In the customer base of every subscription-based business, there’s a customer who loves the product, opens the app every week, and has no intention of cancelling their subscription, but will soon lose access because their credit card expired last month, and no one notified them. And if you multiply that customer by several dozen or several thousand, you’ll end up with involuntary churn: a silent revenue leak that doesn’t show up in the “why did you cancel?” survey, because the customer didn’t want to leave at all. This is a huge problem for businesses, and it’s important to monitor this aspect to ensure long-term relationships with customers. In this article, we’ll explain in detail what involuntary churn is, why it happens, and share tips on how to avoid it.
An involuntary churn occurs when a customer’s subscription is canceled on their behalf, usually by your billing system, because a payment attempt failed and nothing was done to restore it. The customer’s intention to remain a subscriber has not changed. This is a problem with the systems and communication, not with the product, and therefore, it is fairly easy to fix with high-quality payment gateway integration, and some other ways, which we will describe a bit later.
There are many reasons for involuntary churn, and they are generally unrelated to the quality of your product or customer satisfaction. Here are some of the most common ones:
- Insufficient funds. This payment error is related to the customer’s cash flow cycle, for example, payroll dates or large expenses. The good news is that this type of decline is temporary.
- Expired or reissued cards. This is the leading cause of payment failures, as cards are constantly being reissued: due to a fraud flag raised by the bank, a new card design, a lost wallet, or a new expiration date.
- Processor or gateway failures. These are less common, but they do happen. Failures and misconfigurations on the payment infrastructure side do occur, and they appear identical to a client-side failure unless you track rejection codes separately.
Some businesses still consider failed payments to be a minor issue, and this is a huge mistake, since in the subscription business, they directly impact financial results. The thing is that if a payment fails due to an expired credit card, insufficient funds, or a bank decline, the company does not receive its planned recurring revenue.
The first consequence is a loss of part of the monthly revenue, and companies with a large subscriber base feel this particularly acutely. In addition, customer lifetime value decreases because the relationship with the customer ends sooner than it otherwise would have. Another significant risk of involuntary churn is that it is not immediately apparent. Companies that do not analyze the causes of failed transactions may fail to identify the real reason for the decline in profits.
However, it’s not all bad, since at least some of these losses can be avoided by optimizing payment processes, setting up automatic retry payments, and using a reliable payment gateway, which helps reduce customer churn and increase transaction success rates. Read on to learn more about the best ways to avoid losses from failed payments.
Use a well-thought-out retry logic
If your retry settings are configured to attempt a transaction within 10 minutes, this won’t work if, for example, the card is expired. Three to four retry attempts spread out over 10-14 days strike the optimal balance between allowing time to resolve legitimate issues and preventing indefinite delays in subscription payments.
Use payment reminders
It’s important that your messages come across as helpful reminders, not as debt collection notices. Set up an immediate, friendly notification the moment a payment fails, provide a one-click “Update Card Details” link that completely bypasses the login process, and ensure that updating the card won’t result in a double charge.
Integrate a payment gateway
This will ensure stable transaction processing, support for updated tokenized cards, automatic retries, and detailed analytics on the reasons for declined transactions. As a result, your business can reduce payment processing costs and retain more recurring revenue without incurring expenses to attract new customers.
In the subscription business, the loss of payments isn’t always due to a conscious choice by customers because of poor product or service quality; after all, a huge portion of churn is caused by failed payments resulting from expired cards, technical glitches, or even insufficient funds. To avoid such involuntary churn, it is important for businesses not only to regularly analyze the causes of declined financial transactions but also to implement modern tools that help effectively recover payments. In today’s environment, by investing in the optimization of their payment infrastructure, businesses gain the opportunity to increase profits without significant expenses.
