What is the Average Churn Rate for a Subscription Box Business?

What is the Average Churn Rate for a Subscription Box Business?

What churn rate can you expect for your subscription box business?

What’s a good churn rate? What’s a bad churn rate? If you haven’t yet launched, what number should you put in your business plan?

I wrote in a previous post about typical subscription e-commerce retention rates and how, when considering launching a subscription box businesses, your assumptions about retention rates are critical to whether or not the business looks like it’ll be profitable.

To help you choose a realistic number, here are the retention rates and churn rates of a few subscription box businesses based on information that has been shared online:

  • According to this interview with Andrew Warner of Mixergy, one of the founders of Foodzie (selling monthly tasting boxes of artisan food) said they had average subscription lengths of 6-8 months. That implies a churn rate of around 14% (and a retention rate of 86%).
  • BarkBox (selling monthly boxes of toys, gifts and treats for dogs) reportedly boasted a 93-95% retention rate in their first year. I assume that’s a monthly retention number. Taking the midpoint of 94% retention rate, that equates to a 6% monthly churn rate or an average subscription length of around 17 months.
  • UmbaBox (selling monthly boxes of curated handmade goods) reportedly claimed a retention rate of 90% (churn rate of 10%) a few months after their launch, with a not-insignificant $18,000 in monthly revenue. That’s equivalent to an average subscription length of 10 months.

It would be dangerous to read too much into these numbers, especially the ones for businesses in their early stages, but they at least give some ballpark numbers that you might find useful.

Note: do bear in mind that there may be some survivorship bias here – businesses with low retention rates would have been less likely to raise money and get written about. So these numbers may be on the optimistic side.

Have you come across any other published numbers for subscription box churn rates or retention rates?

For more information about subscription commerce, see Subscription Commerce Insider.

Photo by ceonyc

What’s a Typical Subscription Commerce Retention Rate?

Cocoa Subscription Box

What’s a typical retention rate for a subscription commerce business?

If you’re trying to model a potential new subscription box business, or just wondering how profitable an existing business is, retention rate is a key variable. What retention rate should you assume?

The answer, of course, is “it depends.”

But you need something to plug into your calculations. So let’s look at some potential comparables.

Retention Rate Comparables

Here’s some retention data that has been shared publicly:

(If you know of some other good public data, please let me know — this sample is a bit limited at the moment!)

Why Churn Rate Tends to Decline Over Time

If you look at the H.Bloom and Relay Foods examples, you’ll see that lots of subscribers cancel early in their subscriptions and the remaining ones tend to be more loyal. I’d expect to see this in most subscription businesses — customers that aren’t getting value from your service are likely to leave early on. Those that remain are likely to be doing so because they like the service. Consequently, as your business matures, your overall churn rate is likely to fall.

Churn Rate Varies by Acquisition Channel and Offer

You will also find that your churn rate is affected by how people sign up. At Boudoir Privé, for example, we found that, when we ran a special offer giving a discounted first box, a lot proportion of those new subscribers cancelled after they’d received that one box.

Churn Rate vs Retention Rate

I’ve been talking about churn rate and retention rate. But how are they related?

Churn rate is the percentage of subscribers who cancel in any one period. e.g. if you have 100 monthly subscribers and one month 20 of those subscribers cancel, then your churn rate for that month is 20%.

Retention rate is simply the percentage of subscribers who remain. In the example here, 80 subscribers remain and your retention rate is 80%.

retention rate = 1 – churn rate

Modelling Retention Rate for Your Business Plan

In my opinion, simple is good where possible. And I think that applies to modelling retention rates and churn rates for subscription commerce businesses.

Here are a few models you may want to use:

1. Average subscription length: Probably the simplest model (and my favourite for back-of-the-envelope calculations) is to assume an average subscription length and not worry about the details beyond that. This is good for estimating whether or not a business is likely to be profitable.

2. Fixed churn rate: To model cashflow, you’ll need to look at retention over time. One simple way is to assume that a fixed percentage of your overall current subscribers will cancel each month.

3. Declining churn rate: A slightly more complex model is to assume a slightly high overall churn rate to start with, dropping gradually over time.

Any of these approximations is probably fair for a pre-launch business where there are large amounts of uncertainty about other key factors of your model anyway.

More advanced businesses with a better idea of their numbers (or early stage ones run by ex-investment bankers) may want to look at a cohort analysis to better predict and model how the churn rate for a particular group of customers is likely to change over time.

Your assumptions about future retention rates significantly affect how profitable a business looks in the long term, so whatever approach you take, it’s worth understanding this component of your model and any simplifying assumptions you’re making.

How about you? Are you trying to model retention rates for a new business idea? What approach are you taking?

Update: you may also like to read this more recent article: What is the Average Churn Rate for a Subscription Box Business?

For more information about starting or growing a subscription commerce business, have a look at Subscription Commerce Insider.

The Rise of Subscription (Cheese) E-Commerce

Cheeseboard and cheeseknife and cheeses

There’s been a lot of interest in the subscription e-commerce business model lately. It’s a model that I think is particularly powerful.

Getting Someone to Buy is Hard

Anyone who has run an e-commerce website will tell you that getting a website visitor to buy something is hard.

Think about what’s involved:

First, you have to get them to your site (often no easy feat in itself).

Next, you need to explain your product and service in a clear and compelling way.

Then, you must reassure them that your website is a safe place to buy something.

Even if they’ve stayed with you this far (and most won’t have), there’s still a good chance they’ll abandon their purchase part-way through, leaving you in the dark about why – perhaps their friend just called; maybe they fired up Amazon to see if they could get your product cheaper elsewhere, then got side-tracked into buying the latest DVD boxed set; or they might have just changed their mind.

Put all this together and you can appreciate why, on average, only about 2% of visits to a typical e-commerce website result in a purchase.

Subscriptions to the Rescue!

Subscriptions are powerful because, with them, you only have to get each customer through that difficult funnel once. Then it’s up to you to provide a wonderful service. As long as you do, your customer will, more often than not, remain subscribed.

Six UK Cheese Retailers can’t be Wrong

What’s that? You don’t believe me that subscriptions are powerful?

It turns out I’m not the only person to be keen on subscriptions. UK cheese retailers seem to be particular fans. Incredibly, there are now at least six subscription e-commerce cheese services in the UK alone:

1. Pong

2. Norbiton Fine Cheese Co.

3. The Cheese Yard

4. The Cheese Gig

5. The Corbridge Larder

6. The Cheese Shed

What could You Sell by Subscription?

I’ll be interested to see where this trend of subscription e-commerce goes over the next year or two. With the emergence of technology making it ever easier to launch subscription e-commerce services, I expect lots more things to be tried. Who knows… perhaps there’ll even be more cheese subscriptions on offer.

What do you think about the recent interest in subscription e-commerce? How far will it go? And what would you like to see sold by subscription?

Update: I’ve now launched a website about subscription commerce where I discuss the subscription box industry and subscription commerce in general.

Photo by Ben Sutherland

Boudoir Privé – Beauty Boxes by Subscription

Two pink boxes with the Boudoir Privé logoI’ve recently launched a new subscription e-commerce business and it turns out we’re in a hot space again (as we were with DealBunch and the daily deal phenomenon last year)…

Boudoir Privé is all about meeting the desire that a lot of women have for beauty products. Each month, we send out luxury ‘beauty boxes’ with 5 or 6 deluxe-size samples of everything from makeup to skincare. It’s a way for people to try out expensive and high-end products to figure out which ones work best for their personal needs.

Each product comes from a different brand and, for the brands we work with, it’s a great way to get their products into people’s homes and to reach a key, influential group of customers who are both passionate about beauty and active in social media.

I’m happy to say we’ve had a great uptake since our launch. Only about 12 hours after the public launch of our website, all our August boxes had already been snapped up.

If you or someone you know would like to get hold of one of our September boxes, then don’t miss out! Take this tip from me: sign up here now and we’ll let you know when the September boxes go on sale.

Update 1: I’ve now launched a website covering the subscription commerce industry in general. If you’re interested in subscription commerce, take a look at Subscription Commerce Insider.

Update 2: We ultimately sold Boudoir Privé to French beauty box company JolieBox who in turn sold to Birchbox.