This Blog was Originally Posted to Churnfree Blog.
The average churn rate for subscription services varies from industry to industry. Understanding the average churn rate for subscription services is essential for any business to grow in 2024.
Reaching the average churn rate for subscription services can be tricky, but you can reduce subscription churn with some simple churn retention strategies. The churn rate is the percentage of customers who discontinue their subscriptions within a specific time frame. It’s often measured in terms of monthly recurring revenue (MRR) and annual recurring revenue (ARR), key financial metrics for subscription-based businesses.
The average annual churn rate for subscription companies typically ranges between 5-7%. A monthly average churn rate for subscription services is around 4%. However, these figures can vary depending on industry and market conditions. You can compare these average churn rate benchmarks against your own gauge to see where your business stands.
Exploring Average Churn Rate for Subscription Services by Industry
Different industries experience varying levels of churn, influenced by factors like customer engagement, pricing strategies, and market saturation. Let’s explore average churn rate for subscription services in different industries:
SaaS Subscription Services
According to Recurly, the average churn rate for SaaS is 3.36% for voluntary churn. SaaS is a B2B service and, therefore, has lower churn rates. The SaaS sector shows significant variance in SaaS churn rate, with B2B platforms typically experiencing lower churn rates, around 3.5% to 4.67%, compared to B2C platforms. This difference is often due to the critical nature of B2B services and the long-term contracts commonly associated with them.
Related Read: What is a good churn rate for SaaS?
Consumer-Oriented Services
Direct-to-consumer (DTC) businesses usually have higher average subscription churn rates. Media and Entertainment, Consumer Goods, and Retail reports tend to have higher customer churn rate. Industries such as Digital Media, Entertainment, Consumer Goods, and Retail report an average churn rate of around 6.5%. This is relatively high compared to SaaS churn rates, which average about 3.8%.
Energy/Utilities
In the Energy/Utilities sector, the average churn rate for subscription services stands at approximately 11%. This figure underscores the importance of businesses in this sector focusing on customer retention strategies, especially considering the competitive nature of the energy market.
IT Services
The IT Services industry shows a lower churn rate, around 12%. This relatively lower rate can be attributed to the indispensable nature of IT services for businesses, which often leads to longer contract durations and higher customer retention.
Computer Software
The Computer Software industry experiences an average churn rate of about 14%. Despite the essential role of software in modern business operations, the competitive market and rapid technological advancements contribute to this churn rate.
Professional Services
Professional Services face a higher churn rate, averaging 27%. This sector’s high rate can be linked to the need for personalized service delivery and the intense competition among firms offering these services.
Clothing Subscription Box
Clothing Subscription Box Churn Rates, similar to fashion subscription services, often see high churn rates. The average clothing subscription services have churn rates of around 10.54% per month due to fluctuating consumer interests and a competitive market.
News Subscriptions
News subscriptions face challenges in maintaining subscribers, especially in an era where free content is readily accessible. Factors like content quality, pricing, and the proliferation of alternative news sources widely influence the churn rate in this niche.
E-commerce Subscriptions
As reported by e-commerce platforms, including Shopify, the average churn rate of e-commerce subscriptions is around 5%.
Streaming Services
The average churn rates for streaming services like Netflix, Amazon Prime, Disney, etc., are reported to be high. In the US, streaming services had a churn rate of around 37% for the second half of 2022. The churn rate was significantly higher with Generation Z and millennials than with boomers and Gen X.
Factors Influencing Subscription Churn
Pricing is one of the main causes of churn. According to a survey, approximately 71% of the customers unsubscribed because of high pricing or an increase in pricing. Other than that, most sign ups never turn into upgrades due to hidden charges, such as additional fees for premium features or unexpected price increases after a trial period, which causes customers to churn. This can be resolved by creating a transparent pricing calculator and responding to churn.
Monitoring and Responding to Churn
It is essential for subscription businesses to monitor their churn rates closely and understand the underlying reasons. Even slight increases in churn can indicate potential issues that need immediate attention to retain customers and sustain growth. By utilizing a churn prediction software, you can confidently predict churn and implement effective strategies to avoid high churn rates, ensuring the security and stability of your business.
The average subscription churn rate can serve as a critical metric for the health of a subscription-based business. Keeping this rate at or below industry benchmarks is essential for the long-term sustainability of a business.
By delving into these industry-specific churn rates, businesses can gain a comprehensive understanding of the factors that drive customer turnover. This will help you in building strong customer retention strategies, thereby reducing customer churn and achieving net negative churn.
In case you feel like this lady after looking at the average churn rates by industry, don’t worry Churnfree can help you reduce churn by 40%. Just sign up and find out yourself.
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FAQs
- What is the typical churn rate for subscription-based businesses in 2024?
The typical churn rate for subscription services generally falls between 6-8%. However, businesses can strive to reduce their churn rate below this average, presenting a promising opportunity for improvement. Understanding why customers cancel their subscriptions and how to calculate your company’s churn rate is crucial for this journey of enhancement.
- What are typical churn rates for digital subscriptions?
Digital subscription companies generally see an average annual churn rate of 5-7%. A monthly churn rate of 4% is often considered adequate. However, these rates can vary depending on the specific market and industry, so it is beneficial to look at industry benchmarks to evaluate your business’s performance.
- How is the retention rate for a subscription service determined?
The retention rate of a subscription service is determined by the percentage of users who continue to use the service over a given period, such as weekly or monthly. This rate is a critical metric for assessing customer loyalty. Additionally, Monthly Recurring Revenue (MRR) retention, which tracks the stability of revenue from recurring subscriptions over time, is another critical metric to consider.