Posts Tagged ‘metrics’

Customer Retention – the little stuff matters

Wednesday, September 8th, 2010

The three tenets of our CashBox solution are 1) to increase customer acquisition, 2) maximize customer retention, and 3) enable operational excellence for online merchants that sell digital goods & services to consumers and small business (SMB).

Acquisition is straightforward – allow consumers to choose the right product / plan at the right price in the correct language and currency, and to pay in their payment method of choice.

Operational excellence around billing and customer information is also obvious – securely store all sensitive data while managing and nurturing the overall customer relationship (PCI DSS & SOX are methods of enforcing parts of this).

Where the waters get a bit murky for some folks is customer retention…

The concept is simple. If a transaction fails, try it again, and again, and again. However, retention involves multiple moving parts, so every little detail matters and the compound effect of many small tweaks can be quite large. Some factors that make an impact on retention include:

  • Failure type
  • System availability
  • Transaction type (one-time, subscription, etc)
  • Time since last billing
  • Time between retries
  • Number of retries
  • Payment processor used
  • Transaction routing (# of stops along the way)

Many of these factors are specific to the business model used (Time between billings, transaction type) and some are the result of merchant preference (time between retries, number of retries). Yet others are system related (payment processor, transaction routing, system availability). While the first two areas can experience continual improvement with testing and optimization, the system related issues are *somewhat*out of control of the merchant. The *somewhat* refers to the fact that merchants have a choice of business partners.

Let’s take a closer look at the three system-related factors listed and how we address them.

  • System availability
    • The uptime of connections to the payment processor from the gateway, and the connection from the payment processor to the Interchange.
    • Vindicia: Part of our solution to this problem is a built-in gateway in order to eliminate uptime issues between the billing system and the payment processor. We also have hardware directly in the datacenters of certain partners with direct connections to further reduce any connectivity issues. As a final step, if the payment processor’s connection is down, we automatically queue the transactions for retry.
  • Transaction Routing
    • The number of systems involved in submitting a transaction makes a big difference. The typical flow would involve:
      • Creating a transaction in the billing system
      • Passing the transaction to a gateway
      • Submitting the transaction to a payment processor
      • Receiving information from the card network interchange
      • Capturing the transaction (or other actions, depending on processor response)
    • Vindicia: As mentioned above, we have combined the billing system and gateway (first three steps above) for more control over the transaction flow and greater payment success rates. This also gives more control over the retry logic by directly interpreting error codes from the payment processors into different retry flows. Billing companies & in-house systems that have not directly integrated to payment processors cannot compete with our results.

I’ll save descriptions of the other factors for another post. Optimizing customer retention is goal with constantly moving goalposts. When embarking down the path, merchants have a choice of either becoming experts at payment networks and card retry logic or choosing a partner that is already an established leader in the space.

Jeremy NusserTags: , , , , , , , ,
Posted by Jeremy Nusser in Best Practices, Data Geek, Marketing Fury, Payments 101.201.301 | 1 Comment »

Customer Data Ownership

Monday, August 9th, 2010

New companies are being formed every day – here in Silicon Valley, we see a lot of activity and buzz around all of the companies that are creating the next big thing. This is always exciting to follow, but for us here at Vindicia, it is doubly interesting. We take note of the business models and the target markets for these startups as we’ve built our business on meeting the needs of companies selling digital goods online to consumers. One trend we’ve been seeing lately is a sharp growth in the number of consumer-focused startups. This is great, but as many players are new to accepting direct payments from consumers, considerable thought should be given to the business strategies and how to be successful both near- and long-term.

(more…)

Jeremy NusserTags: , , , , , , , , , ,
Posted by Jeremy Nusser in Best Practices, Data Geek, Marketing Fury, Payments 101.201.301, gaming | No Comments »

Oh Canada, or why TX success rates matter

Thursday, March 25th, 2010

Of late, Vindicia has been welcoming quite a few Canadian based gaming, software, and social media companies. We also work in partnership with Tier 1 payment providers like Litle and Chase Paymentech. This brings up an interesting issue as these merchants think through their business structure and monetization plans.

Visa and Mastercard rules require that for US dollar transactions be presented by a merchant as a US domestic transaction, the merchant must have a “presence” in the US. The card associations rules may seem confounding but they’re much to do about making sure that the associations comply with US regulatory requirements and so that the associations and the card issuing banks can have some confidence about the risk created by the merchant for any given transaction. This leads to a requirement that Canadian and other foreign domiciled companies have to set up a “presence” in the US. The alternative is to use a Canadian merchant account to present international transactions priced in US Dollars.

The extra effort  may seem painful, but that leads to an important consideration every company should be considering and that is the statistical likelihood that any given credit/debit card transaction will go through at any given time. One of the reasons that Vindicia has chosen to work with the very best payment providers is that, on average, those payment providers are more likely to complete a successful transaction. We often see prospective clients compare one of the top provider’s pricing to that of less capable providers and the variable most often missing in their ROI analysis that offsets their sometimes perceived higher cost is the change in revenue that an even .05% better success rate completing one time and subscription transactions creates in terms of dollars saved. When the cost of payment processing is less than 3%, it doesn’t take a lot of 97%+ transactions to offset small cost deltas between the pricing of the best in class and all the rest.

Returning to Canadian companies, analyzing the average likelihood of success of any given transaction shows that the slight extra effort is well worth it. Requests to bill a US customer from what appears to be a foreign (even just Canadian) bank will lower the statistical likelihood of each transaction that a Canadian merchant attempts as card issuers assign more risk to non domestic transactions. It takes very few incomplete transactions (from customers who wanted to buy from you!) to offset the small cost of creating a US subsidiary in a favorable US taxing area.

Gene HoffmanTags: , , , , , , , ,
Posted by Gene Hoffman in Best Practices, CEO Blog | No Comments »

We pay you

Wednesday, March 24th, 2010

I was chatting with Sanjay today and we were reviewing some monthly retention metrics for our clients. Just on the additional retention we create for our clients and with the simple assumption of more than $1M in annual revenues, our client’s first year on CashBox is net free or better. In the second year we’ll be paying our clients to use CashBox. That includes our client’s internal cost to implement CashBox and migrate existing subscribers. When you add in recovered chargebacks, PCI cost savings, broader payment method support, tax service savings, and no gateway charges, we’re usually paying our customers to use CashBox in the first 6 months.

And we’re not just paying our clients in dollars. We’re paying them in the currency of compound interest created by longer customer lives.

“Freemium” anyone?

Gene HoffmanTags: , , , , ,
Posted by Gene Hoffman in CEO Blog | No Comments »

Online Business Metrics

Thursday, February 18th, 2010

If you’ve talked to us here at Vindicia, you know that we’re passionate about helping online merchants grow revenue through increasing customer acquisition and retention. That might seem strange for a billing company, but we think everyone selling digital goods online should focus on the levers that really impact their business – and our billing solution provides some of the answers.

So what metrics should you be tracking to understand acquisition & retention? This will depend on the nature of your products, but the following are a good start:

  • Monthly Unique Visitors (Monthly Active Users for social network apps & games)
  • Campaign conversion
  • Trial conversion
  • Free to paying user conversion
  • Offer page conversion

The metrics above disregard the work necessary for SEO & page ranking in search results (which obviously affect customer acquisition), but they are a good place to start for customer acquisition. For customer retention, the basic list should include:

  • Customer Duration
  • Average Ticket Price
  • Number of purchases / month*
  • ARPU / ARPPU (monthly)*
  • % of payment failures (gross & net, where net = passive opt outs after retry schedule)

* = microtransaction / free to play specific metrics

The average customer lifetime value (ACLV – product of customer duration & average ticket price) will also inform customer acquisition spend in the virtuous circle of online businesses.

Now that we’ve discussed the typical metrics, let’s take a look at some baseline values by industry.

Social / Casual Gaming

  • Free to Paying user conversion – Many analysts are plugging in 10% as an intuitive guess. From our experience, this is a highly subjective number and our microtransaction-based merchants have conversion rates ranging from 6% to nearly 20%
  • ARPU / ARPPU – Again, the blogosphere has done much analysis on these numbers and the consensus tends to be around $0.40 for Facebook games and around $1-$2 per user per month for standalone sites. Our merchants in this space tend to range between $1.25 to over $2, so these numbers seem to be inline.
  • % of payment failures – This tends to be higher for microtransaction-based games than subscription counterparts due to the nature of “one-time” transactions. The gross payment failure rate tends to be around 30%-40% as compared to a 20%-30% rate for subscriptions. Note that the net payment failure rate after billing retries is much, much lower, especially for subscription-based games (typically from 3% – 10% total).
  • Number of purchases / month – Our evidence indicates that the paying users are making multiple purchases per month – from three purchases every two months on average for one merchant to several per month for others.

Premium Content / B2C Software / Subscription MMOs

  • Customer Duration – While this depends on the product and the relative value for consumers, most of our merchants are finding a customer duration of 6 – 18 months, longer if products are renewed annually.
  • % of payment failures – As mentioned in the social gaming section, subscription-based sites have a much lower net failure rate. Our merchants are regularly achieving 90%+ retention rates.

The metrics covered here are the ones that we are most often asked about, and this is an effort to share what we’ve learned from our experience running consumer sites and working with our merchants across different industries. As with any metric though, each of these will depend on the products offered, target markets and customer demographics. For further reading on these topics, I’ve suggested a few links below.

Customer Duration / ACLV

http://www.csb.uncw.edu/people/howe/Classes/MBA541/Customer_lifecycle.pdf

http://customerexperiencematrix.blogspot.com/2007/04/deltalytics-lloyd-merriam-comments-on.html

ARPU / ARPPU / Microtransactions

http://giffconstable.com/2009/07/virtual-world-and-social-game-arpus/

http://www.gamasutra.com/view/feature/4046/what_are_the_rewards_of_.php

http://freetoplay.biz/2007/06/28/economics-of-making-a-free-to-play-console-game/

http://dubitplatform.com/blog/2009/7/26/calculate-how-much-your-virtual-world-can-afford-to-spend-ac.html

http://lsvp.wordpress.com/2008/06/09/successful-mmogs-can-see-1-2-in-monthly-arpu/

Jeremy NusserTags: , , , , ,
Posted by Jeremy Nusser in Data Geek | No Comments »