Subscription business models are quickly becoming a dominant force in the digital economy. The key to success is identifying the right business model for your company and operating within that framework. With subscription management software, businesses can offer users access to their products or services on an ongoing basis at a fixed price or cost. Depending on the type of subscription you have, you might be able to optimize your customer base to ensure your service is affordable and relevant to as many people as possible.
The great thing about having a subscription business model is that it’s easy to implement and manage, but one of the potential pitfalls is involuntary churn (which can account for over a third of a organization’s overall churn rate): a high involuntary churn rate can be damaging to any subscription business, and it’s why it’s so important to try and keep it to a minimum. Fortunately, many of today’s subscription management software solutions include a range of tools and features that can help to reduce involuntary churn and increase customer lifetime value within your ecommerce or subscription business.
If you’re an ecommerce startup or you’re just getting started with subscriptions, let this article serve as your guide on how you can reduce your involuntary churn with the right software. We’ll cover some of the key ways you can leverage subscription management software to reduce involuntary customer churn and keep generating a steady stream of recurring revenue.
What is involuntary churn?
Let’s start by defining voluntary churn, where a customer actively decides to cease their subscription of their own accord; there could be any of reasons for a customer canceling a subscription, but often it’s due to dissatisfaction with the product or service, a change in their financial circumstances meaning they can no longer afford the subscription, or simply that they no longer need the product or service on an ongoing basis. Whatever the reason, an exit initiated by the customer is considered voluntary churn.
Involuntary churn, then, is as you’d expect: this is where customer churn is due to something out of the customer’s control (more often than not, a failed payment due to insufficient funds or an expired payment method) rather than something initiated by the customer. It’s common in subscription businesses because the payment information entered when a customer subscribes is often held over the entire length of the subscription — if customer details aren’t routinely kept up-to-date, naturally payments have a high chance of failure.
Why do payments fail?
Involuntary churn is almost always the result of a failed payment, and there can be a number of reasons why a customer’s payment might fail. You can usually group failed payments into one of two categories: soft declines and hard declines.
- A soft decline refers to a temporary payment authorization failure, whereby payment can usually be recovered through retrial. Soft declines typically happen due to insufficient funds, an expired card, or a technical issue such as a processing timeout causing payment to fail.
- A hard decline, on the other hand, refers to a permanent, often irrecoverable payment failure; in this case, retrial methods will likely be unsuccessful and therefore shouldn’t be attempted until at least a few days later — if at all. A hard decline might be the result of a lost or stolen card, invalid card data, or a permanently closed account.
Hard declines are thought to make up between 10% and 20% of all payment failures, and you’ll want to avoid these if at all possible, since the chance of recovering a failed payment is often slim to zero. Soft declines aren’t ideal (and you should always try to avoid having too many of them), but in most cases the payment is successful upon retrial.
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How to reduce involuntary churn using subscription management software
Identify the root causes
Before you can start bringing down your involuntary churn rates, it’s important to know the most frequent cause of payments failing within your organization. Knowing that, it’s much easier to address and mitigate the issue so that fewer payments fall by the wayside in future. A subscription management software provider should be able to analyze your failed payment history and identify recurring issues, such as a problem with the payment gateway or a website issue that’s causing timeouts during the checkout phase, for example.
Offer multiple payment options
Enabling your customers to select from a range of payment options will mean they can choose the most appropriate method of payment — and the one which is least likely to fail. Take the subscription management software offered by Chargebee, for example: customers can pay by card, direct debit, PayPal, Apple Pay, and more besides, while there are a range of pricing options, too (including fixed, tiered and quantity-based pricing), so they can select one which will be financially manageable.
Send pre-dunning emails
Dunning is the process of recovering lost revenue by informing a customer they owe money to your company, and most subscription management software providers will automate this otherwise taxing process for you. Better yet, find a provider that can generate automated pre-dunning emails: informing a customer their payment is about to fail before it happens (due to an expired card, for example) will mean fewer failed payments and a reduction in overall churn.
Use card updaters
Often one of the most effective ways of decreasing involuntary churn is by using a card updater, which automatically updates the cards in your payment system without any intervention from the customer. The advantage of using a payment gateway such as Stripe, for example, is that they work with major card providers such as Mastercard and Visa to ensure card information is kept up-to-date and failed payments are kept to a minimum.
Optimize your checkout page
Most subscription management software providers will include an integrated checkout to help convert visitors into subscribers, and ensuring this is fully optimized will reduce involuntary churn: if the checkout process is slow or unresponsive, this could lead to timeouts causing payment authorizations to fail, which is one way of losing customers to involuntary churn.
Improve the retry cycle
When a payment fails, your subscription management software will typically re-attempt to collect the funds automatically. This sounds fairly straightforward, but it’s important to optimize your retry cycle to give you the best chance of quickly recovering any lapsed revenue: for example, think about the timing of your retries (overnight retries are said to have a lower success rate) and segment them into soft and hard declines — soft declines can usually be retried almost immediately, while a hard decline may be unsuccessful until several days or weeks after the initial payment failure.
Encourage direct debit as a payment method
A direct debit is an agreement between a customer and their bank to automatically pay for charges directly through a bank account, and it’s often a more reliable way to collect ongoing payments for goods or services. Credit and debit cards expire (one of the main causes of a failed payment) but with a direct debit the only risk of a payment failing is through insufficient funds or a closed account, reducing the chances of involuntary churn occurring.
Automate your data collection processes
A common mistake when starting a subscription business is manually handling all customer interactions. That can quickly become a huge time drain and cost you more money in resources, but to avoid this pitfall, employ subscription management software to automate your data collection processes. Not only will this make your payment cycle more efficient, but it’ll reduce failed payments by ensuring that your customers’ data is always kept up-to-date.
Conclusion
If you’re looking to create a sustainable revenue stream with your business, a subscription model could be a lucrative avenue. That said, it’s important you avoid generating too much involuntary churn, as this can have a serious impact on your ability to drive recurring revenue.
Fortunately, by using the right subscription management software (there are a range of options available, but choose wisely), you can minimize the number of failed payments and keep your involuntary churn rates under control: through offering a range of payment and pricing options, maintaining a smart dunning (and pre-dunning) process, using automated card updaters, fully optimizing your checkout process, and ensuring you’re retrying payments at the optimal times, you can avoid involuntary churn becoming an unavoidable burden.