When you look at the LinkedIn profile of all successful subscription companies, you'll see a lot of people who work on checkout pages.

Why is that?

The checkout page is the only place where a 1% increase in conversion leads to a 1% increase in new revenue. That is not true on any other page of a product.

Checkout pages have existed for a long time online. Conceptually they're relatively easy to understand.

You need a place for a consumer to:

• Understand what they're purchasing

• Enter payment information

• Process the payment

What makes checkout pages unique is where they sit in the funnel of any product.

Every single ad campaign that you're running leads to your checkout page.

Every bit of SEO improvement that is getting you more users, those users purchase through the checkout page.

For every PR win you have, those users get monetized through a checkout page.

Losing people at this stage is equivalent to opening a restaurant, hiring the staff, cooking the food, and never opening your front door.

That is why the Uber of the world still puts millions of dollars of R&D into checkout pages each year.

There are a few tradeoffs that you need to manage at this stage:

Minimize Information Collection vs. Payment Processing Success Rate:

A successfully processed payment is the goal of a checkout page. The more information you collect from your user (name, address, zip/postal code, etc.), the more likely the transaction will be approved, but also, the more likely that a small% of users will abandon the page.

The more users you have going through your product, the more impact this will have.

It sounds silly; as someone gets to this stage in your funnel, will they really abandon the page because you asked for their address?

Yes, a small % of them will, and that costs you money.

Unless you are shipping something physical, the trend in the industry is only to collect name, payment info, and zip code. This is different for every product and scenario, but I would opt for the least you need.

Payment Method Flexibility vs. Tech Maintenance and Fees

Especially for products purchased primarily on a mobile phone, the clear trend is to have single-click payment solutions (e.g., PayPal, Apple Pay, G Pay, etc.) as options on a mobile payment screen.

These have been shown to help conversion on these pages; however, the tradeoff is that you now have 3rd party technologies running on your most important page that are likely to break sporadically as browsers get upgraded.

PayPal default launches in a pop-up on most desktop web applications, and you have to keep an eye on this to ensure that it doesn't get blocked by ad blockers.

Additionally, each payment provider will likely hit you with an additional fee for processing the payment, so you want to be net/net higher after an a/b test in the costs.

Solve all the edge cases.

As mentioned in previous posts, convincing people to pay you is tough. Once they are convinced, don't screw it up.

The larger a company gets, the more edge cases they'll need to handle on the checkout page. The ideal checkout page solves all the edge cases when someone tries to pay you and it goes wrong.

One of the most valuable things we ever did at Codecademy was going through all of the error copies that came back with declined payment.

So instead of a generic "payment declined" message, change that to "CVV number is incorrect" or "Zipcode does not match card."

Most payment processors you work with send back detailed error codes you need to read and translate into a human-readable form via the copy on the page.

Be clear with what you ask the user to do and fix it to try again. This was the greatest effort-to-reward ratio of any project that we did.

Countries with long last names (such as Brazil or Spain) don't fit cleanly in most pages' "last name" fields. The more users that you have, the more this will be challenging.

Additionally, you want to give the consumer the feeling of maximum trust, as this is when all of their uncertainties and doubts come to a head about who you are and what your product is.

Bonus: Post Conversion Survey

Right after someone checkouts or buys a product, you have someone's attention. It's also a great time to ask the user a single question that can help you improve the clarity of your sales funnel.

We asked questions such as:

• "Did anything almost stop you from purchasing this product?"

• 'Was there any information you were looking for about this product that you couldn't find?"

• "Did you choose us over a competitor? If so, why?"

Always ask these questions open-ended, summarize the answers into trends, and then action anything material.

Asking questions like these, we learned that our Paypal integration was broken in MS Edge or that our refund policy was not clear.

Originally published at Subscription Index

Your churn rate is worse than you think. And it hurts you more than you think.

Your churn rate is kind of like you bank account balance.

It's stressful to look at so you don't check it often. Also, the number that you tell everyone is from a good month.

Your churn rate also dictates the “ceiling” of your subscriber base, which impacts profitability, which directly impacts the value of your company.

Almost no one understand the full impact of your churn rate and I’ll explain why.

What Impacts Churn

If you’ve worked in a subscription company for any period of time, you know churn is important.

Your churn rate driven by (roughly in order of impact):

1. How long will users have the problem you solve? Is this a thing that consumers will do for a long time? Or is it a temporary habit?

2. How strong is your product market fit? The thing people come to you for, how good are you meeting that need?

3. How well do you activate users onto your product? what % of the users that you attract actually feel value from your product to come back a few times? How many abandon immediately?

4. How good are you at payment processing? Do you actually collect all the money?

5. How good are you at winning people back once they leave or think about leaving? Or after they do leave?

Most founders know their churn rate, but few understand how it caps their company's growth potential and massively impact profitability.

As mentioned before. there are multiple ways of tackling churn. One of my favorite tools to do so right now is Churnkey, which has great out of the box tools to implement the best practices listed in previous posts.

Let's start with what most people know about churn.

The Basic Way of Looking at Churn

One of the most helpful equations in a subscription business is this:

Average Months of Retention = 1 / Average Monthly Churn Rate

So if you churn 20% of your users each month, you are keeping your users around for 5 months.

Let's look at this for a range of churn rates.

This makes intuitive sense. The lower the churn rate, the longer you keep people around.

Obviously 20 months of retention is better than 4 months of retention, but it still kind of abstract.

The LTV Connection

Thanks to math, you can approximate your LTV in the same way by swapping your monthly price into the numerator.

So it looks like:

LTV = Monthly Price / Average Monthly Churn Rate

If your product is $9.99 USD per month and you run the same math, you see this.

Now this gets a bit more real. LTV jumps ups significantly the more you reduce churn.

The difference between 30% churn and 20% churn isn't 10%. Its 50% which translates directly to LTV.

Every time you churn churn by in half, your business doubles. Doing that isn’t easy, but the math is clear.

Additionally a higher LTV give you more cash to acquire users.

This can open up new acquisition channels and allow you to increase the number of new users each month.

Again, not rocket science, this is still pretty basic.

Advanced View #1: Tracking Annualized Churn

This was shocking to me the first time I saw it.

What’s easy to forget, is the monthly churn rates compound. Every month, you lose another percentage of the same cohort.

Unless your churn rate is under 20%, you will lose 100% of your users within 12 months.

Numbers over 90% highlighted in red for dramatic effect.

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Yeah, that sucks.

Needless to say, its really hard to grow a user base when you lose 100% of the users your acquire within 12 months.

This brings us to our next point.

Advanced View #2: Growth Ceilings

(big credit to Bryan Starck, who’s great linkedin post was the first time I saw this clearly articulated)

Obviously the churn rate dictates the number of users you keep, it also governs the total number of users you can get to overall.

If you divide the number of users that you acquire each month by your churn rate, you get your growth ceiling. So:

Maximum Subscribers = Monthly New Users / Average Monthly Churn Rate

If you look at this for a range of churn rates, it hammers the point home.

Math being math, the company with a 5% churn rate is 400% larger than the company with 20% churn.

A more subtle, but powerful point is how this impacts your valuation as a company.

The 5% churn rate company is still growing at month 24 while the 20% churn rate company’s growth has stared to stall around month 11.

Your growth stalling sucks for a few reasons, but the main one is this that it impacts your valuation.

You can’t get the high growth multiples on your company valuation from VCs or acquirers if you can’t break the growth ceiling.

The 5% churn rate comapny has much, much longer to figure this out.

Advanced View #3: The Impact on Profit

Back when I started in the VC backed startup world, profit wasn’t really a thing we talked about.

We raised money and used it on free lunches, an awesome office and buying custom slippers for everyone.

Good times.

Sadly, those times have changed.

Now you need to make money.

What hammers home the value of this is when you start to look at your profit per user and how this impacts overall profit.

Lets assume for the same business, your product sells for $9.99 USD per month and you have an acquisition cost per user of $30.

So your churn rate is now the difference between losing money, surviving on ramen and being rich.

So What Do You Do With This Information?

Obviously the whole point here is to improve your churn rates. But more specifically:

1. Calculate your growth ceiling right now (You can do that here). Take your average monthly new users and divide by your churn rate. That's your future unless something changes.

2. Focus on churn before growth. Cutting your churn in half doubles your ceiling AND doubles your LTV. That's can be easier than doubling your acquisition.

3. Set realistic growth targets. If you want to hit 10,000 users and have 10% monthly churn, you need to acquire 1,000 new users every month just to maintain that level.

The good news? Understanding these limits early lets you fix them before they become emergency problems.

Additionally, I have a few posts from the archive that talks about tactics you can use to lower churn:

• Deep Dive on Cancellation Flow Best Practices - Tactics that I have seen work across companies to drop churn within your cancelation flow

• The Basics of Fighting Churn - Where to start and what are the types of anti churn programs that work?

• Payment Processing 101 - How does payment processing work and what can you do to lower your payment failures?

Good luck out there.

Dan

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Note: This post is also sponsored by Churnkey. They are exactly the type of tool I look to install quickly when I am working with a client to make an impact quickly in these areas while we work on larger projects.

If you don't have automations set up, I think they are a great way of doing this. You can either click this link or I can intro you to the team.

Sponsored by Churnkey: Churnkey helps subscription companies like Jasper, Veed.io, and Copy.ai, to drastically reduce voluntary and involuntary churn. On average, Churnkey saves companies 20%-40% of subscription revenue that would otherwise be lost to churn.

Originally published at Subscription Index