The Problem of Canceled Subscriptions – Part 1

When you sell subscriptions online, customers can change their minds. The subscription is canceled, and the customer is refunded.

Then questions arise.

How do refunds affect:

• My Subscribers count
• My booking
• My Retention Rate (RR%) and all my KPIs?

What solutions can be provided to the thorny problem of cancellations?

1. What are the problems created by canceled subscriptions? ❓

Here are some examples of problems:

1. I sold 100 subscriptions, 10 are canceled. A month later, the remaining 90 subscriptions are renewed. Is the retention rate 100% or 90%?
2. I sold 110 subscriptions, 10 are canceled. My acquisition budget is $1000. Are my subscription acquisition costs $10 or $11?
3. I sold 100 subscriptions, 10 are refunded. I paid 110 transaction fees. How can I allocate costs to subscriptions that no longer exist?
4. I have 1000 active annual subscriptions and 10 subscribers have just requested a cancellation. Will the opportunity (number of active subscriptions) of my retention business for next year be 1000 or 990?
5. 10 annual subscribers have just requested a cancellation. Should I deduct the booking from previous quarters or the current quarter?

There is no absolute answer, it depends on the use case in which we find ourselves.

2. Use cases

There are 3 general cases of subscription cancellation:

1. After acquisition and during the cooling-off period
2. After automatic renewal and during the cooling-off period
3. After automatic renewal and between the 2nd and 11th month

And one special case:

1. After negotiation with Customer Service, the subscription is canceled.

a. After Acquisition, during the cooling-off period

This is the simplest case. This subscription and its booking are tagged as canceled. Since the period is short, the impact is low because it’s unlikely the company’s figures are already made public.

b. After automatic renewal, during the cooling-off period

A cooling-off period of 1 month is generally granted for annual subscriptions and 2 weeks for monthly ones. Canceled subscriptions can be considered as non-renewed subscriptions.

c. After automatic renewal, between the 2nd and 11th month

This case only concerns annual subscriptions canceled after the cooling-off period. The customer will be reimbursed pro rata for the number of months consumed. This case is identical to that of a monthly subscription canceled (after several renewals). This is case (b) above.

The cancellation cases are summarized in two options:

• Cancel a new subscription
• End a monthly subscription

d. Customer service

When the cancellation is the result of a dispute resolution, it’s possible the refund affects financial results from the previous year that are already published. If this is legal from an accounting point of view, it’s better to consider the cancellation of the booking as a cost charged to the Customer Service budget.

In the second part of this article, we will see the problems caused by canceled subscriptions. We will consider solutions and give our recommendations.