Zuora’s Chief Data Scientist Carl Gold has written a great new book called “Fighting Churn with Data.” It’s a must-read for subscription businesses, and here’s why.
If you’re running a successful subscription service, you’re swimming in customer data. And that’s a good thing! Your customer data is your killer IP, and it’s what differentiates you from a company that’s simply pitching products into the market and praying for the best.
But given that you have all this data, how do you figure out what’s truly valuable? If the goal is to measure what matters, then how do you define the “matters” part?
Carl’s been obsessed with this topic for several years. Carl has a Ph.D. from Cal Tech, and was a quantitative analyst on Wall Street before joining us at Zuora. He’s the author of the Subscription Economy Index, a benchmark study that reflects the growth metrics of hundreds of leading subscription businesses around the world. Carl discovered that subscription companies are growing at least five times as fast as the S&P 500. He’s been poring through churn data for years in preparation for this book, and now we have the results.
Carl’s book is a rarity. While it’s intended primarily for technically-oriented people with some familiarity with coding and data, it also happens to be lucid, compelling, and occasionally even (gasp!) funny. If you’re reading this newsletter, you owe yourself to put in an advance order!
Here’s a nugget from the book: if you’re trying to build a sticky service that generates healthy engagement, you’re going to need to identify the “customer” events that directly correlate to the success of your service. A customer event can be anything from a log-in to an API call to a search request. Digital subscription services can generate potentially hundreds of events per user session. Defining which ones actually contribute to the success of your service is incredibly important.
One of my favorite sections of the book talks about this challenge: What constitutes a truly “meaningful” customer event? Here’s the bottom line: the most important events are the events that are closest to the customer achieving the goal or purpose of the service. Carl offers a number of examples
- For a B2B product, any customer event that can be directly correlated to increased revenue or commercial success is very important. For example, if a product is a Customer Relationship Management system (CRM) used to track sales deals, then closed deals and their value is probably the most important type of event when it comes to providing value to the CRM users.
- For a B2C SaaS company, the purpose is usually to help your user achieve a specific outcome. Let’s say your software helps people prepare documents. Well, a finished document is your meaningful event! Not log-ins, or help queries, or features used. Keep your eyes on the prize.
- For a new streaming media service, the purpose is to enjoy great content. So how do you define enjoyment? Hours of engagement is obviously very important, but you might also consider other indicators like watching the whole thing, giving it a like, or sharing it.
- For a dating service, the purpose is to go out and meet people. As a result, actual meetings are probably more important than things like searching, viewing profiles, or online interactions. Try to build some sort of function into your service that logs these events.
- For a video game, the purpose is to have fun. But since that’s also hard to measure objectively, the most important events might be things like achieving scores and levels, or social interactions with friends.
Again, you should always be looking for events that are as close as possible to the value created by using the service, even when that value cannot be measured directly. Identifying these meaningful events is absolutely crucial because they generate the behavioral metrics you use to help reduce churn and improve your service in meaningful ways.
The rest of Carl’s great book is all about bringing rigor to this simple intuition. There are examples and case studies and tips and benchmarks galore. How lucky are we? We get to work in the early days of the Subscription Economy, and we get to read the first real book on churn.
To learn more about using data to fight churn, check out our latest Subscribed Institute Benchmark Study: How do customer subscription changes correlate to less churn and more growth?
For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here. The opinions expressed in the Subscribed Weekly are his own, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.
And check out his book SUBSCRIBED: Why the Subscription Model Will be Your Company’s Future – and What to Do About It.