Cohorts represent a subset of your customer base that have similar characteristics and establish a baseline of activity. Cohort reporting and tracking is a critical element of managing your recurring billing process. One powerful cohort to use for recurring billing analysis is known as the activation cohort.
The activation cohort is defined as the collection of billing entities which share an identical calendar month in becoming active customers.
By monitoring the sales activity that occurs with these cohorts over their lifecycle, you can:
- Track contributions made by historical customers to today’s sales volume
- Monitor and compare the impact of sales churn versus customer churn
- Track trends in your 2nd month and annual retention rates
- Take proactive steps to mitigate against churn
Let’s take a look at each of these elements in more detail.
1. Tracking contributions made by historical customers to today’s sales volume
There are many benefits of tracking activation cohort activity. The most obvious is to segment specific monthly sales volumes from the groups of customers created in previous historical months.
This data provides important insights into the proportion of sales volume that is coming from the recent subscriber base in comparison to older customers. When tracked properly, you can establish baselines for the percentage of sales volume anticipated from your clients of the current quarter. Then, you can monitor how this percentage changes from year to year.
2. Sales churn and customer churn are not always the same
Churn is an inevitable part of subscription billing processing. Even the most successful customer satisfaction program cannot eliminate churn altogether. Clients will go out of business or discontinue services. It’s critical to keep track of the quality of customers churning out of your product and this can be monitored through the Activation Cohort.
The following use case illustrates just how sales retention rates rely on focusing your customer satisfaction program on high quality customers:
A look at the customers that make up the January Cohort sheds light on the apparent contradiction in churn data. We see that sales are holding up relatively strong despite the lower retention rate.
A deeper dive shows us why - the better quality of the customers being retained. If larger enterprise customers like Mega Corp are carefully nurtured, and if customers like Friedmont Tech have their sales volume tied to usage, it can lead to significant sales retention, despite high levels of customer churn.
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3. Tracking 2nd month retention rates
Some clients hesitate to track sales churn data because they are afraid of what they might see. They don’t want to focus on the negative when preparing analytics for prospective investors.
This type of thinking is actually counterproductive to increasing sales volumes. A far more productive approach is to begin monitoring and tracking sales churn as soon as possible for your business. You can’t improve retention rates or hold on to a greater proportion of your recurring sales volume until you know where you are, and are set up for a consistent monitoring of churn activity.
A great way to track progress is to first identify which month within the customer lifecycle, you are experiencing significant sales churn.
Looking at a typical cohort sales timeline, we can quickly pinpoint the exact month that we can have the most impact to mitigate churn. In the following image you see the steep drop in month two.
Learning from this data, we can implement a strong customer satisfaction program focused on getting the maximum customers to stick around for a second month. With the proper reporting infrastructure in place, we are able to focus on measuring results across future cohort groups.
4. There is a high cost to ignoring sales churn
Not maintaining consistent sales churn figures month over month can cost you substantial sales volume.
Even modest improvements in sales retention rates can lead to increases of 10-15% in annualized sales.
This is why it is so important to take steps proactively mitigate against sales churn. How do we do this?
- Contact larger clients and ensure they are happy.
- Offer incentives to clients who renew contracts.
- Set up usage-based fees to map your client’s success with increased sales volumes.
- Reinforce the value that your product delivers to your customers whenever you communicate with them.
- Experiment with ‘credit card free’ trials versus ‘credit card required’ trials.
Proper cohort reporting and analysis is an important element to monitoring your recurring billing business. Ensuring that you are using billing processing software specifically designed for the needs of recurring billing is the first step in making sure you are on the right path to success.
Product Architect, Fusebill
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