Customer churn is one of the biggest concerns for any business that uses a recurring revenue model. The number of customers lost is a huge pothole on the road to healthy growth, especially subscription businesses that rely on long-term retention to build profit.
There are a number of reasons that customers may churn out, or decide to terminate their relationship with your business, but one of the most prevalent issues can take place without the customer’s awareness.
Passive, or involuntary, churn—when a customer unintentionally leaves the customer relationship—can account for as much as 34% of overall churn.
How does a customer ‘accidentally’ churn ? It often happens when a payment fails through a declined credit card, a fraud alert kicking in, if there are insufficient funds, or when the card expires.
With debit and credit cards expiring every few years, it’s completely understandable why payments might fail—and fail often. The challenge is to counterbalance these failed payment attempts with an effective running strategy.
In this blog, we’re going to explain dunning management and the ways it helps SaaS businesses combat both involuntary and voluntary churn—especially when using an automated recurring billing solution like Stax Bill.
TL;DR
- Effective dunning management is vital to help SaaS companies reduce involuntary churn by optimizing payment collection and follow-ups.
- Effective dunning strategies involve personalized, automated communications, offering multiple payment options, and maintaining brand consistency.
- Automation tools and machine learning offer powerful ways to optimize the dunning process, track customer churn, and refine strategies for long-term churn reduction
What is Dunning Management?
Dunning management is a recurring billing functionality in SaaS and eCommerce for managing and optimizing payment collection from customers. The dunning process kicks in during cases of failed payments or overdue invoices, helping businesses to recover funds that would otherwise to lost to involuntary churn.
In the past, dunning management involved manually chasing up customers via written reminders, or in the worst case, debt collection. The term ‘dunning’ was actually coined from the word ‘dun’, which means to ‘make persistent demands for payment.’
Thankfully, SaaS companies today have a lot more tools at their disposal to manage involuntary churn and improve the customer experience.
Recurring billing solutions now usually include dunning management software that can automatically generate and send payment reminders, track payment statuses, or identify expired credit cards to ask customers to update before payment is due. This boosts customer retention and ensures timely payments, as well as freeing up your support team for other important tasks.
How your dunning strategy can reduce customer churn
Whenever a failed payment occurs,, a business has two choices.
- They can lose customer relationship without taking any action
Or:
- They can actively try to retain that customer’s business.
So, how does dunning management help with this?
The first port of call should be dunning emails, an automated email flow set up to notify customers when a payment fails. So, if a customer has provided incorrect or expired payment information, this will automatically trigger an email notification to that customer that there is a problem demanding their attention.
Nobody likes to be nagged about a late payment, , but these emails offer an effective way to gently ask for payment without alienating the customer. Communications that are polite, timely, and make it clear how the customer needs to take action are key to successful payment recovery. These email templates can be fully customized for businesses with their own branding and tone of voice, and even scheduled to reach out to the customer with alerts to update their payment information before their credit card is even tried.
In sum, dunning emails can enhance communication beyond the payment gateway in three major ways:
- To let customers know that their credit card information is about to expire
- To provide notifications of successful or failed transactions
- To alert customers that their subscription is about to expire
These dunning emails are created ahead of time and can be automated to continue until a customer’s payment is successfully made or the subscription is terminated.
7 Dunning Management Tips to Reduce Customer Churn
Be non-confrontational
Yes, it’s frustrating when you’re owed money. But chastising your customer is not going to make retrieving failed or overdue payments any easier. Especially with early communications, it’s important to take a polite approach that informs your customer that there’s an issue – without making them feel like they’re being nagged or accused of dodging their responsibilities.
For example, Spotify takes a more light-hearted approach to their dunning strategy by leading with ‘whoops, there’s a problem, but don’t stress’ messaging. They inform the customer that their chosen payment method will be tried again, with a clear CTA to update their payment information (considering that expired cards are one of the biggest causes of involuntary customer churn).
Be personal
Addressing your customers by name in email communications makes a world of difference to how dunning management is received on their end. Below, Baremetrics shows how you can create a much friendlier, more personable dunning communication by turning it into a casual email from a customer service rep.
But personalization shouldn’t stop there; factors such as payment history, loyalty status, preferences, and length of subscription all play a key role in how you should be addressing each customer. There’s a world of difference between a customer who hasn’t had a non-payment in two year versus someone who has a spotty history of timely payments – and you definitely don’t want to confuse the two!
Automate your email communications
It goes without saying that manually sending follow-ups to your customers is a massive drain on staff time and resources. There’s also plenty of room for error, as email notifications to update billing information can easily be missed or delayed. Automating your communications ensures that your dunning management efforts are consistent and proactive, and in turn more likely to recapture missed payments.
Choose the right time for your communications
It’s tempting to time your customer outreach for the moment that a transaction fails. However, this can inspire unwarranted panic for customers and add friction to their subscription experience. It’s worth noting that many failed payments are resolved without requiring action from the customer, especially in cases like technical glitches or lags in payment platforms automatically updating card details. Consider at least one payment retry before notifying the customer of any payment issues; this reduces the overall amount of dunning emails your business is sending and avoids worrying your customer unnecessarily.
Make it clear what the next steps are
So, you’re telling your customer that their payment has failed. What next?
The core of any good dunning strategy is to make sure that customers understand what you’re asking of them. Do they need to check their card details, resubmit using a different payment method, or simply do nothing while you check whether there’s a problem at your end?
Your call to action should be clean and simple so that customers understand what is happening and what they need to do. Otherwise, you’re liable to have customers filling up your customer service inbox, asking questions that your dunning emails should be answering.
In this example, Customer.io makes it clear what invoice is overdue, how customers can make their payment, and where they can reach out if they experience any issues. It’s simple and straightforward, and so a lot more likely to result in prompt action.
Offer multiple payment options
Offering numerous payment methods makes it easier to settle late payments on a customer’s account, especially methods such as card payments, digital wallets, and ACH – or a mixture of the above to spread out the payment load. Installment plans are another great option for payment recovery, as it’s less intimidating for the customer and also helps to boost cash flow. This kind of flexibility helps to build more of a rapport with your customer; it shows that you appreciate their difficulties and want to work with them to find a solution, rather than simply taking a punitive approach.
Track your efforts to refine your approach
Keeping an eye on how your dunning emails are performing will give you an idea of how to refine your dunning strategy for faster payments and positive customer reactions. In addition to looking at standard metrics like open rates, don’t forget about gathering customer feedback directly; do customers feel supported/positive about your dunning communications? Why/why not? This will help you to make the tweaks you need to make customers feel supported and engaged by the dunning process, rather than alienated and moving from involuntary to voluntary churn.
The Relationship Between Dunning Management and Churn Rates
So, is it really worth taking the time to generate multiple dunning emails and monitoring their success rates? Absolutely! It takes more time and overheads to acquire new customers, , As oposed to retaining the customers you already have.
Consider that a good 75% of failed credit cards will succeed if they are tried again–so, you you little to lose and everything to gain!
At Stax Bill, we routinely save businesses a huge amount of revenue by automating the entire dunning process. In the below example, we saved one customer $364,813.41 out of a total of $7,278,277.49 in payments over 11 months– simply by using automated dunning management.
And this doesn’t include the future lifetime value of the business’s customers who were saved from churning out, were it not for the automated process.
It might sound counterintuitive, but good dunning management emails can even help to save a customer relationship. Nobody likes to be told that they owe money to someone and for both the business and their customer, it can get downright uncomfortable.
It’s important to note that rude, aggressive dunning efforts are going to undermine customer satisfaction and are more likely to push customers away from your business, rather than save revenue. If customers feel unfairly treated by your dunning process, they may decide to discontinue their relationship with the business, contributing to even higher churn rates.
But with a well-planned dunning email sequence, you can enhance the credibility of a business and build high levels of trust with your customers.
The Next Steps to Reducing Churn Rates
Quality customer support
Customer support is essential to back up well-timed, well-written dunning management emails. Because even if your emails are comprehensive and give your customers all of the next steps, they may still have questions about the payment process.
Anything payment and billing-related can spark anxiety and stress, so it’s important that your customers can easily connect with customer service representatives if they wish to. There may be a simple solution that the customer isn’t seeing, and it just takes a quick message to clear things up. But if they can’t easily reach the support team, a business runs the risk turning involuntary chun into deliberate churn.
Machine learning technology
Machine learning can also help to reduce churn rates and enhance the dunning management system. For example, systems can be trained to learn the difference between credit cards and the banks associated with those cards. Historical data on churn is also very useful by helping models to predict when involuntary churn is more likely to take place and which customers are at a higher risk of churn, so you can focus your efforts accordingly.
Powerful subscription billing management
With a solid way to manage your email communications with customers, you can mitigate churn rates and keep your revenue streams strong. But effective, automated dunning management is just one benefit of working with a strong subscription management platform. Subscription-based businesses face a range of challenges in managing customer churn, in particular getting real-time insights into churn rates, loyalty metrics, and finding a robust recurring billing solution. With Stax Bill, you can be confident that your customers (and your cash flow) are taken care of via advanced subscription analytics and automated payment retries, giving you ultimate control over dunning management.
Quick FAQs about Churn
Q: What is churn and how does it impact businesses with a recurring revenue model?
Churn refers to the number of customers who terminate their relationship with a business over a certain period. For businesses using a recurring revenue model, it is a significant concern as it impacts growth and revenue. Passive or involuntary churn, where a customer unintentionally leaves, often happens due to failed payments and can account for as much as 10 to 20 percent of transactions.
Q: What are dunning emails and how are they used in managing customer churn?
Dunning emails are a series of communications set up to notify customers when a payment fails. They are an effective means of retaining customers who might otherwise unintentionally churn due to payment issues. These emails can be fully customized for businesses and can notify customers about expiring credit card information, transaction statuses, and subscription renewals.
Q: What key elements should be included in effective dunning management emails?
Dunning emails should be concise, empathetic, and informative without being overwhelming. They should clearly tell customers the payment amount due, the due date, and when the next card retry will take place. The call to action should be brief and clear. The business’s branding should be consistent and contact information should be readily available.
Q: Why is it essential to have a sequence of dunning emails?
Customers often receive multiple emails and their attention may be divided between different tasks. Therefore, they may need reminders through subsequent emails. A sequence of emails, set up through subscription management software, can enhance the effectiveness of communication until the customer takes the required action.
Q: How can machine learning enhance the dunning management system?
Machine learning can help reduce churn rates and enhance the dunning management system by learning the difference between credit cards and the associated banks. It can help navigate through different types of payment failures and aid in creating more robust communications with customers.
Q: Why is customer support important in dunning management?
Customer support is essential to back up well-timed and well-constructed dunning management emails. If a customer has any questions, they should be able to easily connect with the business’s customer service representatives. Without easy access to support, a business risks turning an involuntarily churning customer into one actively seeking to terminate the relationship.
Q: What are the benefits of automated dunning management?
Automated dunning management is an effective way to manage email communications with customers, mitigate churn rates, and maintain strong revenue streams. It can save businesses a significant amount of revenue by automating the process of reaching out to customers when payments fail or credit cards are about to expire.
