What is Tenure and why is it important?

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Summary

A subscriber’s Tenure measures the length of time they have been a subscriber 👶👨🦳. It is a measure of loyalty. Used as a segmentation criterion in performance reports, Tenure can be used to detect anomalies as well as confirm hypotheses.

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In the field of data analysis, we distinguish between filters, dimensions and metrics. Dimensions are characteristics that we measure and metrics are the quantities measured. Filters are conditions that we apply to dimensions in order to look at other dimensions. For example, we set the Country dimension to “France” (filter) and the Time dimension to “2023” (filter), and we look at the quantity (metric) of units sold (dimension) in France in 2023.

When we look at a dimension such as the Retention Rate (RR%) for different ranges of values of a dimension, we perform a segmentation. For example, I can look at the different values of the RR% for each of the products sold.

1. What is this dimension called Tenure?

Tenure represents a duration corresponding to the time since which a customer has been subscribed.

Definitions of Tenure vary; some count free trials or interruptions, others don’t.

Tenure is usually the number of renewals plus one. Indeed, when an annual subscription has been renewed twice, the Tenure is three years. Watch out for subscriptions of varying lengths (6 months or 2 years). Their tenures will differ from the number of renewals.

Calculating the Tenure presents challenges when it is difficult to uniquely identify customers. For example, a customer takes out a new subscription with a different email address. We do not have two customers each with 2 years of Tenure but only one customer with 4 years of Tenure.

2. What is special about Tenure?

In a previous article dedicated to Usage, we saw that increasing usage increases the Retention Rate. Encouraging usage has a positive impact on business.

Tenure works the other way around; by increasing the retention rate, we increase Tenure. In other words, the more loyal customers are, the more “old” customers we have. We cannot act directly on Tenure.

Tenure is the measure of the subscriber’s loyalty at a given time. This measure is neither absolute nor definitive. A customer with 2 years of Tenure today may become more loyal than one with 4 years of Tenure currently.

There is nothing special about Tenure since it is not a KPI on which we can set an objective.

3. Why is Tenure important?

Tenure is an interesting segmentation criterion, especially for analyzing Retention Rates.

The longer the Tenure, the higher the retention rate. This is logical since with each subscription renewal, the least loyal customers are eliminated. In other words, among the “oldest” customers, we find the most loyal. This is the principle of loyalty.

It is interesting to monitor the variations in the retention rate according to the Tenure ranges. A downward or upward variation is not logical, it is either the symptom of an anomaly or the effect of a cause.

Still not convinced?

Let’s take a few examples.

1). A one-off increase in the Retention Rate.

Let’s imagine that we see an increase in the RR% for most segments over a relatively short period. By segmenting by product and more, we observe that the RR% is close to 100% for a given Tenure value.

This can be the effect of a promotional offer for renewal for 2 years. At the end of the first year, we do not lose any customers, as if the RR% equaled 100% and the Tenure is incremented. Consequently, it will be necessary to anticipate a catch-up the following year and take it into account in the forecast.

2). Know the effects of a price increase

When faced with a price increase, two behavioral aspects must be distinguished:

• Customer satisfaction with the price: customers may be unhappy or understanding
• Acceptance of the new price by customer: customers renew or not.

If customers complain but the retention rate is not impacted, then they agree with the new price.

Based on this principle, after a price increase, we observe the RR% by Tenure. If customers have accepted the price, we will observe little or no change in RR% for the highest Tenure values.

For the lowest Tenure values, we should observe a slight decrease in RR%.

For Tenure value 1, we should observe a more obvious decrease in RR%. It will be mainly due to the increase in the difference between the purchase price and the renewal price.

3). Know the “quality” of acquired customers

Let’s imagine that every year I run a new customer acquisition campaign during Black Friday. I acquire customers that I am not used to reaching and at a price lower than the usual price. I want to know if this campaign is worth the investment in human and financial resources; do these acquired customers stay long enough to be profitable?

To get the answer, I just need to compare the RR% performance by acquisition campaigns by segmenting by Tenure and then calculating the CLV.

Logically, the RR% of customers acquired during Black Friday campaigns should be significantly lower than the average. Indeed, Black Friday customers are typically interested in low prices. Depending on the RR% gaps between the campaign and the average, I will know which campaigns are the most interesting in the long term.

Key Takeaways

1. Segmentation is crucial for monitoring performance. Tenure is a leading segmentation criterion.
2. Just because you can’t actively or directly act on a KPI doesn’t mean it’s not interesting.
3. Some dimensions can be used to detect problems. We monitor them hoping that they only evolve in the expected way.