Introduction
In the subscription business world, prioritizing customer retention and lifetime value (LTV) is crucial. This focus on retention isn't just beneficial—it's essential for financial stability. Companies with recurring billing customers must ensure every level, from executives to individual contributors, is aligned with this goal.
Despite its importance, many subscription businesses aren't optimized to enhance retention and reduce churn. Those that fail to minimize all sources of churn will find themselves lagging behind more proactive competitors. This is the reality of the subscription model.
Understanding Churn: Voluntary vs. Involuntary
Most subscription companies are aware of the need to reduce voluntary churn—where subscribers intentionally cancel their subscriptions. Significant investments are made to keep customers satisfied and engaged to prevent cancellations.
However, involuntary churn is different. This occurs when subscribers unintentionally lose their subscriptions, often due to declined credit card payments. This accidental churn happens when a payment failure isn't resolved, leading to lost customers.
Although more companies are becoming aware of this issue, many still treat it as a simple operational problem rather than a critical retention issue. Let's delve into why this perspective needs to change.
The Problem with Payment Systems
Payment systems managing credit card authorizations are often seen as operational tools managed by finance, operations, and IT teams. These systems aim to minimize costs while authorizing legitimate payments and declining fraudulent ones. However, authorization accuracy is not perfect. Visa data shows that card payment authorizations are declined 20-25% of the time, with two-thirds of these declines being errors.
Involuntary churn occurs when these erroneous declines aren't resolved, resulting in lost subscribers. Recognizing this is the first step towards reducing involuntary churn and boosting retention.
Comprehensive Retention Strategies
Typical retention strategies include:
- Feedback programs to gauge satisfaction and identify at-risk subscribers.
- Customer experience initiatives to enhance satisfaction and loyalty.
- Monitoring behaviors and attitudes across the subscriber lifecycle.
- Implementing customer save programs in response to cancellation requests.
- Win-back promotions to reactivate churned customers.
However, these strategies don't address involuntary churn from failed payments. When viewed as an operational issue, payment recovery efforts often prioritize low costs over effective solutions, leading to accepted but suboptimal results.
The Pitfalls of "Good Enough" Solutions
Many subscription companies settle for mediocre payment recovery results, believing their current efforts are sufficient. They may not fully grasp the extent of churn caused by failed payments, leading to unnecessary customer losses and revenue decline.
Shifting the Paradigm
Addressing involuntary churn requires redefining the issue. View failed payments as a retention problem, not just an operational one. The goal should be to recover the maximum number of customers, not just payments. This shift involves:
- Treating involuntary churn with the same importance as voluntary churn.
- Applying strategic approaches used for voluntary churn, such as engaging retention and CX experts to maintain a positive customer experience.
- Aligning organizational structures and KPIs to focus on high recovery rates and reduced involuntary churn.
- Recognizing that reducing involuntary churn is a cost-effective way to boost retention.
- Prioritizing customer recovery over the cost of operations to maximize LTV and retention.
The Ideal Solution for Involuntary Churn
Failed payments arise from various issues, requiring tailored solutions for each. For example, bank errors or non-sufficient funds can often be resolved within the payment system, while issues like expired cards may need customer intervention.
Our team's solutions exemplify a comprehensive approach, using AI to determine the best recovery method for each failed payment. The strategy addresses failures directly within the payment system, preventing negative customer experiences. When customer involvement is necessary, the solution uses behavioral science to positively engage customers across multiple channels, enhancing satisfaction and retention.
Conclusion
While many companies recognize the complexity of voluntary churn, involuntary churn often doesn't receive the same level of attention. To maximize revenue and profitability, this must change. Internal strategies are insufficient; specialized solutions are necessary for optimal recovery rates, customer satisfaction, and improved LTV. Remember, when it comes to customer retention, "good enough" is never enough.
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.