Introduction
In today’s economic climate, acquiring and retaining subscribers is becoming increasingly challenging. Subscription businesses are facing slower growth and rising customer acquisition costs, while inflation is driving higher voluntary churn rates as consumers cut back on expenses. To counter these trends, focusing on customer retention has become the most effective strategy to boost revenue and profitability. This shift emphasizes the importance of reducing failed payments, which directly impact customer churn. Utilizing a robust failed payment recovery solution has become essential for subscription businesses.
This guide aims to highlight the significance of failed payment recovery solutions and offers best practices for setting up an internal recovery team and evaluating technology providers.
The Hidden Impact of Unresolved Failed Payments
Identifying the causes of customer churn is the first step in any retention strategy. Voluntary churn, where customers actively choose to cancel their subscriptions, accounts for 52% of all churn. Involuntary churn, often due to false declines by credit card issuers, makes up the remaining 48%. According to a 2023 industry study, 50% of companies reported that declined payments contribute to customer churn, with 26.5% citing it as the primary cause. Top-performing companies are significantly more likely to employ third-party payment recovery solutions designed to optimize recovery rates and minimize churn.
Voluntary churn rates have risen universally as inflation has compelled subscribers to reduce their expenses.
Best Practices for Effective Payment Recovery
A successful payment recovery solution should achieve high recovery rates while maintaining customer satisfaction and long-term retention. The method used to recover a failed payment can determine whether a customer remains loyal or leaves due to a negative experience. The ideal approach involves resolving failed payments directly with the payment system, ensuring the customer remains unaware of any issues. This behind-the-scenes recovery should be the first step to quickly achieve the best results.
When customer involvement is necessary, such as with expired or lost cards, strategic and empathetic communication is crucial. The goal is to motivate customers to update their payment information without damaging the relationship. High-quality customer experiences are essential, even when dealing with failed payments, to ensure long-term retention.
How you handle a failed payment can determine whether a customer remains loyal for months or departs due to a negative brand experience.
Optimizing the Payment Recovery Process
Recovering a failed payment is more than just a transaction; it involves considering the entire customer lifecycle. The process must be both technically effective and customer-centric to maximize retention and lifetime value (LTV). Failed payment recovery should be a cross-functional effort involving finance, operations, technology, and customer experience (CX) teams. This collaborative approach underscores the importance of failed payment recovery to the business’s success and enhances the likelihood of a positive outcome.
Each team member should bring their expertise to ensure that the recovery solution is well-rounded, with a focus on recovery performance, customer satisfaction, and retention.
Evaluating Payment Recovery Solutions
While some organizations opt to build internal recovery solutions, these often fall short compared to specialized third-party solutions. Internal systems can face performance limitations and create unforeseen challenges. A sophisticated technology solution designed specifically for high recovery rates and customer retention is essential.
When evaluating providers, consider the following:
- Their use of AI and the quality of their data sets, particularly from issuing banks.
- Recent recovery rates for similar businesses.
- Their ability to analyze your current failed payment data and forecast expected recovery performance.
- Customer outreach programs that ensure satisfaction during the recovery process.
Conclusion
In an environment of slower growth and higher acquisition costs, retaining existing customers is more critical than ever. Many subscription companies underestimate the impact of failed payments and involuntary churn, lacking effective strategies to address the issue. By investing in advanced failed payment recovery solutions and developing comprehensive retention strategies, businesses can thrive despite economic challenges.
Is your business experiencing failed recurring payments? Contact us today to explore solutions that will recover up to 80% of your failed recurring payments, increasing your cash flow and profitability.