The Correlation Between Subscriber Churn and Lifetime Value

Dimitar Serafimov| Thu Nov 07 2019 CET| Cleeng news

Customer care and support in OTT

When it comes to securing long term success and sustainable growth, your customer lifetime value (CLV) provides a clearcut estimation of all future profits accumulated from a relationship with members of your customer base. And yes, there’s a direct link between CLV and customer churn.

This invaluable performance metric offers an accurate insight into the success of the engagement efforts and retention strategies surrounding your platform of service. By tracking your CLV regularly, analyzing relevant data to help you make informed strategic decisions, you will catalyze your SVoD success. And yes, there’s a direct link between CLV and customer churn.

OTT churn is a growing issue

Circling back to customer churn, within the SVoD landscape, customer churn is a real roadblock—perhaps a primary driver for the reason its subscriber retention rates are lagging behind pay-TV, despite growing popularity.

Churn trends - Parks

Rather astonishingly, the data from this chart shows that while customer churn rates dropped slightly in 2018, this year, we’ve seen a notable rise in churn. 

Moreover, studies from Parks Associates show that more than 40% of service cancelers used their OTT platform weekly or daily immediately before cancellation, showing that usage doesn’t always dictate churn. And, among vMVPD services, older providers have higher annual churn rates than newer serviceswhich gives a clear indication that new players are learning from the mistakes of older services.

Types of churn worth inspecting closely

Now, assuming that churn rate is linear over time is a common mistake for the majority of CLV formulas. In real life, this is seldom the case.

Subscriber Churn curve

What is notable from Tomasz Tunguz‘s visualization is the vast difference between expectation and reality. 

From these discoveries, Tunguz modeled four different styles of customer retention curves below, each with the same 3.5% average monthly churn, all sporting significantly different customer behaviors and customer lifetime value (CLV). 

From his studies, he has witnessed businesses with all four styles of churn characteristics, from gaming brands to SaaS companies, eCommerce subscription business, and beyond.

Types of subscriber churn

These four retention styles are as follows:

  • Annual Renewals: 1.5% of these customers churn each month over a year, when it’s time to renew a big contract, we see another 25% churn.
  • Cliff: In the first month, 70% of subscribers churn. Over month two, 22% of customers churn. Then, a mere 1% of customers churn every subsequent month.
  • Constant: A steady 3.5% monthly churn, every single month, consistently.
  • Declining: Churn beings at zero and increases by 0.25% every month.

Retention strategies that impact CLV

Now that we’ve explored CLV, churn, retention and their relation to one another, let’s look at the retention strategies that have a direct impact on customer lifetime value.

Fighting customer churn is a real challenge for a subscription business, but with the right approach, you can set yourself apart from the pack.

1. Dynamic self-care (proactive customer support) systems.

This can help to reduce early life churn, helping in understanding the issues your customers face or detecting the cause of their potential dissatisfaction in the early days of the relationship with your service. By gaining an insight into this information, you can find a viable solution or incentive to reduce early churn.

2. Early detection of at-risk subscribers.

The type of offer delivered to subscribers who are classified as ‘at-risk’ should be managed carefully, with triggering events or clustering. Specific event triggers should be managed as close to real-time as possible to ensure maximum impact.

3. Stretch offering.

By honing in on your selection, offers, and availability, you can increase customer retention in a way that is value-driven, balanced, and yields positive long term results.

4. Behavioral retargeting and reminders.

An incredibly powerful churn-reducing approach, using behavioral data to your advantage, you can deliver tailored messages to subscribers through the likes of retargeting, native ads, bespoke pop-ups, push notifications, and well-placed alerts, sparking engagement and reducing churn rates while growing your audience.

Average length of subscriptions in the world of video entertainment varies significantly

Parks Associates released new stats showing the retention averages for the three major ways of consuming video on demand. 

CLV in entertainment sector

As you can see from this chart, SVoD currently stands in the middle concerning the length of subscription over the three major modern entertainment mediums. It’s clear that subscriber duration between each format different significantly, with traditional pay-TV currently yielding the most long term subscribership.

As you can see, there is a tangible correlation between churn and CLV. Get to the route of the issue, use subscriber data to your advantage, take a tailored approach to incentives and communications—and you will push yourself ahead of the pack.

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