Use Retention Discounts to Prevent Churn

Description

Leverage Member Loyalty and Price Discovery with Retention Discounts to prevent churn and maximize member lifetime value.

Topic

Retention

Type

GuidesTemplate

Created by

Michael Gillespie

All members eventually churn. But what if you could address a member’s change in perceived value and incentivize them to continue their membership for months (or even years) longer than they would have otherwise?

This is what retention discounts come in - and in the video and article below, I’ll explain exactly how to leverage them in your own membership to reduce churn.

The Big Picture: All members perceive value differently inside your membership. Using Retention Discounts will allow you to retain more revenue over time through targeted discounting that prevents churn.

The Statistics:

70% of all membership churn occurs due to changes in perceived value and price sensitivity.
You can retain up to 30% more revenue by simply leveraging Memberful’s Retention Discount feature to reduce your churn

🚀 The Action Plan:

Use the suggested settings below to create targeted retention discounts that will reduce your revenue churn and increase member lifetime value

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📘 Table of Contents

What’s a Retention Discount?

A retention discount is an exclusive offer that you provide a member who has taken deliberate action to cancel their membership.

Retention discounts are designed to offer a price incentive that’s attractive enough to persuade a member to continue their membership with you. When used correctly, retention discounts are wildly effective because they give you a direct way to recover revenue that would have otherwise been lost.

Memberful’s built-in Retention Discount feature allows you to this in a fully automated and targeted way.

The Philosophy of Retention Discounts

I want you to think of retention discounts as a price discovery mechanism. Most members experience a change in perceived value of your product over time which ultimately leads them to cancel.

But when members receive a price that’s in harmony with their level of perceived value, they go on to retain longer and are worth more over time.

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All members reach a point where the value they perceive no longer aligns with the price they’re paying. This is entirely natural and should be expected. Retention Discounts simply provide you a way to successfully deal with this scenario when it arrives on a member-by-member basis.

Retention Discounts extend the lifecycle of a paying member, even though the price they continue to pay will be lower than the price they were paying prior to the offer.

As the membership operator, you capture the incremental revenue generated from this extended lifecycle.

This situation is a win-win. For the member, they get to take advantage of a price that aligns with their perceived value. For you, the membership operator, you’ll enjoy continued revenue from the member for longer - and that’s revenue you would have otherwise missed out on entirely.

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Members who redeem retention discounts generate a lifetime value that’s nearly 60% higher than those who don’t.

How a Retention Discount Offer Appears in the Real World

Below is a typical, real-world example of how a retention discount would be administered:

A member cancels their subscription after 6 months
The member receives a personal email 1 hour after cancellation that offers a discount (i.e. retention discount) that the member can apply to their subscription if they choose to re-enable their membership before it expires
The member clicks a redemption link in the email, which lets them apply the discount and re-enable their subscription in their account
At the time of the member’s next scheduled renewal, the member’s new price will be adjusted based on the discount settings you chose when creating the retention discount

Retention Discounts Reward Loyalty.

There are a few key points you need to be aware of when creating your retention discounts.

First, from the member’s perspective, retention discounts are shown to them as “loyalty” discounts in their account. They never see the words “retention discount” throughout the process.

Second, retention discounts are designed to reward a member’s loyalty to your program. This means you should offer the most aggressive discounts to members who have been paying subscribers for the longest amount of time.

Suggested Settings for Retention Discounts

A member’s churn risk increases with duration of membership. Therefore, you’ll want to target longer-term members with aggressive discounts and shorter-term members with moderate discounts.

I suggest segmenting and targeting your retention discounts by type of plan (i.e. monthly, annual, quarterly). This approach will yield better conversions overall.

For Monthly Members:

Minimum Active Time	Discount Amount	Discount Type
3 Months	40%	Recurring
5 Months	50%	Recurring
12 Months or longer	60%	Recurring

For Quarterly Members:

Minimum Active Time	Discount Amount	Discount Type
1 Months	40%	Recurring
3 Months or longer	60%	Recurring

For Yearly Members:

Minimum Active Time	Discount Amount	Discount Type
5 Months	50%	Recurring
8 Months or longer	70%	Recurring

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A quick note about Discount Type: I typically suggest recurring discounts (i.e. permanent discounts) since they allow you to “lock-in” attractive pricing for a member who would have otherwise churned. However, the type of discount can always be tweaked if your program contains unique characteristics where limited or one-time discounts are more appropriate.

The Takeaway

Retention discounts are your single-best option for reducing revenue churn when it comes to price sensitivity. If you’re able to find a price that generally aligns with what a member is willing to pay into the future, you’ll secure long-term revenue that’s predictable and stable - even after discounting has occurred.

🎬 Additional Resources

For an in-depth look at setting up Retention Discounts, you can check out the below recording of a live webinar where I discuss this in detail.

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