The Art and Science of Retention Driving Strategies
CEO & Co-Founder
Today on the show, we have Dan Burkhart, CEO and co-founder of Recurly, a subscription billing management service.
In this episode, we discussed the importance of language-specific content for global companies, the inspiration behind Recurly, and the shift towards focusing on retention and churn in the subscription economy.
We dove into various strategies that companies can use to improve their customer retention, including understanding customer behavior and preferences, offering the option to pause subscriptions, and developing personalized campaigns
Dan provides valuable insights into the various factors that contribute to customer churn and retention, and how companies can optimize their strategies to retain customers and drive revenue growth.
As usual, we're excited to hear what you think of this episode, and if you have any feedback, we would love to hear from you.
00:00:00 Dan: You know, trying to win over market share when you're competing with the likes of Disney and Netflix and all of these other media companies. So they've got this global footprint. A lot of similar content in their catalog around the world, but language specific content, speaking to their customers in their language and in their own sort of call it localized global terms so that it doesn't feel like it's just simply a marketing message translated by someone in the States is really important. And again, I think making the communications feel as natural as possible is part of what is being achieved there.
00:00:38 VO: How do you build a habit-forming products? How do you… Don't just guns for revenue in the door?
00:00:45 Andrew: This is CHURN.FM, the podcast for subscription economy pros. Each week we hear how the world's fastest growing companies are tackling churn and using retention to fuel their growth.
00:00:57 VO: How do you build a habit forming products? We crossed over that magic threshold to negative churn. You need to invest in customer success. It always comes down to retention and engagement. Completely bootstrap. Profitable and growing.
00:01:11 Andrew: Strategies, tactics, and ideas brought together to help your business thrive in the subscription economy. I'm your host Andrew Michael, and here's today's episode.
00:01:21 Andrew: Hey, Dan, welcome to the show.
00:01:23 Dan: Thank you, Andrew. Thanks for having me.
00:01:25 Andrew: It's great to have you. For the listeners, Dan is the CEO and co-founder of Recurly, a leading pay as you go subscription billing management. Service powering billing for over a thousand. Companies, including Paramount Plus, Washington Post, Showtime, and many more. Prior to Recurly, Dan was the Vice President of Marketing and Business Development at Flock.com. And prior to that, Director of Internet Marketing at eBay. So my first question for you today, Dan, is what was the inspiration behind Recurly coming off back to back roles in marketing? What drove you to start a payments business?
00:01:56 Dan: Sure. I spent five years at eBay, and my role there that you mentioned was a director of Internet Marketing. It would have been called Growth Marketing today. My charter there was to manage a group called Portals and Partners.
00:02:07 Dan: We were in the business of acquiring registered users for the eBay platform, and we would do so in a very data driven way. We wanted to make sure that the single user economics were profitable. We were in hypergrowth, so we were spending hundreds of millions of dollars on our customer acquisition. Not long thereafter, eBay felt that they had reached the edge of the Internet, as we had called it, in terms of acquiring new registered users. We were reacquiring a lot of users.
00:02:34 Dan: The quality of those users were declining, and the cost was going up. And so my last job at eBay was a director of Buyer Engagement, which was basically tasked with going back and reactivating old lapsers and decliners. So it was effectively a form of lifecycle marketing, but focusing on that reactivation moment. So that taught me a lot about the benefits and the efficiencies and reactivation.
00:03:01 Dan: And so from there I went to a company that was a social web browser, my charter there was now downloadable software so we would go buy downloads and registered users for the business that was the browser business. So making money on search, but we never had continuity into what users were worth after the download because it would break the continuity from all the channel specific metrics.
00:03:27 Dan: And so all of this together combined coming from a very data driven environment with all of the best industry analytics and data warehouse and smart people to help us make informed decisions at eBay went into this world of high growth startup and realized we didn't have that same affordance. So the notion of time series data and being really on top of single user economics to grow a business profitably connecting your marketing efforts with the cash register is the way that I like to think of it, helped me appreciate the challenges of time series data and the longevity of user behaviors over time.
00:04:05 Dan: And so that led to Recurly, which is a subscription billing platform, as you mentioned, that powers billing for now, thousands of customers around the world. And we're powering about $12 billion in annual transaction volume for many direct to consumer businesses.
00:04:20 Andrew: That's amazing. And I think the dots a little bit clearer now as well that you explained it. Typically you can see it in somebody's LinkedIn profile, like it's obvious and it's glaring, but definitely see how those roles influence. It's also interesting that you mentioned the sort of reaching the edges of the internet and I think today that almost feels like unimaginable because of the depth and breadth in which it's grown.
00:04:40 Andrew: But I can imagine that being a thing back in the day when you were still at eBay, because this was around 2005, 2006 somewhere there,
00:04:49 Dan: 2003 to 7, and it was pre social web. So eBay was still one of the centers of gravity in the universe of what's available on the web.
00:04:58 Andrew: And so Recurly itself maybe give us a little bit more of a deep overview of the product and the service as a whole. So obviously understanding like the background, where you're coming from, how do you understand your customers and their value and their worth and reactivation as well. But as a service, what sort of. Value are you adding to your customers?
00:05:16 Dan: Sure. So Recurly is a 13 and a half year old business, so it's quite a mature platform. We think of it as core enabling technology, it's infrastructure that businesses entrust us to run at a call it a lower level in their business so that they don't have to invest heavily in staffing and expertise to run recurring billing, automation and revenue optimization.
00:05:39 Dan: So our business allows customers to sign up and define their plans, which are effectively the plans that would appear on a checkout flow at different price points. And there can be a broad variety of different variations in terms of fixed, recurring or variable consumption based models. But it allows for a lot of different types of business models to be taken advantage of.
00:06:04 Dan: And what we do is we manage the end customer credit card or payment credentials. And we manage the clockwork, as I like to say, of the payments that occur in a recurring fashion so that our customers can focus. On what differentiates their business the most and they leave the more... let's just say the art and the science of ensuring that annuity revenue stream to us. And so we do this now for over 2000 businesses worldwide and we have teams in the United States as well as in Europe and the business continues to grow profitably. We're proud that we're profitable and cash flow positive.
00:06:43 Andrew: The thing as well, I think this debate in house because I saw this simile at Hotjar was this build versus buy components and I'm a very big fan of buying versus building. Especially like something like as complex as billing, because you realize quite quickly how technical and complicated it can get. And then especially when you're in a hyper growth mode and you're layering on experimentation, you're really trying to iterate fast.
00:07:07 Andrew: It just ends up becoming a huge, big nightmare for the business to manage. And you're not really spending your time. And energy on what your core competency is as a business at some point. And you just really focus on trying to fix billing. I definitely see obviously like huge, huge value in outsourcing that and as you said, allowing the experts to do what they do best and then allowing your business to do what you do best.
00:07:28 Andrew: So I think obviously in the subscription economy as well, we've definitely seen a big shift in the market. We chatted about this just briefly before. We got started chatting and I think, the concept of churn and retention as a whole is definitely coming now a lot more into the spotlight. But you definitely have an advantage point like no other from where you are currently. What are you seeing in the markets in the shift now and change and the perceptions towards churn and retention as a whole?
00:07:55 Dan: So again, we power billing for over 2000 companies and most of them are direct to consumer businesses. So a lot of media streaming, publishing, entertainment, a lot of ed tech companies, a lot of box of the month sort of subscription commerce type companies like BarkBox and FabFitFun and then traditional SaaS companies like Sprout Social and companies that are out there selling into small businesses thrive is a customer of ours. So we do have a horizon view across so many different types of businesses.
00:08:26 Dan: And that's part of what I think makes our business fascinating is that we do get to see the growth and churn characteristics across verticals and different industries segments. And so there's a lot of knowledge there. So benchmarking becomes a big part of what we do. But in general, what we're seeing is that companies have gone from hyper growth mode in a hot economy where businesses are spending at all cost to acquire new customers and grow market share, to one that is now very quickly, over the last six to twelve months become far more focused on growing profitably, not at all costs. And so if you think about, if you're maximizing revenue in a hyper growth economy that's hot, you might suboptimize on lifetime value objectives because you can tolerate a certain degree of churn, because you're basically shoveling your marketing dollars into the furnace to grow this engine as quickly as possible.
00:09:19 Dan: Now, with a tighter economy and budgets getting constrained, of course, that impacts typically marketing budgets for growth marketing purposes. And that forces economies. It forces companies to look more closely at how do we ensure that we're retaining customers? Maybe focusing on increasing lifetime value and retention metrics, as opposed to focusing on the n plus one mentality of always acquiring that net new customer. Because it's far more cost effective to retain customers and engage in retention marketing and to keep your customers happy than it is to go. Just continue to acquire new customers.
00:09:55 Andrew: Absolutely. And this is definitely like a sentiment that's echoed throughout the markets and you. Hear people talking about more and more. Really focusing on new economics today payback period. LTV what is like... ROI of campaigns. And there's a lot more it's interesting, you say you always see companies growth maybe slowing, but then LTV growing at the same time with it just due to the shift in focus, which ultimately will build stronger businesses. From your perspective as a company at Recurly, though, as well, there must be some sort of pressure and downward on your end as well from customers.
00:10:28 Andrew: What are some of the things that you're looking into and doing as a business sold to try and navigate through this time now, at the moment,
00:10:35 Dan: So what we hear from our customers, we do quarterly business reviews. We go into our customers and we want to understand their strategic objectives, what they're challenged with, what we can help them with effectively. And oftentimes that is indicative of the market. We start to hear common themes, as I mentioned, that are focused on growing profitably.
00:10:55 Dan: So it's really about how do we set up A/B testing, pre and post testing, how do we ensure that they have preferred payment methods in front of their customers, and all of those things that eliminate friction often in terms of retention marketing, we set up what are called dunning campaigns. So dunning is just a fancy word for the communications that are used when your customers are at risk and you want to reach out to them and say, hey, your payment has failed or your subscription is ending. And those used to be more rote, those used to be sort of just functional emails and now what we see is that companies are really focusing on what they're saying. They're having a conversation with their customers, they've earned the right to do so. But there's a real gratitude, I think, now in terms of, hey, these subscribers have put their trust in us, they're paying us for the product app service media that we've been delivering to them.
00:11:47 Dan: And it's our responsibility as a business to always earn the right to ensure the next period, the next renewal. And that mindset has something that has shifted, I think, in favor of the consumer. Businesses are working hard to keep their customers in good favor and have high customer satisfaction rates, which I think is, at the end of the day, really a wonderful form of call it competition. It's competition for the hearts and minds of the subscriber.
00:12:12 Andrew: It's very interesting you mentioned that. Brings me back to sort of my own experience. Prior to joining Hotjar, where I used to previously work. I had a startup and it wasn't doing so great and at some point the emails came in like, your credit card has been declined. Your credit card has been declined, all. The different products or services. And there was only one company that. Stood out to me and that was actually Hotjar. And what they had done was it was an email that was coming from David the CEO, saying, hey, your credit card declined. If there's anything we can do to help, whatever it is, please let us know. We know businesses and building startups is difficult. We're here if you need us, let us know. Otherwise, please update your credit card, whatever.
00:12:51 Andrew: And I just remembered so clearly because everything else was like bright red notice, like a warning, your subscription is going to be canceled, sort of thing. And there was just like this email at a time, which wasn't great, just felt good as a brand. I think it built empathy, at least for me, towards that brand. And then over time, I'll definitely become a huge fan, even though I end up working for them as a result.
00:13:12 Andrew: But I would have been a fan for life. Irrespective just from one single simple email that was sent and then at that point in time wasn't a good fit for them as a customer, but definitely like three, six months down the line would go back.
00:13:23 Dan: And you just mentioned a really wonderful sort of tactic, which is I think we all appreciate when you receive an automated email that feels it sort of causes you to question, is this from a person or is this part of a drip campaign? And it sounds like you got exactly one of those emails and some of those simple tactics like a signature rather than just sincerely name typed out. But a signature feels more personal.
00:13:48 Dan: And there's just very small things like that that feel like somebody is talking to me as an individual rather than I'm just one of the masses receiving that flashing red communique saying, you have to please re-up your credit card.
00:14:02 Andrew: Absolutely. It was definitely an automated email because David confirmed it on the show when. We had him a while back. But was it a sentiment of the company, though, as well, like how they ran things and it could have just as well have been written by him.
00:14:13 Dan: The point that you're making, I think the interesting thing there is a mindset shift required, I would say, on the part of a retention marketing team in order to create that personal feeling that you just described. That mindset shift, I think, is one that has to happen at the company sort of cultural level, is that, hey, we're going to go the extra mile and put a little extra effort into this and then of course, monitor the data. But there's so much of marketing is about perception. And perception is it's not just the rational brain, it's the emotional brain. And it gets into cognitive science of how we as humans perceive information.
00:14:50 Andrew: Absolutely. And especially at this time where people are a lot more sensitive and a lot more alert to things going around them just because we're sort of in defense mode trying to figure out--
00:15:00 Dan: Bombarded [inaudible].
00:14:04 Andrew: So you mentioned as well that you have got this interesting vantage point where benchmarking and you have access to interesting data. From what you've seen as well, what are some of the best companies in the business doing when it comes to churn and retention that you think really stand out? Is there any sort of specific things that you can point to? You can say, okay, these industry best. Companies when it comes to retention, they always do these one or two things. Is anything that comes to mind from your experience?
00:15:31 Dan: Yes. So Paramount Plus, they have experienced some of the industry's highest growth rates over the last couple of years. In a competitive industry where trying to win over the market share, when you're competing with the likes of Disney and Netflix and all of these other media companies, they're doing something exceptionally well to achieve those breakout growth rates. And part of it is not just catalog driven or content driven. Part of it is how they are keeping their customers active. And the way in which they communicate with customers globally is impressive. We help them roll out in Latin America about a month later in the Nordics and then Austria, France, Germany.
00:16:13 Dan: So they've got this global footprint. A lot of similar content in their catalog around the world, but language specific content, speaking to their customers in their language and in their own sort of call it localized colloquial terms so that it doesn't feel like it's just simply a marketing message translated by someone in the States is really important. And again, I think making the communications feel as natural as possible is part of what is being achieved there. They also look at data. They're very sophisticated in terms of how they parse their data and how they look at voluntary versus involuntary churn.
00:16:50 Dan: So it's a coupling of sort of an awareness and a sensitivity for local cultural norms with a very data driven approach. And they also... and a broader comment about companies that seem to be doing things better than average is just a voracious appetite to test and to continually test and move and alter price points. And it can be price points in the form of coupons and discounts, because changing price on your page in market can create confusion if you're A/B testing, of course, but if you test price by way of coupons and discounts that are available, they might be single use coupons or non-shareable coupons. Those kinds of price point tests are really wonderful to understand the elasticities of your customers, where is that the price at which a consumer is willing to continue spending versus where does it start to break? And so that's a really interesting area of the business that requires rigor, it requires curiosity.
00:17:46 Dan: And oftentimes companies find that they've been leaving money on the table. So, for example, if you raise price 20% and you see de minimis churn over the course of three to six months, you realize there was some headroom there in the market and you were probably undercharging against what the market clearing rate, if you will, would support. And so finding those breakage thresholds without risking your entire business is really, really super important.
00:18:12 Andrew: It's a very interesting topic, as always. I think definitely it's got a bad taboo in the market when it comes to it. Like, people are very wary and very risky of experimenting with pricing and packaging. And I think previously at Hotjar led a lot of the research and user research behind the changes that we made to pricing and packaging. And I think eventually what I realized is pricing is just a part of your product, just like every other feature in it, and there is so much headroom to be able to continuously be experimenting with it.
00:18:39 Andrew: And I think people care less than you think they really do at the end of the day, or they notice less than you think they do at the end of the day. Unless you're making a really bad mistake with pricing and packaging, it can backfire. I'm not saying that, but definitely I think it's something that more companies should be doing. The one thing, though, that I also came to realize in terms when it comes to sort of testing and A/B test and sort of things like, there's not many businesses that have the volume that they're fortunate enough to be able to get to any sort of statistical significance on testing, for pricing, what are you seeing? Some of the companies that you work within when it comes to experimenting or working and changing and iterating or pricing, how do they go about ensuring either they're getting to some sort of level of statistical significance or they're experimenting in a responsible way where they can have some sort of a reliable results to the end of it?
00:19:28 Dan: Right. Statistical significance is so important, and I love the question. At eBay, we had this decadent affordance of we could reach statistical significance within a couple of days, millions, millions of events.
00:19:38 Dan: And so when it's more challenging for companies that just don't have that kind of velocity in their business, it'll take them a much longer time. And time is your enemy, as you know. So I don't know if there's a silver bullet solved for a small company that doesn't have much traffic or events to drive that confidence interval. But in general, we do advocate midmarket companies and above to isolate and figure out how they can achieve statistical significance in parallel. And it can be that's why rather than changing price and just examining your entire business, running a separate price point, maybe discreetly within a vertical or a geography separately, to have an A/B test to understand the differential behaviors is the way that we typically like to gather that data.
00:20:26 Dan: There are different schools of thought here and we have guest speakers come in to speak to employees. And in the past I had someone come in and this individual said you should be running 100 A/B tests at all times in your company. And I thought, how can that possibly work at eBay? Again, working with PhD statisticians, I learned a lot.
00:20:46 Dan: But one of the things that is really important that you probably experience in your role at Hotjar is the interactions between variables. And so we used to start and imagine banner ads, all the banner ads that were being used at eBay during hypergrowth with thousands of versions. And then you would use experimental design to start to eliminate the underperformers. But as you reduce the number of variants out there getting tested, you start to see interactions between variables where when consumers are seeing less messages or different messages, they might respond differently than when they see the huge scatter plot of all kinds of different messages. So as that number goes from 1000 down to 100 down to 20 10, and then you isolate down to your top ten, the interactions between those variables are meaningful.
00:21:35 Dan: And it's something that has been used in portfolio theory for investment portfolio management. They talk about beta. You hear about beta being interactions between variables. And so I'm a big fan of getting to statistical significance but not creating noise. I think when you change something on a website or in a user experience, and certainly with pricing, it has to be done in a rather grounded way.
00:22:01 Dan: Because if you're changing product and you're changing messaging and all these other things at the same time, it's tough to get real clear signal from the test. And so confidence in the test itself, meaning a number of data points, to get to a 95% confidence, 98% confidence is important, but I think having a sound test framework is also really important as well.
00:22:24 Andrew: Yeah, absolutely, definitely. Like taking into consideration all the different variables that's also as you point out, you can't just really roll out to 100% and then compare this month versus last month because you have the seasonality like there's so many different factors that can influence results really having installation, being able to test against that.
00:22:41 Andrew: What we ended up doing at Hotjar to sort of get a little bit of confidence to test in the beginning is we actually started a panel study in the beginning. So going out to an audience who weren't familiar with the product or service doing willingness to pay and likelihood to buy, to get a sentiment, understanding of where we were within the market. How much could we price and package?
00:22:59 Andrew: So that helped us understand a little bit, like where we felt there was room to test and how much we could increase prices or shift pricing around by. And it ended up being pretty accurate to the degree. Like we ended up rolling out. I think at the points when we rolled them out completely was around 30% increase in ASP for the business, which pretty much aligned with the studies at the end of the day as well, which is quite incredible. Like not even doing A/B testing, just reaching out to panels, study 500 or 600 participants and then understanding it from that also. That sort of gave us confidence to say, okay, let's go and experiment with this now.
00:23:33 Andrew: And I think we probably could have experimented a lot sooner basing on guts, but I think that was one of the things internally was like okay, is this the right thing? Should we be doing this? But then ultimately realizing yes, you should be doing this all the time.
00:23:45 Dan: The point you just made is an interesting one because a major media company that we work with, I won't name them, but they told me last week that they are doing conjoint analysis. When they roll out new navigation or a new product offering, they will use conjoint analysis, which is a very formal kind of marketing analysis that's used as sort of a business school topic.
00:24:05 Dan: And it's big brands, companies like Johnson and Johnson, and they will go out and test brands in terms of end caps in supermarkets. How many choices do you want to offer consumers in terms of, like, selling chips or salsa or what have you? Too many choices is bad, too few choices is suboptimal. There's typically a zone in there that's around three to five. But conjoint analysis can help you test various combinations and see mathematically what consumers prefer.
00:24:36 Dan: Most companies don't have time or the expertise and know how to do that correctly. And what's interesting is conjoin analysis. Often if you do the very sort of off the cuff panel discussions, or if you do something more formal, one way glass user testing and observe where users might be getting confused in a user flow or where they might have a negative experience. If you interview ten consumers coming through a panel discussion like that, or an observation test, you tend to glean and extract themes pretty quickly, which will often be supported by very formal, sophisticated analysis. Sometimes there are some counterintuitive results and I always love things that are counterintuitive where you think, gosh, that's not what I would have expected.
00:25:23 Dan: But went back to your original question about how do you get to confidence? Oftentimes midmarket companies with a marketing team of five to ten people, they don't have time to do a perfect study like a big brand company might do. And yet if you just have those conversations and you're talking to your customers and establishing those feedback loops, you'll get to something that is quite close to approximate the perfect study.
00:25:49 Andrew: Like for us it took a long time. I think probably the whole project is around six months. So for like a mid market early stage company, it felt like a lifetime, like trying to moving with this thing. But we did run through, we did. run conjoints analysis as well in terms of features and how we should package different things.
00:26:05 Andrew: And I think it ended up setting to a really good spot where we could understand what should go in each plan, what should the pricing points be. And it was definitely an interesting experience running through it. I since ran through it with another couple of other companies and similarly as well, they also saw similar increases in ASP and LTV for their customers. So companies, the one that is experimenting all the time, pricing sort of saying like getting personal as well with communication, like really being deliberate in how you communicate to your customers. Is there anything else that you see companies that either impress you or you say, okay, why aren't more companies doing this?
00:26:46 Dan: Yeah, COVID taught us a lot of things. I think when COVID hit a lot of companies, the digital media companies, their growth took off because we were all at home and we wanted access to more media, the companies that required in person experiences. So we power billing for Cinemark, movie theaters and some of these kind of franchises, sporting facilities, NBC Universal theme parks and things like that that were shut down. One thing that's somewhat counterintuitive is offering the simple option to pause. To pause a subscription is actually sort of an interesting intermediary call it purgatory, where a user may not be getting value out of whichever service you're selling.
00:27:27 Dan: Giving them the opportunity to pause rather than outright cancel and break that relationship is something that we saw used quite effectively by Cinemark. They actually proactively paused everyone's subscriptions on their behalf, said, hey, we're not going in this time. We're standing with you. We all want to get back into movie theaters. We're going to pause. We're not going to charge your credit card. We welcome you back. And they did. They welcomed their customers back over a year later, and the company has ended up really having an impressive story of growth and reactivation of subscribers that were willing to stick with it.
00:28:07 Dan: And they appreciated the fact that the company proactively paused. They didn't ask the users to pause and keep hitting the credit card, which would have come across as somewhat grabby and value, a little bit too value capture rather than value sharing. They kind of wanted their community to take a step back, stay safe, and we'll reconvene when it's safe for all of us to go enjoy films in the theater. That was interesting.
00:28:30 Dan: The other one is just the Downgrade Bundle, which is, again, a skinny bundle is a better way to offer a customer save on the path outward. If they're looking to cancel, offer them a skinny bundle or something that might allow them to downscale as an option before heading for the door, so to speak. And that's quite an effective technique.
00:28:52 Andrew: But those are interesting. I think the pausing one for me is very interesting as well from the perspective that not only like in COVID. In COVID, I think a lot of companies rush to just do it because they realize, okay, otherwise we're going to have terrible churn if we don't. But also there's a lot of businesses that operate where you might be focusing on mid market or enterprise, but you have a level of small businesses where they would use your products more on a project to project basis versus like a continuous basis. User research tools, UX tools.
00:29:18 Andrew: This happens a lot where larger companies are doing continuous discovery, so there's not that much issue. But then smaller business might be doing a website launch and then they need few tools for that period, especially with things like GDPR and privacy. When people go to cancel the subscription, by rights you should be canceling their accounts and not really having access to reach out to them anymore. But pausing is a great little way to sort of still maintain that relationship. Still have their credit card on file and win them back when the time is right.
00:29:48 Andrew: What have some of the companies done in this perspective, like, to win back customers? Have you been able to see this perspective as well? Are there any interesting things that people have been able to reactivate these poor customers?
00:29:59 Dan: Yes. One simple framework I'll sort of pull back from my days at eBay was eBay drove the entire company during the period that I was there against what we called the AAA, which was acquisition, activation, and activity. And that's a pretty simple framework that can apply to most businesses and that third A of activity can be reactive activity or reactivation as well, which was my role. And so, again, I can speak very specifically about my role at eBay. But if you think about a consumer's behavior and what their prior purchase decisions indicated about their psychographic interest, if you're at eBay and you were buying cuckoo clocks and violins, then two years after you've lapsed and we haven't seen you in a while. I used to develop campaigns to go look at prior history and bidding categories, and we'd put together campaigns that would resonate with your prior history.
00:30:56 Dan: Because most businesses forget that when subscribers are active, they're giving us a lot of information that tells us something about their interest, whether it's frequency of how active were they in terms of recency and frequency. But then the categories of consumption or what they did gives you a sense for what they value and what their areas of interest are. And those typically are clues that can be really used quite effectively in the world of reactivation, of lapsers and decliners and even sometimes even in retention marketing as well.
00:31:31 Dan: Because if your service has a very horizontal set of topics or feature function and somebody is using a very vertical sort of specific area to reactivate them, you probably want to come back in and sort of restate the value. Or maybe often it's look what's new, look what we've rolled out and improved, new and improved. You got to come back and check it out. Those kinds of things are very effective and I think most companies really forget to look at their own user logs and know and take advantage of what they've learned from their customers.
00:32:02 Andrew: And I think reactivation is one of the things that comes like at the end and especially like in this hypergrowth economy, it's probably one of the things that was neglected the most. But at this point in time probably is one of those things that has big, big opportunity to win back customers and to bring them back into experience. And as you're learning to having really. Good personalized experiences, it's not just a generic email that I'm receiving, but it's... yes, I'm going to come back. And as you said, like a cuckoo clock. I haven't been investing in those for while or buying. I'm not sure you need more than one, but...
00:32:36 Andrew: So I see we're almost running up on time. So I want to make sure I ask you two questions that I ask every guest that joins the show. First question is let's imagine a hypothetical scenario that you somehow join a new company. Churner retention is not doing great at this company. The CEO comes to you and says, hey Dan, we have 90 days to turn things around. You're in charge.
00:32:55 Andrew: What do you do? The catch is you're not going to tell me. I'm going to speak to customers and figure out the pains or I'm not going to look at the data and start there. You're just going to pick one single tactic that you seem to be effective. At a previous company and run with that blindly hoping it works. Within this context, in this environment, what would you
00:33:13 Dan: I would have to look at voluntary and involuntary churn to pick a lane. I would want to understand is it a product issue, pricing issue, external competitive issue? But oftentimes one of my favorites, and this is biased because of the business that we are in at Recurly is often overlooked is the degree to which credit card failures lead to customer churn.
00:33:38 Dan: I have listened to earnings calls of publicly traded companies. CFO says we have inordinate subscriber churn. We're looking into it. I followed up with those CFOs and the one thing that I followed up with was we are in the business of helping you mitigate churn. Have you looked at your credit card error files to see which payments are failing and breaking that annuity revenue stream because it might be your customers are leaving you involuntarily and you can do something about that quickly.
00:34:09 Dan: And that gain that we deliver to our customers is material to EPS. It's a material contributor to compounding revenue growth. So that is a biased answer. It's the business that we're in and we're quite good at it and it works.
00:34:23 Andrew: Yeah, it definitely is a big one as well because I think if you just take the math, the simple math is that most credit cards have an expiry of around two years. Typically that's like public that's now, but roughly 4% per month of your entire user base is going to be having expired card at some point. So just that fact alone think is big enough to see, okay, yes, there's an opportunity to try and stop this and as you say, it's not voluntary people churning. It's just like, hey, I forgot my credit card expired and your service is now the victim of this.
00:34:55 Dan: That's right. And that one by the way, you picked one of the most significant contributors in terms of the myriad of errors. An expired card is a relatively easy error to fix. And we look at the issuing bank and we understand their historical conventions and we're able to go remedy that very situation quite effectively for our customers. So you're right on.
00:35:21 Andrew: The other one I've noticed actually with this and maybe can confirm it, is that depending on where the business is based. So if you're a UK company and you're selling majority to the US or vice versa, end up having these issues. Between banks not accepting charges because of crossing borders and cross border authorization. How big of an issue is this from your perspective as you see? How much should people be worrying about this?
00:35:47 Dan: It's significant for companies that are selling globally and cross border authorization rates are often things that businesses don't look at. And what's interesting is there are a number of things that factor into this. We'd need a longer podcast to break it down, but when we look across 24 different gateways and processors, all call it industrial strength, well known, dependable brands that are out there processing payments. Some are better than others, just like with local approval and decline rates, meaning local within the same country, not cross border.
00:36:24 Dan: Cross border adds in an entirely new challenge to the mix. And for multinational companies, we always advocate that you can use Recurly to basically choose the optimal cross border processing rail. Because if you look at any sample, our horizon view, when we look at cross border authorization rates against all of these payment rails and payment processors, some are quite better than others. And there's no single answer of like, this company is the best everywhere. The answer of course, is it depends on your audience and the kinds of cards, the invoice amount, which countries we're talking about and there will be an answer that is the top performing rail.
00:37:05 Dan: And what we do is we help our customers find those combinations through testing and the data leads, leads you to the answer, but it's a very, very important variable to keep track of.
00:37:16 Andrew: Absolutely. I definitely see that as you start to scale and especially when you're dealing like B to C or small payments. Going through rapidly ends up becoming a sizable amount of churn gesture to involuntary and just due to this, what's one thing that you know today about churn and retention that you wish you knew when you got started with your career?
00:37:35 Dan: I think in general when I talk to larger audiences, I always ask how many of you in the audience have growth marketing teams? Within your marketing team, everyone raises their hand, it's a well worn path, there's a lot of tools available. Google AdWords, it's fun, you get to work with creative. And I asked how many of you have retention marketing teams and there will be a few hands that come up. And I have really enjoyed geeking out on retention marketing ever since the days at eBay.
00:38:03 Dan: That sort of piqued my interest in lifecycle marketing. There are so many factors that go into running a successful subscription business and optimizing for revenue growth, but the retention marketing side and retaining customers, having a tailored conversation, all the things that we've discussed here today I find to be really rewarding because it's very quantitative. You can create fantastic material gains in a fairly short period of time and it's far more cost effective than throwing your dollars solely at acquiring new customers. It's more exacting, it's more sophisticated, and it's frankly a more efficient channel. And all of those things appeal to me and I wish I knew that 15-20 years ago.
00:38:45 Andrew: I love that and definitely it's not a common role within marketing. Last Oracle marketing has definitely grown a lot, I think over the last two to five years. It's become a lot more prominent within marketing. But definitely I think there's a shift. Now in the market again, and there's going to be a lot more emphasis now on focusing on churn and retention as a whole as businesses really start to take care of what they have in this difficult climate.
00:39:10 Dan: One of the things that was interesting early on, from the beginning of my career was eBay, was a catalog of SKUs that was horizontal. You could find anything on eBay. And the auction model was interesting because it basically told us that you have an understanding for a consumer's willingness to spend at a given price point.
00:39:30 Dan: So we understood pricing for things all the way across the universe of items. And that notion of a consumer's willingness to spend at a given price point becomes incredibly important when you start to think about an annuitized revenue stream where I've been a subscriber of Netflix for 25 years, probably 20 years. I don't think about that $15 charge that hits my credit card because I receive so much more value than that $15. I don't even think about it. And for many companies, they want to find that sweet spot where their customers don't even have to think about it.
00:40:06 Dan: They're getting more value than what it's costing them. But when you get down into that zone, it's important to understand where those breakpoints are. And many companies operate without doing any price discovery to understand where they are optimizing for the relationship over the long term.
00:40:21 Andrew: I think there's a very interesting way as well to map out a user base there to understand your risk of churn is if you have the value versus the price. And the price can be anything. It can be like the monetary price that they give you. It's the time that they need to invest in your product or service, and then the value can be measured as well. And if you have a nice little 4x4 matrix, you can understand how well you are doing and how well you're likely to retain customers.
00:40:44 Andrew: And obviously the sweet spot is when you're getting just enough value with the price to be paid. Sometimes you're undercharging, but I think doing an exercise like that, just mapping out your user base and trying to evaluate where you see the majority of your customers sitting, you can quite quickly tell if you're not taking enough off the table or if you're taking too much and you're risking churn.
00:41:05 Dan: You're 100% right. And for the purpose of the topic of your podcast, zero churn is not revenue optimizing. You're leaving money on the table if you have zero churn. So a little bit of churn tells you that you're optimizing for the top of the bell curve and you have to find it. That's the interesting part about it. It's an intellectual challenge.
00:41:22 Andrew: Absolutely. It's like if nobody's complaining about pricing it's too cheap, that's one thing you always know.
00:41:28 Dan: That leaving money on the table. That's right.
00:41:31 Andrew: Very nice. Dan, it's been absolute pleasure chatting to you today. Is there any sort of final thoughts you want to leave the listeners with? Anything they should be aware of or how to keep up to speed with your work?
00:41:41 Dan: Yes, thank you. So I've enjoyed the chat as well. Thank you for having me on your podcast. Recurly is a platform for subscription businesses. We publish our data in a state of subscriptions report that's available on our website. So for those of you that are interested in the data side of things and understanding how it is parsed out by region, country, vertical and looking at ranges of churn, voluntary and involuntary, go download the state of subscriptions report for 2023 and I think you'll find it interesting.
00:42:09 Andrew: Awesome. We'll definitely make sure to leave that in the show notes, so if anybody listening and on the road, you can find that as well and take a look. But it's been a pleasure having you today, Dan, and thanks so much for joining. Wish you best of luck now going forward.
00:42:20 Dan: Thank you, Andrew. It's been my pleasure. Cheers.
00:42:29 Andrew: And that's a wrap for the show today with me, Andrew Michael. I really hope you enjoyed it and you're able to pull out something valuable for your business to keep up to date with CHURN.FM and be notified about new episodes, blog posts and more, subscribe to our mailing list by visiting Churn.fm. Also, don't forget to subscribe to our show on iTunes, Google Play or wherever you listen to your podcast. If you have any feedback, good or bad, I would love to hear from you and you can provide your blunt, direct feedback by sending it to Andrew at Churn.fm.
00:43:06 Andrew: Lastly, but most importantly, if you enjoyed this episode, please share it and leave a review as it really helps get the word out and grow the community. Thanks again for listening. See you again next week.
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We’ll send you one episode every Wednesday from a subscription economy pro with insights to help you grow.
My name is Andrew Michael and I started CHURN.FM, as I was tired of hearing stories about some magical silver bullet that solved churn for company X.
In this podcast, you will hear from founders and subscription economy pros working in product, marketing, customer success, support, and operations roles across different stages of company growth, who are taking a systematic approach to increase retention and engagement within their organizations.