Ever since Apple opened up subscription monetization to more apps in 2016, developers have been racing to create sticky experiences that keep users engaged and paying for their services. The promise of an 85/15 revenue split on retained subscribers has been touted as a Holy Grail for app developers, enticing them to focus on retention and user experience.
However, the harsh reality is that most apps struggle with high churn rates, which significantly impact their bottom line. In fact, our data reveals that the median monthly subscription churn rate is around 13%, while annual subscriptions have an even higher churn rate of around 50%. These numbers may seem alarming, but they underscore a crucial point: retention is key to unlocking meaningful revenue growth.
The reason high churn rates are so detrimental lies in the way Apple and Google calculate their revenue splits. When a subscriber churns before the one-year mark, the developer never gets to enjoy that 85% split. Even if the user resubscribes, Apple and Google reset the clock if a subscription has lapsed for more than 60 days. This means that even top-performing apps like Netflix and Spotify, which report low single-digit churn rates, are exceptions rather than the norm.
To get a better sense of how high churn rates impact revenue, let's examine the effective take-home rate for developers. Successful apps need to constantly replace churned customers with new subscribers, and hopefully add more each month. After the first year, developers start to see a blend of new subscribers on the 70/30 split and retained subscribers that are eligible for the 85/15 split.
Our data shows that just 16% of apps manage to achieve an effective take-home rate above 75%. This means that most developers are stuck with a take-home rate around 72%, which is still growing quickly due to new subscriber acquisition. The graph below illustrates how an app's take-home rate evolves over time, highlighting the significant impact of churn rates on revenue.
Annual subscriptions tend to churn fewer customers at the one-year renewal mark, leading to larger gains early on. However, most apps rely on a blend of annual plans and other subscription periods, so the effect is often diminished.
As developers, it's essential to focus on improving user experience and retention rates rather than relying solely on the 85/15 split. While it may seem like a generous gesture by Apple and Google, the actual net benefit to developers is drastically lower than they'd have you believe. In fact, both companies are likely aware of the effects of churn, and that the first year is where most of an app user's revenue comes from.
Bottom line: improving your subscription app's retention rates is crucial for driving meaningful revenue growth. While the 85/15 split may seem like a promising incentive, it's not a reliable way to increase profits. By focusing on creating sticky experiences and reducing churn rates, developers can unlock sustainable revenue growth that benefits their businesses in the long run.