Why Strategic Churn Is Good for Your Bottom Line

If you have a subscription business, a concept that may seem counterintuitive at first glance is strategy Churn. Losing hard-earned customers is something we all want to avoid at all costs. Yet for many savvy subscription leaders, strategic churn—the deliberate loss of unsuitable subscribers who are a drag on overall customer satisfaction, gross margins, and product development velocity—has become a critical strategy for improving profits and ensuring long-term survival as the market undergoes a major shift from growth at all costs to growth efficiently.

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According to the latest data from Chargebee 2024 State of Subscription and Revenue Growth Reportshocking 73% of subscription businesses are increasing prices In 2024, this proportion has increased significantly from 62% in the previous year. What is more interesting is that these companies are willing to accept a 20% or higher customer churn rate in pursuit of higher profitability and sustainability. But if done well, this strategy of raising prices is best combined with launching product and service enhancements to attract core loyal customers who are willing to pay more for more valuable services, helping to screen out high-quality customers.

More paying customers drives prices higher Annual recurring revenue On the other hand, price-sensitive customers who are less willing to pay are often the ones who file a lot of support cases, require high returns or process refunds, are more likely to post negative reviews online, and are more likely to cancel voluntarily (“strategic churn”).

In my recent discussions with B2B and B2C subscription growth leaders, we discussed at length the rationale behind embracing strategic churn. From SaaS platforms to content streaming services, the consensus across industries is clear: sacrificing short-term numbers for long-term gains is a strategic opportunity.

Let’s look at why strategic churn can be a powerful strategy for subscription companies to optimize customer lifetime value (CLTV), drive net revenue retention (NRR), and achieve positive cash flow, all while building deeper relationships with their most valuable customers.

Value over quantity

One of the fundamental principles driving strategic change is the recognition that Not all customers are created equalWhile attracting new customers is critical to growth, retaining the ones who value your products or services is just as important — if not more important. Quality over quantitySubscription companies can tailor their products to meet the needs of their most loyal and high-value customers.

Some butter is better than no butter

Walnut Boxis a leading UK fresh dog food subscription box company that recently underwent a strategic change and decided to increase prices in three phases between 2022 and 2023. The decision to increase prices was driven by a number of factors, from a 30-40% increase in lamb and beef costs to supply chain challenges arising from the construction of a new factory and the need for the company to be profitable. The company used the price change to move from its previous cost-plus model to a value-based pricing model and worked with a third-party pricing consultant to conduct a survey to develop a psychological price barrier. The company then rolled out the price increase in a phased manner, starting with new customers and then continuing to target existing customers.

During this time, Butternut Box carefully monitored customer churn. It ran targeted campaigns for customers unhappy with the new prices, delivered personalized win-back messaging and adjusted plans to retain customers. This included tools to review and adjust subscriptions, such as removing extra products or switching to premium recipes. In addition, Butternut Box improved the pause/cancel experience by allowing customers to modify their plans online rather than calling. The philosophy of “some butter is better than no butter” guided them to offer flexible options to retain customers who were considering downgrading rather than canceling entirely. Incredibly, neither customer acquisition nor CPA was impacted by this change.

The result? Butternut Box significantly increased its customer lifetime value (CLTV) and doubled its Customer Acquisition Cost (CAC): Lifetime Value (LTV) ratio. Butternut Box proves that even in a business as customer-centric as its own, strategic churn can lead to more Sustainable This is better for customers.

The move to usage-based pricing is a win for Livestorm

Another interesting example is Live Storma B2B SaaS provider. Livestorm was one of the first companies in the video conferencing industry to shift from license-based pricing to Based on use. Livestorm successfully transitioned the majority of its customers from 70% fixed monthly fees to 80% pay-per-use Less than a yearWhat’s remarkable is that their average revenue per account doubled and their lifetime value tripled. In the process, a significant portion of their old customers chose not to switch to pricing (strategic churn) – allowing Livestorm to accelerate growth and better serve more valuable customers – while increasing overall revenue.

Embrace the Strategic Churn Journey

Embracing strategic churn requires a mindset shift—from focusing solely on short-term sales acquisition rates to prioritizing long-term sustainability and customer lifetime value. This requires understanding that not every customer will stay forever, and abandoning those that no longer align with your strategic goals. 80% of consumers are more likely to purchase a new subscription that allows them to cancel online (2021 Retention Industry State of the Game). Remember, by doing this Customers can easily cancel And by providing a positive experience, you increase the likelihood that they’ll come back for more. This can happen if they realize the value of your product or service, if you introduce a new feature they want, or if their circumstances have changed.

By proactively managing churn and nurturing relationships with high-value customers, you can unlock new opportunities for growth, innovation, and market leadership. In this era of constant disruption and fierce competition, adopting strategic churn and subscriptions can be a powerful revenue growth strategy.

in conclusion

Strategic churn represents a growth opportunity that you may not have considered until now. By raising prices and/or adjusting your model, you can more quickly make your product more attractive to your most loyal customers. By prioritizing value over volume, staying customer-centric, and learning from real-life success stories, you can harness the power of strategic churn to drive sustainable growth, improve profitability, and chart a path to long-term success.

About the author:

Guy Marion, Chargebee Chief Marketing Officer, leveraging over 15 years of strategic marketing and leadership experience driving SaaS growth. Prior to Chargebee, Marion was CEO and founder of Brightback (now Chargebee Retention). At Chargebee, he was responsible for developing marketing strategy, increasing brand awareness, and driving customer acquisition. In his free time, he enjoys spending time with his family, boating in the San Francisco Bay, and contributing to the startup ecosystem.

Chargebee is the leading Revenue Growth Management (RGM) platform for subscription businesses.