a bargain (without costing us more) if we simply upgrade them to a higher usage tier at the same price. For example, if InvoiceViz has a "Personal" tier for sending up to 10 invoices a month and a "Pro" tier for sending 25 invoices a month, we can upgrade our at-risk user to Pro. Sure, maybe they're only sending 7 invoices a month right now, but knowing that they could send more if they wanted to feels like a bargain. And if they're not using the higher capability anyway, then it costs us nothing.
We can throw in some months free at the next renewal time.
Let's say a given InvoiceViz user is on an annual plan and is set to renew in three months. But our predictions (based on their behavior and traffic patterns, etc) say that the user is about to unsubscribe. Well, they're not going to make it to that renewal in three months anyway, so there's no harm in throwing in a sweetener. Here's what the sweetener might look like:
We noticed you're up for renewal in three months. Normally, renewing would cost $134/year, but as a valued [first time|long-time] customer we'd like to offer you a 15% discount if you renew early. This offer is good for thirty days. Please click here to renew now:
All the best,
The InvoiceViz Team
We can give some cash back after a benchmark is hit.
Let's say a given user has created 17 invoices. But our predictions show that their invoice creation rate is trailing off and that implies they're probably going to stop using the service soon. To try to retain them, we can offer a discount if their engagement picks up. For example, we could say something like this:
It looks like you've been using InvoiceViz for a while now and are pulling in money from your clients. Congratulations!
We'd love to offer you a 15% discount on your next month's service fees as soon as you've created 25 invoices. Just a little bit of sharing the love from…
The InvoiceViz Team
The key to this discount is it needs to be fairly close and achievable, and yet be farther away than the user would have gotten otherwise. In the example above, a discount after creating the 18th invoice would be silly, but a discount after creating the 200th invoice would be equally silly.
This drives at the heart of the strategy I'm suggesting...
Try to offer discounts on revenue we wouldn't have gotten otherwise anyway.
If we're discounting something a user would have purchased anyway, then we're losing out. But if we're discounting something that's basically free money, then everybody wins. So, make sure to couple discounts with predictions to make sure they're being offered in the right place at the right time. Did I mention that this kind of prediction is what we do?
Like this article? Read the first in the series about using drip email to reduce churn.