Inflation is soaring, and companies that sell nonessential or luxury goods are likely to take the biggest hit as consumers rethink their spending habits. Merchants looking to prove the worth of their subscriptions should focus on not just price but consumer experience. Research shows that savvy shoppers look for convenience, not just savings when they choose to purchase a subscription.
Convenience, of course, means time saved by automating product deliveries rather than having to make repeat purchases. A subscriber whose delivery is interrupted by failed payments is no longer benefiting from one of the biggest promises of a subscription business. Such an error could spell the end of your relationship with this customer.
Of course, this doesn’t have to happen. Involuntary churn — the type of churn caused by payment failures, also known as passive churn — isn’t the customer’s choice. You have a better chance of winning back its victims than you do the subjects of voluntary churn. It’s a smart choice to focus your efforts on preventing involuntary churn.
Not only does involuntary churn lose money for your company, but it also hurts your reputation with customers and payment processors. That simple truth makes it easy to understand why you should prevent it. But the solution is complex. There are multiple reasons for involuntary churn — you need multiple strategies to combat it successfully.
Involuntary churn is not a small problem. Almost 30% of your customers’ cancellations could be linked to payment declines, according to research by PYMNTS.com and FlexPay. Of the customers whose recurring payments fail, 38% are not sold on staying with a subscription, the study found. One credit card decline may be all it takes to drive these people away for good. On the other side of the equation are the 62% of customers who want to stay with your service but won’t be expecting the fuss of updating their payment information or missing a box.
The former group needs a hassle-free experience to prevent unsubscribes. The latter needs to see that your company cares about their experience. Both benefit from measures to arrest involuntary churn.
Your subscription company needs to mitigate some of the common billing issues that lead to involuntary churn. The type of payment decline will determine the action your team should take.
Soft declines, or temporary payment authorization failures, are caused by issues like:
Such payments often succeed when they’re retried, in which case they don’t become the customer’s problem.
Hard declines happen when the credit card:
There’s less you can do to solve a permanent authorization failure like this on your own. Hard declines are typically the trigger for dunning emails or other communications that prompt customers to update their credit card information.
Fixing involuntary churn is an easy win because neither you nor your customers want it to happen. A low involuntary churn rate means you’re losing less money and disappointing fewer customers than you could be…but it still signifies a loss. Lower revenue and decreased customer lifetime value (CLTV) are only part of the story. Customer acquisition costs are high, and each customer lost reduces your return on the money you spent to win them over. Focusing on customer retention saves resources twice over.
Your efforts to reduce involuntary churn will also help you retain customers who see your company favorably. It may not be your fault when a failed payment interrupts someone’s subscription cadence, but that doesn’t mean your customers won’t blame you. Delivering what your customer expects on the timeline they expect it is essential to maintaining goodwill.
Finally, high rates of involuntary churn may be indicative of an issue with your customer onboarding process or subscription software. Failure to collect full or correct billing information will result in high rates of payment failure. Look for unexpected rates of involuntary churn or drastic changes between one month and the next. Either could signal a need to test and/or update your process.
There are multiple causes of involuntary churn, which means your company will need to deploy multiple solutions to fix them. The good news is top subscription software offerings (like sticky.io) address every issue. Many decline management methods can be fully automated, so they won’t even take extra effort on your part. Here are the solutions you should employ if you’re serious about decreasing involuntary churn rates.
The best credit card update is one you don’t have to rely on a consumer to do themself. Automated credit card updaters keep the subscription experience seamless without relying on extra effort from your customers. These tools integrate with credit card providers to automatically gather any details — such as the CVV code — that change when a credit card expires.
Account updaters prevent hard declines due to credit card expiration. By doing so, they extend a customer’s subscription length and, accordingly, CLTV. They’re effective, too: 71% of cards that were updated through sticky.io’s Account Updater solution were successfully billed.
Consumers sign up for subscriptions because they don’t want to have to think about purchases every month, and Smart Dunning makes that easy. Our automated Smart Dunning tool calculates the best time to retry a failed payment, thereby improving your transaction success rate. AI-powered tools like ours continually gather data over time, learning when a retry will work and when it’s best to ask for customers to manually resolve billing failures. Smart Dunning also protects merchant ID (MID) health by decreasing the number of failed transactions, which means your account is less likely to get shut down by a payment processor — something else that could cause serious involuntary churn.
Billing issues that do need customers’ input should be flagged as early as possible for the best consumer experience. Certain decline codes, like those that indicate incorrect payment information or an account that was closed, will always require your subscriber to update their information. Use these codes as triggers for an automated dunning email sequence. The notifications will empower customers to update their information before the subscription lapses. You’ll also protect your relationship with them by informing them what’s going on so they’re not caught by surprise when a package doesn’t show.
A declined payment doesn’t need to be the automatic end of a customer relationship. When you allow subscriptions to be modified month-to-month, customers have more options to keep a subscription active. If their card is maxed, or close to it, downgrading a subscription can be key to keeping it active. Customers whose cards are stolen may appreciate the chance to skip a month while dealing with the hassle of closing their old card and opening a new one.
Your company should also use flexible subscription plans to keep customers around. Try pausing subscriptions after missed payments rather than canceling them. This makes it easier for customers to pick up where they left off, which means they’re more likely to stick with you.
Consumers don’t want to stumble through multiple confusing screens to re-enter payment information. Being asked to update card information is enough of a hassle. A bad user interface leads to a frustrating experience that may result in subscribers entering incorrect payment information or giving up entirely.
On the other hand, a quick and clear process will improve a customer’s overall opinion of your company. So will accepting multiple payment methods: We found 82% of subscribers would like merchants to allow them to pay with their preferred payment methods. Catering to customers’ payment needs will increase the likelihood of keeping their subscriptions active.
Decreasing involuntary churn is one aspect of a larger effort to retain customers. All efforts in this category are especially important during an economic downturn. Consumers are rethinking their discretionary spending, and subscription boxes are a target, given their recurring nature. A missed payment may be the deciding factor for customers who are already on the fence. You don’t want to give anyone a reason to doubt at such a time.
It’s time for ecommerce subscription businesses to be thoughtful about how and where they deploy their resources. Customer churn prevention — and involuntary churn prevention specifically — is a good bet in an economy that’s going to make winning new customers even harder.
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