Last week, I sat down with Wilson Hung, head of Growth at Kettle & Fire to get into the nitty gritty of MRR and retention. This post outlines the high-level framework he uses to increase MRR at Kettle & Fire, the podcast episode goes into much more depth.
Increasing MRR can be a confusing topic. It’s a complicated machine of moving parts. But, as Wilson said, “Anything that’s complicated can be simplified and broken down into its individual inputs”
Here’s how Wilson approaches MRR expansion at Kettle and Fire:
Step 1: Break down Repeat Revenues
Repeat revenue is made up of non-recurring and recurring revenue. The first step is to break apart these flows and set a baseline for your subscription program.
- Add a subscribe and save button
- Ensure email marketing is properly set up
Step 2: Maximize Opt-ins to Subscription
Analyze from a channel perspective: Which channels/sources are bringing in the most (and best) subscribers. Hone in on those to create subscription-focused buyer journeys.
Hot tip: Send branded AdWords campaigns to a unique landing page optimized for subscription opt-in.
“What are your high intent audiences and how can you redirect those high intent audiences to a page that isn’t generic that all your visitors would bring in?”
Step 3: Identify your total active MRR
All of the people who haven’t cancelled and the total dollar value of all those active subscriptions.
Step 4: Calculate planned-to-be-processed MRR
With MRR, not every active dollar is going to be processed on a given month. AKA: You will never process 100% of the active MRR. Calculate your planned-to-be-processed number based on delivery schedules, and use this metric to guide the next steps.
Step 5: Analyze Actual Processed MRR
Of the percent of MRR that is “planned to be processed” on any given month, only a percentage of it actually will be processed because of 3 main buckets:
- Voluntary Churn
Step one: Get a basic retention cohort to get an understanding of what areas of cancellation are happening the most. Also, be sure to gather cancellation reasons.
Here are the most common cancellation reasons Kettle & Fire sees, based on subscription length.
Early churners: These people often churn in the first 3 months due to a bad-fit. Improve this area by honing in on onboarding, habit-building, and messaging.
Middle Churners: Often churn due to competitors and price. Build deeper connections and gather feedback from customers to predict and prevent these situations when possible.
Mature Churners: These customers likely found you elsewhere. In Kettle & Fire’s situation, their customers likely find them on Amazon or the grocery store.
Most brands should be focused heavily on months zero to three.
- Passive Churn
Also called credit card declines. On average, 5-10% of recurring charges fail per month. It’s an easy fix. Install Churn Buster and improve your email sequences.
Of everyone who is planned to be processed, there will be a percentage who wants to skip or delay they’re shipment. Wilson highly suggests optimizing this metric.
Kettle & Fire found that after a skip, the majority of subscriptions processed the next month. Use getARPU to make skipping or delaying shipments extraordinarily easy for your customers.
”We’re trying to optimize that metric just because we’ve seen the benefits of optimizing for skip and delay. And if you think about it, it’s just good customer experience.”
Step 6: Maximize the MRR via AOV
From a data perspective, often the AOV of subscribers tends to be flat. Even your most mature and loyal subscribers have the same AOV as their first renewal. Don’t be afraid to email your subscribers, these are incentivized and interested customers. Consider testing loyalty programs or membership-style subscriptions.
Step 7: Reactivate Churned Customers
According to Wilson, most customers churn for illegitimate reasons, like too much product or “prefer to buy ala carte”. Wilson argues these are people you can bring back as you build a better subscription. They still like your product, make sure Facebook ads, sale announcements, new products, and nurturing emails are in front of them.