Customer retention is key to success for subscription businesses. It doesn’t matter how sexy your latest feature drop was, or how flashy your sales and marketing campaigns are. If you can’t keep customers onboard long enough to make a profit, your business will never grow.
Voluntary churn is one thing. Even with strong customer success initiatives, the best businesses will lose some people along the way. Involuntary churn, on the other hand, is an entirely different beast; an unnecessary barrier to success that your business can’t afford to leave unaddressed.
The right tools can help you to reduce involuntary churn, and improve your ability to seamlessly collect recurring payments.
What is involuntary churn?
As the name suggests, involuntary churn happens when a willing customer gets booted—involuntarily— from your customer roster. While this can happen for many reasons, it usually owes to a simple misunderstanding.
- An expired payment method. Credit card issuers send out new cards every three to five years. When a card expires, all of the recurring payments associated with it will be declined. When this happens, businesses will usually lock the customer out of their account until the payment issue is resolved. Makes sense, right? Except if rectifying the payment failures isn’t an easy task for the customer, the more likely it is they won’t be coming back.
- Overdrawn card. It happens more than many people realize. Each year about 30% of people overdraw on their credit cards. If you try to collect payment when their balance is at zero, it will result in payment failure. Oftentimes, the customer doesn’t even know they are overdrawn until after the payment fails.
When a customer actively decides to leave, that’s one thing. Losing a customer to a misunderstanding is entirely different.
For them, the situation is embarrassing and stressful. For you, it’s expensive.
3 tips to reduce involuntary churn
Experts estimate that as much as 40% of churn could be involuntary. That’s a staggering amount of recurring revenue getting tossed out. Fortunately, there are ways to reduce unnecessary churn and keep willing customers around.
Automated dunning emails
Dunning emails are a good first step in collecting missing payments. They have a success rate of about 15%. That may not sound like much, but it can add up to significant sums of money—particularly when you view it as one phase of a multifaceted collections strategy.
Of course, the better the message, the more effective your collection efforts will be. To write the best possible dunning email, you should:
- Be friendly. Remember, there is a good chance this is the first the customer will be hearing of the situation. Treat it like a misunderstanding. You won’t get anywhere putting them on the defensive.
- Keep it brief. This is no time to write a novel. The most effective emails are between 50-125 words, which equates to about thirty seconds of the recipient’s time.
- Tell them what to do as simply as possible. A solid call to action can boost your message’s engagement level by almost 400%. The key to written communication is to keep your message as clear.
- Get familiar. People are almost 40% more likely to respond to an email sent by an account associated with a real person. You can boost your odds of dunning success simply by sending the message from a customer service professional’s account.
- Create a sequence. Sending more than one email naturally increases the odds that your recipient sees your message and will take action.
What do most of these tips have in common? They are all about removing barriers for the customer. You’re asking them to do something unpleasant. The easier you make it for them, the better your odds of success become.
And when you automate the entire dunning process, even better. Set your cadence up once and let it run on its own—leaving your team free to handle the tasks and projects that really need humanpower.
Automated credit card updating
The average millennial has seventeen active subscriptions. When their credit card expires it’s a big chore to update their payment methods with every. single. provider. You can make things easier for your customer by getting a payment gateway that automates credit card updating.
Account updaters work by automatically requesting information from Visa, Mastercard, etc. on declined cards. The card brands send the new expiration dates to your gateway, which updates the information you have on file for payment collection.
You may also be able to sign up for this service directly with many major credit card brands. It’s an effective way to avoid payment errors without ever involving the customer at all.
Establish a payment retry schedule
Just because a payment fails on the first, doesn’t mean it will on the third. There are many reasons a customer may have insufficient funds in their account. Maybe they had a big, unexpected bill. Maybe they just have gotten paid yet.
Whatever the case, when you boot an account for a failed payment on the first attempt, chances are that you are saying goodbye to that customer forever. Studies show 62% of customers will never come back after a failed payment.
Not only does that mean losing the money they owe you in the moment, but it also means missing out on months of future payments they would have made.
A payment retry schedule allows you to collect your money in a non-invasive manner. Create a schedule of when to try your customer’s card again. Ideally, the funds will be available the next time you try the card, and the issue can be settled without the customer ever knowing there was a problem.
Payment retries can be done manually, but this is only practical for businesses that don’t have many failed payments. Subscription management software provides an automated, scalable solution to this and many other payment-related needs.
Collections assurance made simple
The right subscription management software automates or simplifies all of the processes described above, helping businesses to radically increase their collections assurance potential.
Consider the case of CoConstruct, a construction software used by thousands of builders all across the world. CoConstruct felt its collections assurance was bogged down by manual processes. After switching to Stax Bill and automating its dunning and payment retry processes, the business was able to recover around $2000 every month in missing revenue.
Collections assurance may feel manageable while your business is in its infancy. However, the bigger you get, the bigger the job becomes. With the right tools, you can make your collections process both scalable and effective.
What defines involuntary churn?
Involuntary churn refers to the loss of customers or subscribers due to circumstances beyond their control. It typically occurs when a customer’s payment method fails, expires, or is declined, resulting in the cancellation or suspension of their subscription or recurring service.
What is an example of involuntary churn?
Involuntary churn often happens when expired or declined payment methods, insufficient funds, credit card fraud, changes in customer billing information, or technical issues with payment gateways or processing systems. Other reasons can include customers forgetting to update their payment information or cancellation requests not being processed correctly.
How do you prevent involuntary churn?
To prevent involuntary churn, businesses can take several proactive measures, such as:
Payment Reminders: Sending automated reminders to customers in advance of their payment due dates can help prevent unintended cancellations.
Card Updating Services: Implementing card updating services allows businesses to automatically update expired or declined payment card details without requiring customer intervention.
Multiple Payment Options: Offering multiple payment options, including credit cards, debit cards, and digital wallets, can provide customers with alternatives if one method fails.
Customer Communication: Promptly notifying customers about failed payments and providing clear instructions on how to update their payment details can help reduce churn.
Grace Periods and Payment Retry Logic: Implementing grace periods and intelligent payment retry logic can give customers additional time to resolve payment issues before their services are suspended or canceled.
What does churn mean in business terms?
In business terms, churn refers to the rate at which customers or subscribers discontinue or cancel their relationship with a company or stop using its products or services. It represents the percentage of customers lost over a specific period, typically calculated on a monthly or annual basis.
Churn can be classified into two main types: voluntary churn and involuntary churn.
Voluntary Churn: This occurs when customers proactively decide to cancel or terminate their subscription or cease using a product or service. Reasons for voluntary churn can vary, including dissatisfaction with the product or service, cost concerns, or finding a better alternative.
Involuntary Churn: Involuntary churn refers to customers who are lost due to circumstances beyond their control. It typically happens when customers’ payment methods fail, expire, or are declined, resulting in the cancellation or suspension of their subscription or recurring service. Involuntary churn can also occur due to billing errors, technical issues, or changes in customer information.
How can businesses recover from involuntary churn?
Businesses can implement the following strategies to recover from involuntary churn:
Retargeting Campaigns: Engaging with churned customers through targeted marketing campaigns, offering incentives or discounts, can encourage them to resubscribe.
Customer Support: Providing excellent customer support and promptly addressing payment-related issues can help win back customers and rebuild trust.
Payment Plan Flexibility: Offering flexible payment plans or options, such as monthly, quarterly, or annual billing cycles, can accommodate customers’ preferences and reduce the likelihood of churn.
Automated Dunning: Implementing automated dunning processes helps businesses recover revenue by automatically retrying failed payments and notifying customers about the issue.
Proactive Customer Success: Taking a proactive approach to customer success by analyzing usage patterns and reaching out to customers who show signs of disengagement can help identify potential churn risks and take corrective actions.
How can StaxBill help businesses with involuntary churn?
StaxBill provides comprehensive subscription management and billing solutions that can help businesses combat involuntary churn. With features such as automated payment reminders, card updating services, flexible payment plans, and advanced dunning capabilities, StaxBill empowers businesses to reduce churn, recover lost revenue, and improve overall customer retention.
Please note that while the information provided here is based on general industry knowledge, it’s important to tailor specific strategies to fit your business model and target audience.