Episode 4 - The Importance of Early Life Retention

Introduction

Welcome to the fourth episode of the Retention Blueprint. This newsletter promises to transform your retention impact in just 5 minutes per week, providing digestible retention content that adds value every time. This week's edition is focused on early life retention. 

Why Does Early Life Retention Matter So Much?

In Episode 3 of this newsletter, we explored the limitations of aggregated churn rates. While they are often used as a measure of customer retention, they can be misleading. In reality, most subscription businesses experience a decay curve which peaks in early-life churn (less than 3 months) and then flattens in-life churn (more than 3 months). This is why it is key to analyse churn by tenure, as the curve often resembles the red line on the chart below:

Given churn by volume is often concentrated in the first 90 days (often 50%+ of total churn), if you focus on that stage of the lifecycle, you can dramatically reduce overall churn. If you get onboarding right, it can also be the fastest way to improve customer retention.

How to Drive Early Life Retention

The key to driving early life retention is to; 

1. Prevent subscribers from cancelling within the first 30-45 days, a period that typically coincides with the arrival of the credit card bill for the first month or the date of the second bill. 

2. Ensure subscribers use your product or service within the first 90 days. If this doesn't happen, their initial excitement will wane, and their likelihood to churn will increase.  

3. Identify factors predictive of long-term retention and encourage customers to undertake those actions in the first 3 months. Examples of factors predictive of long-term retention could be: usage of particular features, services, frequency of usage of the product or service, no. of products brought or no. of billing periods. 

We will now explore 6 key principles and accompanying strategies that can improve early-life retention through onboarding programs.

No. 1 The Customer Is Still Evaluating You

Many brands make the mistake of assuming that once they have made the sale, the customer is committed to the brand. Early life churn data reveals otherwise. So until the subscription stabilises (typically post 90 days, but easily identifiable via your retention decay curves), it is absolutely critical to remember that the customer is still evaluating whether you (a) are a fit for their needs and (b) live up to the acquisition marketing. 

Therefore, early life is absolutely about reselling the decision to purchase and reaffirming to the customer that they have made the right decision. A great way to resell your service is via customer success stories or by highlighting key product features and benefits. 

The key here is to remember that you are not out of sales mode until the customer passes the 90-day window or undertakes an activity predictive of long-term retention. 

No. 2 Aim to Get the Customer to Connect Emotionally With the Brand

It's not the actual product or service that matters; it’s the value that the customer gets from the solution that matters. Your product or service doesn't have inherent value; value is released on customers' terms in their own context. 

The emotional payoff is the outcome of the value that the customer has realized. FabFitFun is a beauty box brand that provides clothing and cosmetics. In every box, they provide directions on how to use the product. For example, they give guidance on how to style a Ruana, which is a poncho-style outer garment worn in the summer. The emotional payoff is how the woman feels wearing the garment (1). 

Connecting emotionally is also about making every effort in early life to ensure that the customer feels that the brand is a perfect fit for their needs. Tailoring your onboarding programs to known customer interests or persona where possible is key here.

No. 3 Get the Customer to a Result Fast and Sustain Usage Through the First 3 Months

90% of customers who don’t use your product or service in the first 90 days have a 10% chance of becoming long-term subscribers (2). In early life, customers are still evaluating whether you are a fit for their needs, so it is critical they realise a benefit quickly with minimal friction and low effort.  Ideally, you want to get customers to a result very quickly. What is considered a ‘result’ will vary based on the product or service that you offer. Michael Rozbruch has a coaching business that helps accountants and attorneys generate tax resolution clients. In the first few days of signing into his program, he provides a referral letter which enables his clients to generate revenue immediately (1). 

If you get a subscriber to do something with you regularly in the first 90 days, it will significantly increase the likelihood that engagement with your brand becomes a habit. One way to sustain usage over the first 90 days is to gamify it, which brands like WeightWatchers and Noom do intrinsically. 

No. 4 Upsell and Drive Referrals

Upselling in onboarding may seem counterintuitive and overly aggressive, but the reality is an upsell offer in an onboarding program typically means that either (a) the customer sees more value in the existing subscription since they got a ‘good deal’ at a lower cost, if they reject the upsell or (b) the subscriber is more committed to the outcome and stays longer if they take the upsell. 

Experience repeatedly shows that if you create a test cell that does not receive an upsell at all vs. one that does, even if the customer does not take the offer, they are more likely to stay. This also happens with referrals; if the customer makes a referral, they are more likely to remain loyal past the initial 90 days. 

No. 5 Use High Frequency if You Need To, but Don’t Overwhelm the Customer

If your customers are not engaging in early life, they have a high propensity to churn. In these instances, do not be afraid to increase CRM marketing message frequency, expand channels used or increase messages within your product or from your service teams.  

However, if your customers are showing early signs of engagement, it is important that you do not overwhelm the customer. Counter-intuitively if you demonstrate that the product has lots of value that the customer has not used, this can make the customer feel that they are overpaying for the product or service and increase churn propensity. Ultimately once you have understood the engagement tipping point, you can decrease frequency; up until that point, you should work hard at driving engagement. 

Final Thoughts

Building an effective onboarding program is often the fastest way to make a meaningful difference in customer churn. Following tried and tested principles takes the effort out of ongoing testing; following these principles, you will be sure to dramatically improve early life retention. If you want a more detailed guide in ppt format, including ten case studies from brands such as Netlix, Huel, DAZN and others, access our Onboarding Mastery Guide.

References

(1) Skrob, R (2021) Retention Point. Membership Service, Inc. 

(2) Janzer. A (2020) Subscription Marketing. Cuesta Park Consulting.