23 Ways to Reduce Involuntary Churn
If you own a subscription business, “churn” is a probably dreaded conversation topic.
You know that high churn rates reduce customer lifetime value (CLV) and increase customer acquisition costs (CAC). And that’s the last thing you want for your company.
So what can you do?
A great first step is to understand the two types of churn: involuntary and voluntary churn.
When a poor customer experience causes subscription cancellations, that’s voluntary churn. If you want to reduce this kind of subscriber churn, you’ll need to focus on boosting customer satisfaction.
But then there’s a sneakier kind of churn: involuntary churn. It’s easier for a subscription company to ignore since it’s not caused by angry customers. Yet reducing involuntary churn is key to business growth.
Today, we’ll give you 23 straightforward strategies on how to reduce involuntary churn. Let’s dive in.
What is involuntary churn?
Involuntary churn happens when your customer’s payment fails, leading to the cancellation of your service.
The customer wakes up to see their 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 annual churn rates. But here’s the good news: you can use many different strategies to reduce those pesky involuntary churn rates.
What causes involuntary churn?
Online payments seem pretty straightforward.
But, between the customer and the merchant’s bank, there’s a complex network of issuing banks, payment gateways, payment processors, card networks, and acquiring banks.
It’s not uncommon for a host of things to go wrong, from hard credit card declines to flagged transactions. If the process fails, the result is the involuntary loss of an otherwise loyal customer.
So what exactly could go wrong? Forrester Consulting asked this question to 204 organizations. Here’s what they found:
Whether it’s a network error, expired card, or another payment issue, this needs your attention.
Why should you pay attention to involuntary churn?
As we said above, about 20-40% of your churn rate is likely made up of involuntary churn.
By avoiding that churn, you can recoup a lot of revenue.
For example, Whiteboard reduced involuntary churn using Chargebee and increased its monthly recurring revenue (MRR) by 35%.
Let’s put that into a chart to show you (courtesy of Profitwell):
You also need to think about your relationship with your customer base. One could argue it’s their fault for not updating their 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, you could lose customer trust.
But we don’t want that. So today, we’re going to show you some tactics you can start using now to reduce involuntary churn.
23 tactics to reduce involuntary churn
Taking failed recurring payments into consideration, we’ve split the subscription lifecycle into six stages. That way you can use each of these tactics at different phases:
- When a payment is due
- When a payment fails after the first try
- Retrying a payment method
- Communicating retries during dunning
- Sending out an invoice
When a payment is due
These tips will prepare you for failed payments before they happen.
#1. Pre-dunning emails
Identify customers who have expired cards and engage with them proactively to avoid failed payments.
For example, Chargebee Receivables offers an interactive dashboard with real-time AR visibility to help you anticipate, strategize, collect, and recover payments on time. You can leverage the detailed information about failed transactions and reason codes at each customer level to assist your teams in developing a better recovery strategy.
#2. In-app notifications
A subtle notification bubble inside your app or website can help remind your customers to update their payment method.
#3. Take advantage of a payment gateway
Employ payment gateways like Stripe or Braintree. They’ve partnered with card networks like Visa and Mastercard to update the cards in your system without customer intervention, automatically.
#4. Make customers aware of when you’ve already made an update
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 an expired credit card.
#6. Use a 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 . Use a backup payment gateway or processor
Have a backup payment gateway/processor. If your primary platform is experiencing payment processing issues, you need a secondary option to avoid revenue churn and 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. Brand 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.
When a payment fails after 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. Set up 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
Credit card declines can be soft or hard, but they both cause payment failures. The good news? A retry will almost always fix the problem. You just need a smart dunning process.
#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, maxed-out credit limits, 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
As part of your dunning strategy, group customers into 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).
Then use these personas to tailor retry cycles for maximum success.
With Chargebee you can build a truly tailored collection strategy with a systematic follow-up process that aligns with your dunning personas to increase your rate of collections.
Communicating retries during the dunning process
Here are some tactics you can implement to supercharge your dunning cycle.
Want to know how Chargebee can help improve your company’s dunning process? Check out how Zenchef recovered 60% of formerly unpaid accounts with our Smart Dunning feature.
#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 messages
Align your dunning messages with the personas you might have set up for your retry cycles.
For example, a customer with a retry cycle that stretches 28 days will not need as many email reminders as a different customer with a retry cycle of 14 days.
#19. Use dunning emails to build value
Your dunning messages can be just another one of your company’s marketing strategies. Every time you send your customer an email, use it as an opportunity 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.
It’s better to focus on customer retention over customer acquisition. For example, Proxyclick retained a large chunk of its customers by pausing or reactivating their subscriptions when they didn’t want to use the product for a specified period.
#21. Consider an 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 these tips to recover revenue, reduce friction around renewals, 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.
Here’s to avoiding churn and boosting revenue
We hope these 23 tactics help you in your efforts to reduce involuntary churn and maintain your most important customer relationships.
To learn more about how you can reduce failed payments and involuntary churn, check out this guide.