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By Thomas Baekdal - July 2016

A Different Way to Think About Churn Rates and Subscriber Dashboards

There seems to be an infinite number of different ways to calculate churn rate, the rate at which you lose your customers. And yet it's one of the most important metrics that we have.

For brands, churn rate can tell you whether your best strategy is to focus on acquiring new customers, or whether you should focus your attention on nurturing existing ones. But for publishers, churn rate is the key metric we use to determine loyalty.

The problem, however, is that most seem to measure it in ways that don't tell you anything about what is going on.

The traditional way of measuring churn rate is to look at how many members or subscribers a publishers has lost in a given month, and then divide that by the total amount of subscribers. So if you have 50,000 subscribers to a magazine and a churn rate of 2%, it means you are losing 1,000 people every month.

And hopefully, your subscription rate will then also tell you that you gained 1,200 new subscribers, otherwise we would have a big problem.

This sounds like a very good way to measure this, and in some ways it is. But the problem is that it doesn't tell you anything about who it is that you are losing, or why. Are the people you are losing older subscribers who have lost interest over time, or is it those same people you gained just last month who failed to see the value and cancelled almost immediately?

We need a more nuanced way to think about churn rates. We need to look at the people who churn as individuals, and measure their longevity. We need to know who is it that we are losing.

Imagine if you had to build a 'subscriber dashboard' that every journalist and editor could see, what would it say?

Well, I would design it like this:

Total number of subscribers

The most critical number to look for is the total number of subscribers, and whether that is going up and down. This number should be on the top of the screen.

Total subscriber revenue

Another thing we need to see is the total subscriber revenue. The reason this is important is that a lot of people miss their payments (for many different reasons), or other circumstances cause the revenue to not match the subscriber list (like refunds etc).

Another reason you want to include this is because it visualizes whether your acquisition tactics work. For instance, if you are offering people a 50% discount to sign up, your total amount of subscribers might go up, but your revenue won't. And if the wrong people then churn, you might end up with a negative revenue growth.

I have seen this plenty of times with different publishers. Their focus on cheap scale increased their numbers, but ended up costing them money.

So, you need both. You need to know how many subscribers you have, and how valuable they are (the revenue).

The 'new subscribers versus churn' trend

The next important metric is the comparison between how many new subscribers you are gaining versus how many you are losing. And the reason this is important is that it tells you a lot about loyalty.

Consider these two examples.

Here you see two different publishers with exactly the same performance. Both have the same number of subscribers and revenue, and both gained 49 new subscribers overall.

But then look at the difference in how that happened.

The first publisher gained 1,242 new subscribers (or 30%+), which is amazing, but it also lost almost as many. In other words, this publisher is very good at acquiring new subscribers and creating initial energy, but it's terrible at keeping up the value to make people stick around. As a result, there was only a 4% difference between gained and lost.

The second publisher only gained 58 new subscribers, so it is not nearly as good at convincing new people to subscribe. But it also only lost 9, meaning that it's very good at keeping people interested.

Overall the numbers are the same, but here you see two very different publishers with two entirely different problems. And it's critical that we see this pattern.

Subscription rate

The next metric is to look at subscription rates, which are not that important. It is a weird one because it doesn't measure anything in relation to your actual subscribers. Instead, the subscription rate tells you how many non-subscribers you successfully converted into new subscribers, in comparison to your overall number of visitors.

So, just stop here and take a step back. How would you measure that? Do you even know how many real people you are reaching? Think about how people are now using multiple devices, ad blockers, etc. How would you know the actual rate of real people versus just traffic?

This was something I wrote about in "Accurate Analytics is Painful", in which I illustrated the massive difference between what our analytics system thinks is a visitor and what you actually end up having.

The problem with subscription rate, however, is that it doesn't tell you what you need to know.

Consider this:

Here we have a publisher who started out with 230,000 MUs (Monthly Uniques) and a 0.15% subscription rate. Then they 'optimized' their traffic and the next month they got a staggering 980,000 MUs, but of those, only 387 people subscribed.

Yes, the extra traffic did marginally improve the number of new subscribers (but remember also to look at their loyalty), but now our subscription rate is 0.04%. It's a completely misleading number, because whether people subscribe rarely correlates directly to how much traffic you have.

We can see this with so many publishers. A publisher like BuzzFeed is exceptionally skilled at boosting their MUs, but you wouldn't pay for it. So, the 'subscription rate' is one of the least interesting metrics to look at. It does tell you something about your non-subscriber traffic, but it's not a very good business metric.

It's not really a KPI.

Churn longevity

Churn rate, of course, is a far more important metric, but we have already covered that with our new versus lost subscribers in the first part of our subscriber dashboard. What that didn't tell us, however, was the pattern of those we lose.

The best look at that is to measure their longevity. Every single time you lose a subscriber, you should look at how long they had subscribed. And in the simplest terms we can then present that as a running average for the past 12 months.

For instance, this number might be 3.78 years, as in the average duration that all the people who churned over the past 12 months were subscribers.

This is basically your loyalty score. People are more loyal if this number goes up, and less loyal if it goes down.

What you absolutely don't want to see is a very low number. You don't want to see the average being something like 3 months, because that basically means you have no loyalty at all.

Of course, it gets a bit more difficult than this, because sometimes just looking at the average might not give you the right number. Imagine that four people have churned. The first person had subscribed for 11 years, and the 3 other signed up only last month. You will then end up with an average of 3.31 years.

That's obviously not the right number.

So, a better version of this would be to segment who is churning into initial subscribers, short-term subscribers, regular subscribers and long-term subscribers.

But the concept is the same. If you suddenly see that most of your churn is happening in the initial subscriber segment, it's a strong indication that you are failing to deliver on the value that you promised.

On the other hand, if you start to see a rise in churn by your long term subscribers, it might be an indication that your existing audience don't like your new path forward. Mind you, sometimes you need to renew your audience so that you don't end up with the problem of becoming obsolete.

It's a tricky thing to manage, but churn longevity is what helps you understand what is happening, and why.

Another huge complication is also why people churn, as in the actual reason for the cancellation. Obviously, this is different for each publisher depending on how your subscription system works.

You see there are people who unsubscribe on purpose, and those who don't.

Let me give you an example. A couple of days ago I came across Canadaland. Canadaland is a small independent publisher, centered on a podcast in Canada, and they are relying almost entirely on Patreon for their funding.

The problem is that their churn is showing a really troubling pattern. Here is the graph illustrating their subscription base for 2016:

You will notice that there are two overall patterns.

The first pattern is that in between two months, we see the normal ups and downs and new people subscribe, while others cancel their subscriptions. This is regular churn and to be expected. On troubling thing with Canadaland, however is that the new subscription rate has completely lost its momentum between the first part of the year and where they are today (but that might be a seasonal thing).

The second pattern is what happens on the first day of each month. Here you see a sharp and alarming drop in subscribers, causing them to lose about 3% of their total subscriber base.

The reason for this is not that people unsubscribe on that date, but because people's credit cards expire and the Patreon renewal system fails to process the payments.

This is scary, because it's a common problem for everyone doing digital subscriptions. Because of the failure of how digital payments work, publishers like Canadaland are now in an existential crisis.

As they also explain in their 'Support us' video:

 

I see the same thing with Baekdal Plus. Overall, I don't have the same problem as Canadaland since my total subscriber base grew by about 18% last year, but when I look at the few people who do churn every month, about 60-70% of them were due to failed credit card payments.

As a result, I get emails like this from PayPal.

From an analytical perspective this is an important thing to measure. You need to know what share of your churn is due to people cancelling their account on purpose, and those whom you lose by accident.

We can't do much about the people we lose by accident (other than to try to contact them again) but we definitely want as few people as possible to cancel their accounts on purpose.

This is an important metric to have, in combination with the churn longevity metrics.

DAUs, WAUs, MAUs, AAUs, IAUs, SAUs

Finally, we need to understand the energy of our audience. This is important because if you start to lose momentum with your readers, it's a pretty sure sign that you are going to lose them in the not-too-distant future. And whatever you can do to prevent that from happening, the better.

It's almost impossible to change people's minds after they have already cancelled their account, but you can do it before they get to that point. It's all about influencing people before they make a decision.

The way to measure this is by looking at people's activities, or what Facebook and the other social channels call 'Daily Active Users (DAUs)' or 'Monthly Active Users (MAUs)'.

However, how you measure this depends entirely on your publication cycle and the importance of each story. If you publish hundreds of smaller news articles each day, the most relevant metric would be to look at 'Daily Active Users', whereas if you are a site like mine centered on big Plus reports, it's far more relevant to look at 'Article Active Users'.

You need to pick the right metric for you.

But no matter what metric you choose, this number is like the 'canary in a coal mine' type of thing. If your 'active users' start to drop, it's a pretty strong sign that your subscription metrics will drop too if you don't do anything about it.

We don't want that to happen.

Everything together

By taking all of these different metrics and combining them into a single dashboard that every journalist and editor can see, you give your editorial staff this very nuanced look at what works and what doesn't.

It's not about any specific metric, it about how they mix.

For instance, you can very rapidly boost your 'active user' metric by simply focusing on the latest social gimmick and low-intent snackable articles. But once you do that, you will also notice the detrimental effect that it has on many of the other metrics, like a drop in new subscribers, or a drop in subscriber loyalty.

In the same way, you might experiment with the editorial section, which might not have that much energy. But, since it's more valuable to people, your new subscriber rate is still improving overall.

Or you might have the same problem as Canadaland, where your overall energy isn't high enough to keep people around when they accidentally lose their accounts.

This is a fantastic way to make sure everyone understands the big picture, and where the real challenge is. And it's far more relevant and useful than normal dashboards that merely show pageviews, share rates and bounce rates.

This will help your editorial team with understanding the actual business impact of their actions and focus areas.

And isn't that much more interesting?

 
 
 

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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé

 

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