It’s a difficult economy for subscription businesses at the moment, with some consumers choosing to cancel their services. Some areas – such as video and audio – continue to grow, while others – such as meal kits – are more under threat. In its 2023 State of Subscriptions report [download page], Recurly walks through some notable benchmarks.
Here are some key takeaways from the report.
1. About 4 in 10 Free Trials Convert
Across the 2,200-odd subscription businesses examined for the report, about 1 in 3 (34.5%) offered free trials, and the average conversion rate for those free trials was 38.1%. Sorting by industry, the Digital Media & Entertainment sector had the highest conversion rate, of 43.3%, while the Consumer Goods & Retail sector had the lowest (34.3%).
2. Shorter Free Trials with Required Billing Info Convert Better
There wasn’t an exact linear correlation between free trial length and conversion rate, but at the same point, there was a divergence at the extremes. As such, free trials with a length of 7 days or fewer had the highest average conversion rate, of 42.8%, while those with 61 or more days had the lowest conversion rate, or 33.3%. Moreover, there tended to be decrease in conversion rate among longer free trial periods.
About 9 in 10 (90.4% of) free trials offered required billing information, and the average conversion rate for those trials was 40.1%. The conversion rate for free trials that did not require billing information was considerably lower, at 25.5%.
Free trials requiring billing information had an average length of 30 days, while those that did not require billing information had an average length of 60 days, which may have had an impact on the results.
3. Debit Payments Are Most Common, but Have Highest Decline Rates
The top payment method overall was Debit (52.9% share), followed by Credit (26.7%) and PayPal (18.8%). This did vary by region, with Credit the most common in Asia (37.2% share of payments) and in South America (47% share), and PayPal the most common in Europe (49.8%).
Of note is that Debit payments had far higher decline rates than Credit payments. Across all transactions, the decline rate for Debit payments was 11.1%, about twice as high as Credit payments (5.4%) and Alternative payment methods (also 5.4%). The higher rate of declines for Debit payments was true for both initial transactions and recurring transactions. For initial transactions, Alternative Payment Methods had the lowest average decline rate, while for recurring transactions it was Credit payments that had the lowest decline rate.
Among alternative payment methods (APMs), Amazon’s decline rate was the highest (7.9%), followed by SEPA (7.5%), Apple Pay (7.0%) and PayPal (5.7%). APM usage was highest in the Digital Media & Entertainment sector (23% share) and lowest in the Business & Professional Services industry (6.8% share).
Meanwhile, decline rates were highest for Education (8.7%) subscription businesses and lowest for Software (7.0%) and Consumer Goods & Retail (7.0%) businesses.
4. Subscription Numbers Rise…
The number of active subscribers grew by 7.9% year-over-year in the US in 2022, while the number of active subscriptions increased at more than twice that rate (16.7%), suggesting that subscribers were adding new services.
The rate of subscriber growth was highest in Europe (+20.6%), which also produced the joint-highest increase in the number of active subscriptions (+24.6%). By comparison, Asia recorded a relatively low increase in the number of active subscribers (+1.6%), but the number of active subscriptions jumped by 24.6%.
5. But Churn Remains A Threat
Subscriptions may be growing, but churn is still an issue, in keeping with research showing that subscriptions are under threat. In 2022, the average overall churn rate stood at 6.7%. The average voluntary churn rate last year was more than twice as high as the involuntary churn rate (4.6% and 2.2%, respectively).
Recurly indicates that the trend of overall average churn rate has remained relatively steady since 2018, though it did inch up from 2021’s 6.6%.
Notably, churn rates were higher for those using Debit payments (9.7%) than APMs (7.7%) or Credit (5.9%). That was largely due to involuntary churn, though, which was far higher for Debit payments (4.9%) than APMs (2.7%) and Credit (1.9%). By comparison, voluntary churn rates were much more similar across payment types, at 5.0% for APMs, 4.9% for Debit, and 4.0% for Credit.
In general, the report indicates that B2C businesses experience higher churn rates than B2B businesses.
6. Subscriber Recovery Has A Huge Impact
Of course, recovering a subscriber is valuable to all subscription businesses, but the extent of that value is quite impressive. Recurly tracks events where its technology actively prevents churn from recurring, calling this a “recovery event.” The results are quite remarkable: about half (50.6%) of subscribers’ total customer lifetime happens after a recovery event. Across all businesses, subscribers who were saved after a recovery event remained active for an average of 329 days, with this figure up to 444 among B2B subscribers, compared to 317 for B2C customers.
Recurly reveals that it saved almost three-quarters (73.8%) of at-risk subscribers from involuntary churn.
For more, download the report here.
About the Data: The results are based on an analysis of more than 2,200 Recurly merchants’ data in 2022, totaling more than 65 million unique active subscribers.