TRG blog: Are Your Subscription Renewal Rates Too High?

This is a key question that I suspect managers of performing arts organizations across North America are not asking right now as they watch the results of their subscription renewal campaigns.

They should be.

According to TRG’s analysis, the closer renewal rates get to 100%, the less healthy the organization is likely to be. We’ve seen the proof in both direct marketing and patron behavior metrics.

First, the U.S. Postal Service (USPS) estimates that changes of address occur in about 15% of households every year. TRG’s national data set suggests that arts patrons change address even more frequently – about 18% each year; or 1½% every month. Databases of arts patrons trend a bit older than the general population and carry higher levels of health-related relocation as well as mortality rates. Any organization that is renewing more than about 85% of their current subscriber base is bumping up against the theoretical maximum for an addressable pool of patrons.

The second problem with really high renewal rates stems from the differences in subscriber types. There are only two kinds that matter. The bigger pool consists of long timers, some of whom have been season ticket holders for decades. The smaller group is newbies, those who subscribed for the first time last year. From a behavioral point of view, these two groups could not be more different.

Long-time subscribers are very hard to lose. Poor pricing or artistic choices and inconsiderate communication can make them angry and vocal beyond measure. It’s unusual, however, for a disgruntled long-time subscriber to express unhappiness by failing to renew a treasured subscription series and seat location. It takes a lengthy string of consistent missteps to chase away long-time subscribers. Why do faithful subscribers disappear? They die. They move away or become chronically ill. They lose their jobs. It typically requires a significant change in life circumstance before they willingly give up their subscription seat.

What about first-year subscribers? Although relocation and life changes impact this group too, their renewal is more dependent on their first season experience. Any organization’s failure to assimilate new subscribers into the “family” results in huge attrition numbers every year - two of every three first-time subscribers.

The varying behavior and attrition dynamics of these two very different subscriber types have a big impact on traditional overall renwal rates. That's why every time I hear a manager crow about their renewal rates hitting 85%, I don’t join in their rejoicing. We’ve seen this situation consistently enough to know that any organization with renewal rates that high is failing to acquire new subscribers in substantial enough numbers to sustain audience growth.

An 85% (or higher) renewal rate often masks seriously low numbers of new subscribers. There just aren’t enough new subscribers to replace the ones lost every year through natural attrition. And, without sufficient numbers of new subscribers, loyal audiences do not grow.

The traditional renewal rate calculation is a poor yardstick for measuring organizational health. The key variable that helps diagnose institutional health and predict subscription renewal rates is the prior year success in finding new subscribers. Our diagnostics focus on each season's ratio of renewing and brand new subscribers. TRG study has shown that subscriber numbers grow year-to-year when the proportion of new subscribers in the mix is in the neighborhood of 30%. Rapidly growing organizations may see a mix of new subscribers nearer 40%.

New subscribers fuel growth, even though lower overall renewal rates result. There are situational variations, of course, but typically we observe that healthy companies have overall subscription renewal rates in the 70-75% range when they are growing their subscriber base.

Savvy managers – and board members -- focus on each season’s proportion of new and renewing subscribers. Using the right tool (and the right yardstick for measuring success) keeps everyone in the organization focused on the most important goals – growing the total subscriber base each year – year after year.

Add your comment to let us know what is your subscription renewal campaign telling you.
Thanks to those who commented already. Very helpful!