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!
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This analysis is, quite simply, dumb. A higher renewal rate also translates to an engaged audience, at least in the theatre world. This may be less true in the symphonic world from whence Mr. Lester comes, where prestige and "being seen" are motivators for subscription, and frequently motivators for subscribers that don't attend the concerts. The implication that first-year subscribers will only have a good experience if you anger enough long-term subscribers to get them not to renew is self-defeating. People pay this dude to consult for them? Not my organization -- which has a healthy renewal rate, a balanced budget, adequate cash reserves and very inventive program, thank you.
ReplyDeleteI agree with Anonymous that a high renewal rate means you have an engaged audience, just as a low renewal rate indicates audience dissatisfaction. We're proud of our 90% renewal rate, but since we're far from fully subscribed we would have a lot of empty seats if we left it there. Renewals are easy and cheap - a letter with season information and an invoice, a reminder postcard to those who haven't responded, phone calls to pick up the stragglers. The challenge is filling the remaining seats with acquisitions and single ticket buyers (who are, after all, the primary source of acquisitions). Of course it's unhealthy to fill 80% of your seats with subscribers because then there's not enough room to bring in new audiences! (Duh.) That would be a fantastic problem to have, and it's very different from a high renewal rate. Rick, did you confuse the two?
ReplyDeleteThere are two versions of a "renewal rate" - A) the percentage of prior year subscribers who renew, and B) the percentage of total current year subscribers who are renewals from the prior year.
ReplyDeleteThis article seems to say nothing more than B shouldn't be 100%, and that A should be. And I think we all knew that. And I'm pretty sure that many of the organizations touting these 85% or higher renewal rates are already talking about A...
Not to mention that... "Rapidly growing organizations may see a mix nearer 60-40." ... is only true if the total number of subscribers is growing. If you have 1,000 subscribers one year, and 1,000 subscribers the next, and your renewal rate is in the 60-40 range, you're not growing rapidly, you're doing something wrong.
ReplyDeleteWho wrote this "analysis" and thought it was news?
Um...huh? I don't quite get what you're saying, Anonymous. (And who are you anyway?) Subscription numbers should grow year to year, period. The base is renewals, the growth is acquistions. End of story.
ReplyDeleteThat's acquisitions. Sorry. (Mis-spellings on the internet drive me crazy.)
ReplyDeleteI agree 100% with Rick. My organization fits this description. We are an orchestra. I laughed as I read this because so many times when reporting to the Board we cling to our incredibly strong renewal rate. But let's call it like it is: our loyal base, who love their seats, who are familiar with the subscription model, renew at 86% (higher in some series). Our three-year window of new subscribers are fickle. We have already planned to launch a targeted approach to this group.
ReplyDeleteOur crucial issue: acquisition. I would gladly take a 75% renewal rate if it meant we had more new subs. Our community runs rampant with entertainment choices in the Arts. The mood is "last minute." Sweetening the deal of/perks to subscribing is tough and expensive. We definitely need to be honest with our staff, Board, and musicians so that all of our minds can work together on this issue.