As a subscription business, you’re probably already looking at the churn and how it affects your revenue. Customer and Revenue Churn are the most commonly addressed metrics that businesses look at - day in and day out. Churn is when a customer stops paying for your product/service. However, there are times when your customer churns without actually intending to stop using the service. This is termed as Involuntary Churn.
Involuntary Churn occurs when a customer’s payment attempt fails, leading to their subscription being canceled. Not only do you lose your customers, but a part of the monthly recurring revenue is also lost. It can happen for any of the following reasons:
Not updating their card information (using expired cards)
Hard declines when a card is lost or stolen
Soft declines when a credit card has maxed out its limit
Banks can decline the card for other reasons
How should businesses interpret Involuntary Churn?
The most striking truth about involuntary churn is that almost all of it is avoidable. Reducing involuntary churn, therefore, is one of the easiest and most direct ways to increase customer lifetime value, leading to higher returns on your customer acquisition cost (CAC). Beyond its negative effect on revenue, involuntary churn hurts your relationship with the customer as well, who wakes up one day to realize that their subscription got canceled, unintentionally.