Last updated: April 19, 2022 Blog
A successful subscription business relies on customer retention. Losing subscribers leads to lost revenue. That’s why the top brands discover ways to monitor and reduce their churn rates.
Subscription companies often link a high churn rate to a few usual suspects. Things like
- Low customer satisfaction
- Poor customer relationships
- Boredom with the product
- An abundance of the product.
All these show signs of voluntary churn, which is when the customer opts out of subscriptions because of an intentional choice they made.
But some subscriptions accidentally fall through the cracks. This is involuntary churn, and subscription businesses can do a few things to stop it from happening.
Issues With Involuntary Churn vs. Voluntary Churn
Voluntary churn occurs because of some level of customer dissatisfaction. High churn rates help show the company what they could do differently to stop customers from cancelling.
Involuntary churn, on the other hand, is usually avoidable. It occurs when a subscription ends due to payment processing issues.
According to Recurly research, involuntary churn rates are between 1% and 2%, depending on the product. While that number may not sound huge, due diligence can help avoid the issues associated with involuntary churn.
Avoidable Revenue Losses
All churn is bad churn. Renewals account for over 50% of a subscription business’ revenue. Losing existing customers can lead to significant losses, whether the cancellation was voluntary.
But you could quickly bring some of that revenue back by reducing involuntary churn. To help avoid unnecessary losses, ensure your customers keep their accounts updated, have accurate credit card information on file, and set up recurring payments.
Poor Customer Experience
Issues with involuntary churn can spread beyond finances and into problems with the brand. Subscribers may feel your company caused the cancellation. Some might blame you for not reminding them about failed payments or other processing failures.
Poor experiences like these can make it hard to win those customers back. Worse, they can cause negative reviews and damage the brand’s reputation.
Increased Customer Acquisition Efforts
Losing subscribers means you have to go through the acquisition process again. This can be a big problem in an industry that has increasingly seen growth attached to customer retention.
Customer acquisition typically costs more money, demands more attention, and can cause more internal confusion, since various departments get involved. Reducing involuntary churn rate allows you to cut back on these efforts and focus on retention.
What Causes Involuntary Churn?
- 53% came from insufficient funds
- 42% happened because of exceeding credit card limits
- 40% revolved around changes to a credit card, like expiration or replacement
- 32% linked the issue to technical issues with their payment processor.
- 30% saw problems with credit card restrictions
- 29% said payments failed due to additional technical issues.
Strategies to Reduce Involuntary Churn
At its core, involuntary churn is a communications issue. If you can make it easy for subscribers to manage their accounts, you might help them avoid payment failures.
Here are a few ideas for how to make that happen.
Know the Issue: Hard vs. Soft declines
Payments fail for two primary reasons: either soft or hard declines.
Soft declines are temporary failures that come from things like
- Insufficient funds
- Expired credit cards
- Reached the spending limit of credit card issuers.
- Customers usually resolve these issues with their banks.
Hard declines, however, are harder to fix. They usually happen because of
- A stolen or lost credit card
- Invalid information
- Account closure.
Both types of declines can lead to involuntary churn, but your messaging strategy may change slightly depending on the circumstances.
Hard declines may require more responsive questions, like “did something change in your account?” Whereas soft declines might need more prompting: “Your credit cards expire soon. Make sure to update your account when the time comes!”
Utilize Your Payment Processing Partners
Did you know that some payment processors have built-in automatic account updates? Picking the right one can significantly reduce the number of subscribers lost to failed payments or inaccurate information.
If your payment processing partner doesn’t have this capability, you can also set up automatic notifications that inform the customer that their card will expire soon. Giving them around a two-week notice should provide enough heads up to make the change before you lose them.
Going above and beyond with these communication efforts helps create a smooth, reliable experience for your customers. Customers see how you solve the problem before it occurs, and appreciate the convenience.
Set Up a Backup Plan
Putting all your customers’ eggs in one payment basket can be a bit risky. When that one payment method fails, the whole account crashes.
To make this easier, many subscription businesses encourage users to add additional payment methods as a backup plan. Make sure you communicate with your customers that this card will only be charged in case of payment failure. This way, they can feel secure in adding another card.
Additionally, customers should have access to a high-end customer portal where they can easily edit and update their accounts. Your goal is to eliminate any barriers that stand in the way of successful payment processing.
Create Dunning Messages
One final way to reduce involuntary churn comes from dunning management.
Dunning is an accounting term that essentially means reminding customers that they need to pay. For eCommerce subscriptions, this can look more like a gentle nudge than a demanding letter.
Something simple, like “Hey! We noticed you didn’t renew your subscription payment, it didn’t come through this week. Anything we can do to help?” works fine. It shows that you noticed and want to help. Most importantly, it points out the mistake, so the customer can remedy it as soon as possible.
Some customer churn will always happen, but you can easily avoid a decent portion of it by looking at involuntary churn rates. These subscribers want to continue receiving your product. So don’t let them get away because of clerical issues.
Following these steps can help reduce your involuntary churn and keep the customers that might slip through the cracks.
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