Ugh, ‘churn.’ It’s always creeping up.
Let’s talk about involuntary churn, where your customer’s payment fails–leading to the cancellation of your service. The customer wakes up to see your services have stopped. And then, both of you find yourselves staring at a computer screen, thinking: “Well, that sucks.”
Involuntary churn (aka delinquent churn, aka passive churn) makes up 20-40% of your typical churn.
But here’s the good news. We can avoid most of it!
What causes Involuntary Churn?
Online payments seem pretty straightforward.
But, between the customer and the merchant’s bank, there’s a complex interlink of issuing banks, payment gateways, payment processors, card networks, and acquiring banks. It’s not uncommon for a host of things to go wrong. If this process fails, the result is an involuntary churn.
So what could be the things that go wrong? Forrester Consulting asked this question to 204 organizations. Here’s what they found:
And this kind of needs your attention.
Why should you pay attention to Involuntary Churn?
Like we said, about 20-40% of your customer churn rate is involuntary churn.
If we were to reduce this churn, we’d be recouping quite a bit of revenue. Whiteboard reduced involuntary churn using Chargebee and increased their MRR by 35%.
Let’s put that into a chart to show you––courtesy Profitwell:
You also need to think about the relationship with your customers. One could argue it’s their fault for not updating the payment information or maxing out their credit. But, they’re paying you to be an essential part of their business operations and a sudden breakdown could be very detrimental for them. If your systems or processes are not easing their pain, your subscribers could deflect.
But we don’t want that. So we’re going to show you some tactics you could use to reduce involuntary churn.
23 tactics to reduce Involuntary Churn
Taking failed recurring-payments into consideration, we’ve split its lifecycle into six stages: It makes it easier to use various tactics at different stages.
When payment is due
This section prepares you against failed payments before they happen.
#1 Pre-dunning emails
Send out an email to your customer reminding them that their card details are about to expire.
#2 In-app notifications
A subtle notification bubble inside your app or website–reminding your customers to update their payment method.
#3 Card or Account updater
#4 Card or Account updater information on your website
If you’re using the card/account updater information, use a webhook to display updated card details on your website or dashboard. You don’t need your customers updating when an update isn’t required.
#5 Optimize your checkout page
If you’re sending a link to your customers, asking them to update their details, make sure the page is optimized for them to not leave without updating.
#6 Merchant Category Code (MCC)
It’s a four-digit code assigned to a business when it begins to accept online payments. Check to see if the MCC accurately reflects your business; if not, banks will deny some of your transactions.
#7 Alternative payment gateways or processor
Have a backup payment gateway/processor. If the primary gateway/processor is down, you need a secondary option to ensure smooth functioning.
#8 Flag a payment as recurring
Tag a payment as recurring with your payment gateway so that multiple charges on the same payment method aren’t tagged as ‘suspicious.’
#9 Branding your customer’s bank statements
If it’s difficult for a customer to associate the charge on a bank statement with your company, it could result in a chargeback. Here’s how Basecamp included a descriptive URL (it resulted in a chargeback reduction of 30%).
#10 Request that a customer shift to ACH/SEPA
With a failure rate of only 0.5%, direct debit payments are by far the most efficient way to collect recurring payments.
Failure on the first try
Tactics to try out when the first attempt fails.
#11 Implement a BIN blacklist
The first six digits on a card are its Bank Identification Number (BIN). Compile a list of BINs you don’t want to accept and compare the cards your customers are using against the list to avoid payment failures at sign up and at future renewals. Especially for prepaid debit cards.
#12 Backup payment methods
Set up backup payment methods for each of your customers to immediately fall back on when the first payment method fails.
Retrying a payment method
Either ‘soft or hard declines’ cause payment failures. A retry will almost always fix payments that fail due to these declines (in most cases).
#13 Segment your retry cycle for a soft decline
Soft card declines are declines that result from a temporary problem with a gateway, processor, or network. It would be best if you retried this type immediately.
#14 Segment your retry cycle for a hard decline
Hard card declines can result from insufficient funds, stolen cards, etc. Retry a hard decline over two weeks or a month, depending on the ticket size.
#15 Retry at particular times
Pick up data/metrics from your payment gateway to find out what time might be best for a retry during the day. Ayden’s found that payments during nighttime hours have a 2% lower success rate.
#16 Create dunning personas
Group your customers into dunning personas based on their ticket sizes, geo-location, and what kind of payment process you have in place for them (invoice based payments vs. automated card and online wallet payments). Use these personas to tailor retry cycles.
Dunning emails – communicating retries
#17 Setup a dunning cycle that suits your customer
Andrew Culver, the founder of Churn Buster, describes this perfectly:
“Don’t email customers at 3 AM because that’s when the payment processor failed the payment, but email them at 2 PM on a business day because that’s what MailChimp tells you your most successful time of day for reaching customers is”.
#18 Let your dunning personas inform your dunning emails
Align your dunning communication to the dunning personas you might have set up (#16) for your retry cycles. One of your customers, for example, with a retry cycle that stretches 28 days, will not need as many email reminders as an individual customer with a retry cycle of 14 days.
#19 Use dunning emails to build value
Turn your dunning email into marketing opportunities to build value around your product.
So what do you do when dunning fails?
#20 Don’t cancel unpaid subscriptions
Put the subscription on hold until the customer gets back to you, or deactivate it instead of canceling. Make it as easy as you can to get this customer back. Focus on customer retention over customer acquisition. Proxyclick could retain a large chunk of their customers by pausing or reactivating their subscriptions when they didn’t want to use the product for a specified period.
#21 Consider annual billing cycle
As a SaaS business, reduce the number of credit card chargebacks by offering your customers an annual pricing plan.
Sending out an invoice
Businesses that operate with invoice-based payments can use this to recover revenue, make renewals a little more frictionless, and build value around their products or services.
#22 Payment terms on enterprise invoices
Some businesses require a certain number of days after an invoice is raised to complete payment. Use a payment term.
#23 Advance invoices and payment upfront
Collect payments for a set number of terms, upfront, before a subscription begins.
Well, those are the 23 tactics, hope that helps. To learn more about how you can reduce failed payments and involuntary churn, check out our guide; it talks about the pros, cons, and difficulties associated with these tactics.