Why subscription businesses obsess over churn

HostIt feels like every time I try to end a monthly plan for a gym or a movie app, I have to go through a maze of questions and deals. It's like they're desperate to keep me from hitting that one button, even though they have millions of other people they could be talking to. Why is it that these companies seem to care so much more about the people leaving than they do about the new folks they could be bringing in?

GuestIt can feel a bit much, but there's a very sharp reason for it. Think of a subscription business like a bucket of water. You're always pouring new water in the top, which are your new sign-ups. But every business has holes in the bottom where people leak out. We call that leak churn. If those holes get too big, it doesn't matter how much water you pour in the top. The bucket will never get full. In fact, if the holes are big enough, you can spend every cent you have on new water and the bucket will still end up empty. Most of these companies have worked out that fixing the holes is much cheaper and more stable than trying to find a faster tap.

HostBut surely a big splashy launch with thousands of new faces is better for the brand. Focusing on the people leaving feels like looking at the losers instead of the winners.

GuestWell, the winners are only winners if they stay. This is where the math gets a bit scary. Most of the time, a company has to pay to find you. They buy ads on your social media feed or pay to show up in your search results. They might spend sixty or eighty dollars just to get you to sign up for a ten-dollar-a-month plan. If you think about it, that means they're actually losing money on you for a long time. They only start making a real profit in month seven or eight. If you leave after three months, they have basically paid forty dollars for the chance to serve you. Every person who leaves before that break-even point is a direct hit to the bank account.

HostI see the point about the money, but if the product is good, people will stay. Is it really worth all the effort to track every single person who quits? It seems like a lot of over-thinking.

GuestIt's not just about the money, though. Churn is the most honest feedback a business can get. You can use clever ads and pretty pictures to trick people into signing up. That's easy. But you can't trick people into staying and paying month after month. If people are leaving in large numbers, it means something is broken. Maybe the app is too hard to use, or the shows are boring, or the price is too high for what they get. When a company looks at churn, they're looking at a mirror. It shows them exactly where they're failing. New sign-ups can lie to you and make you feel like you're doing well when you're not, but churn always tells the truth.

HostSome of those tactics to stop people from leaving feel like they're just hiding that truth, though. When I try to cancel and they offer me a half-price deal, does that actually help the business, or is it just a band-aid on a bigger problem?

GuestIt can be a band-aid, but it's a very effective one. They call it a save. If they can figure out why you're leaving, they might be able to fix it right there. If you say it's too expensive, they give you a discount because five dollars a month is better than zero. If you say you're bored, they might point you to a new part of the service you haven't seen yet. But you're right that it can backfire. If you make it too hard to leave, people feel trapped. They might stay for one more month, but they'll tell all their friends how much they hated the time they spent with you. The best companies try to use that data to fix the product for everyone, not just to trap one person at the door.

HostSo it's less about being the biggest and more about being the stickiest. It seems like a shift from wanting to be popular to wanting to be a habit.

GuestThat shift changes how they talk to us. It's why you get those emails asking how you liked your last order or why they suggest new things you might like. They're trying to weave themselves into your daily life so that the thought of canceling never even crosses your mind. Once you're a habit, the cost of keeping you drops to almost nothing. That's the dream for these businesses. They want to reach a point where the bucket is so solid that even a slow drip of new people makes the water level rise. They even look for patterns in how we use things. For a gym, it might be the moment you stop going on Tuesday nights. For a meal kit, it might be the third time you skip a week. They know that once a habit starts to slip, the cancel button is only a few days away. So they jump in early to try and save the habit. It's much easier to keep an old habit going than it's to start a brand new one from scratch with a stranger.

HostWhat about the companies that seem to thrive on people forgetting they even have a subscription? That feels like the opposite of being a useful habit.

GuestThat's what they call zombie churn. It's when people are still paying but have stopped using the service. Some businesses love those people because it's free money. But it's a dangerous way to live. Eventually, those people look at their bank statement, get annoyed, and quit. And when they do, they leave for good and they leave angry. The smartest businesses actually reach out to those people and try to get them using the service again. They would rather have a person who uses the app once a week and stays for five years than a zombie who pays for six months and then vanishes. Those pages you see when you try to quit are the last line of defense because every person who stays is worth more than two people who might join tomorrow.

HostThe bucket only stays full if the bottom holds firm, which is why that one little cancel button is the most important spot in the whole shop.