How to Improve International Churn

"Fix small problems before they splinter into a thousand problems" - Kevin O'Donnell

Churn, when left unaddressed, can kill your subscription business. International churn is just as important, but is frequently overlooked and left to fester for years.

It’s similar to the broken windows theory of crime that suggests if minor crimes and antisocial problems are ignored, it establishes a precedence of tacit acceptance, leading to escalating problems and eventually, community abandonment.

The problem with international churn is its fractured nature. Churn can creep up slowly across multiple international markets without getting recognized. Each individual market or churn rate may not represent significant revenue, but when left unaddressed, it will grow cumulatively and become harder to solve.

Per Recurly Research, the average churn rate for SaaS is 5-7%, with 4% monthly churn considered a typical benchmark.

Similarly, Lenny’s Newsletter outlines benchmarks by-segment:

Let’s walk through some of the key drivers of international churn that make it unique and how they can be addressed.

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What Makes International Churn Unique?

The biggest driver of international churn is payment fragmentation. By limiting payment support to one or two methods, companies will experience higher levels of churn(in addition to lower conversion rates). This typically shows up as involuntary churninvoluntarychurn (subscription renewal failures lead to customer churn), which is the worst form of churn - the customer would have remained paying if they could.

At Dropbox, I found one such example of involuntary churn that was limiting our growth in India. A recent payment regulation was introduced around recurring payments. Essentially, any recurring credit card payment over, ₹15000 (approx USD$180)requires explicit re-authorization from the individual before it will be processed. Any recurring payment made on credit cards from non-compliant banks will be automatically declined.

If you accept credit card payments by default in India, you can expect to see significantly high involuntary churn. Dropbox tackled this specific churn problem by adding support for UPI (direct bank payment in India) and experimented with changing the default payment method presented to the user (UPI instead of credit card).

Research from Zuora Subscribed Institute found that churn rates are 5% lower on average for SaaS companies that accept 5+ payment methods. Tailoring the right methods for each market is essential to achieve improvements such as this.

Pricing is another major driver of international churn. For companies that persist with identical prices worldwide, they are likely to see higher rates of churn across markets with higher price sensitivity.

While customers may sign up for the a subscription, they relatively higher price in their market demands greater scrutiny and value recognition. If the user cannot justify the price,or finds a lower-priced alternative, they will quickly churn.

Netflix recognized the importance of adapting pricing to tackle churn rates in India and lowered prices according:

“we felt it was the right time to decrease our prices there, to increase accessibility […] to more Indian consumers”

— Reed Hastings, CEO Netflix, January 2022

Beyond monetization, the local product experience can be a key driver of voluntary international churn. Delivering a one-size-fits-all experience for every market is guaranteed tolead to user experience frustration that can manifest many months after initial purchase.

When users churn for reasons of product experience, it can be frustratingly opaque. Some recurring issues can include:

• DataResidency: if you serve a mid-market or enterprise B2B audience, expectations of local data residency support (i.e. where customer data is stored)will impact your international retention. If you can only support data in US-based data centers, larger international customers will seek alternatives. Box introduced “Box Zones” to allow customers dictate where data is stored around the world - helping lower churn as customer usage grows.
• Performance: app performance must be tracked carefully by-market. Slower load times or reliability problems with data upload/download have direct correlation to customer retention. This is more likely if you do not utilize global Content Delivery Networks to locate your servers closer to customers.
•  Integrations: as paying users increase their familiarity with their product, demand will rise for local integrations with key apps. Companies that pursue major, global-first integrations may see customers churn as they switch to alternative providers with greater choice.

4 Tactics to Improve International Churn

1. Fix Payment Method Fragmentation

Payment methods are the best place to begin if you want to make immediate improvements to international churn. Categorize the drivers of churn here into involuntary and voluntary.

Involuntary Churn:

• Increase automatic payment retries to increase renewal effectiveness
• Send localized in-app prompts or emails to customers informing them of payment failures and requesting an alternative methods
• Check for any new financial regulations that may have caused sudden renewal rebill failures
• Consider changing the default subscription period from monthly to annual to limit the potential for billing failures
• Change the default payment method offered in the market to the most reliable (with least failures)
• Conduct end-to-end testing in market with local payment method to look for any unexpected usability problems

Voluntary Churn:

•  Partner with local payment providers to expand payment methods offered. Aim for at least 3, but ideally 5,payment methods per market (local and global)
• Proactively inform customers to add backup payment method and when new local payment methods are rolled out
• Support local currency in addition to local payment method to remove recurring exchange rate fluctuations(where the customer will pay a different amount each month/year) and eliminate potential currency exchange fees

2. Adapt Cancellation Flows(discount, local support)

It’s important to have a simple, unobtrusive cancellation flow, but consider tailoring the experience for each market.

•  If your product is over-priced, offer a significant discount to avoid cancelling
• Highlight the value of the paid product that is most relevant for the local market - this may include any local integrations or known use cases
• Offer local language text or phone support during the cancellation flow to balance trust and self-service. In high trust markets, such as Japan, access to a local support agent may avoid a cancellation if they can help with a product issue
• Offer a pause in subscription to allow the user return to the paid product in a couple of months
• Create localized surveys to gather market-specific data on the reasons for cancellation. If new product capabilities are subsequently delivered, contact churned customers with an offer to return

3. Adapt Pricing

Pricing is a major factor in paid conversion and improving retention. If you have not yet embraced localized pricing, it holds the potential to greatly reduce international churn.

• Experiment with multiple price points, leveraging lower price parity indices, to identify the appropriate local price that still maintains your acceptable gross margin
• Consider introducing bespoke packages (Basic / Lite / Simple) that offers a lower price point with reduced functionality - a way to avoid compromising the price of your default packages. Limit these packages to markets with high price sensitivity and high rates of churn
• When localized prices are rolled out, communicate to all churned customers from the past 18 months, inviting them to return
• Ensure all churning customers are made aware of the new, lower prices during their cancellation flow
•  Use tools such as Profit Well to measure and run pricing experiments across multiple markets

4. Improve Performance

When measuring app performance data, cross-reference with your churn data and check for alignment. It’s very likely that customer satisfaction issues and churn incidents are closely linked to lower levels of app performance.

This blind spot is harder to detect than rebill failures, but for long term growth, essential to tackle.

•  Investigate short term options to boost performance with alternative Content Delivery Networks or increased local capacity
•  Create a “lite” app for markets where your target audience is bandwidth-constrained
•  Check which platform is most popular in your target markets. You may be optimizing your desktop app performance, but your Android or mobile web app for be more urgent for performance improvement - know which is used in each market

Wrap Up

If international churn is notgetting prioritized at your company, the first step is to shine a light on thesituation. Ensure growth dashboards are measuring retention/churn per-market andhighlight outlier markets. Any significant jump in churn month-over-monthshould be flagged and investigated.

When tracking performance,ensure it’s not global or region-based (EMEA/APAC/LATAM), which provide limitedinsights. It’s essential to drill down into market-based performance,especially for response time and critical user workflows. Markets with poorerapp performance rates will typically see worse churn.

Instead of following the brokenwindows approach of neglecting international churn, establish a practice ofconducting regular audits into key growth markets. Until churn is addressed,it’s unwise to focus solely on significant marketing spend or improvements topaid conversion. When root causes are pinpointed, assign a tactical team tocreate solutions that can be repurposed to multiple markets - such as pricingflexibility or customizable cancellation flows.

International churn is easy toignore at first, but small like small cracks of glass in a window, can soonstart to shatter into a thousand pieces of unmanageable churn across multiplemarkets. Regular audits and market-specific interventions turn small fragmentsof churn into a strategy for international growth.

More from Kevin: Kevin O'Donnell

About Kevin O'Donnell

Kevin O'Donnell founded Global10x to help B2B companies accelerate their international growth. His extensive experience in senior leadership roles at Dropbox, Microsoft, and Nitro has equipped him with unique insights into building successful international operations. Kevin regularly shares his expertise through his international growth publication at https://global10x.substack.com/.