‘Normalized’ churn provides a better understanding of renewal behavior

Churn is a key indicator for the health of any subscription-based business. But as publishers’ approaches to subscriptions become more sophisticated, the metrics they’re using to monitor and analyze their renewal performance are becoming increasingly nuanced, too.

When calculating topline churn, most publishers use the commonly understood approach of dividing the number of cancellations in a given period by the number of subscribers who were active at the beginning of that period. That’s often calculated on a monthly, quarterly, and annual basis. 

But as FT Strategies notes, this approach doesn’t offer much insight into how effectively a publisher actually retained subscribers in any given period. If zero subscribers come up for renewal in a given month then retention rates might be close to 100%, for example.

That’s where the concept of “normalized” churn comes in – which only takes into account the number of renewals that were due in a given period – as opposed to the total number of active subscribers – and therefore offers a more nuanced view of renewal performance. (At Digiday I oriented our churn calculations around a similar normalized metric, which we referred to internally as “actual renewal rate.”)

Why is a normalized approach important? It allows publishers to understand if changes in their churn rates are the result of improving actual renewal rates, or if they’re simply limiting renewals and – potentially – kicking churn down the road as opposed to mitigating it. This becomes particularly pertinent when incentives and responsibilities vary between different teams or staffers within the same organization.

For example, publishers’ acquisition and marketing teams are often empowered to change the subscription terms offered to their audiences. This gives them the ability to influence the number of renewal periods by pushing audiences towards longer terms with less frequent renewals, which can reduce “standard” churn significantly but may cause increases in “normalized” churn or “actual renewal rate” down the line.

For any subscription business, different metrics can tell very different stories. As publishers’ subscription approaches mature and evolve, understanding the nuances of churn and the most accurate and useful ways to measure it will become increasingly important.