3 Ways to Reduce Payment Declines and Minimize Revenue Loss

3 Ways to Reduce Payment Declines and Minimize Revenue Loss

Whether you’re measuring your customer numbers or your revenue, churn is a critical metric for subscription businesses. The main reason? Churn is expensive: acquiring new customers costs five to 25 times more than keeping the ones you have. And churn doesn’t just cost you now—you lose out on future profits, too.

 

Voluntary vs. Involuntary Churn

 

There are two major kinds of churn: voluntary and involuntary. Voluntary churn is when a customer chooses to cancel their subscription. You likely have, or are working on, systems to keep that from happening already.

Involuntary churn on the other hand, is when customers are unintentionally kicked out of their subscription due to operational glitches and payment failure issues—such as expired or stolen credit cards. It’s estimated that a whopping 20-40% of total churn can be attributed to involuntary churn. This means you’re potentially missing out on significant revenue by not addressing it. With that said, let’s take a look at how you can cut down involuntary churn.

 

How to Reduce Involuntary Churn and Payment Declines

Involuntary churn can be completely avoidable if you take a systematic approach. Here are four ways to get started:

1. Build Strong Payment Retention Systems Up Front

It’s essential to address potential payment issues early on. Invest in a robust payment retention system by ensuring your subscriber payment portal is user-friendly and offers flexible payment options. This includes accepting various payment methods and currencies to accommodate diverse customer preferences. Additionally, maximize authorizations by implementing tools that validate payment information in real-time, reducing the chances of declines due to incorrect or outdated data.

2. Implement a Smart Retry Strategy for “Soft Decline” Failures

Payments can fail for various reasons, often resulting in “soft declines” where the issue is temporary and solvable. To mitigate this, implement a smart payment retry strategy. Use automated systems that employ AI to determine the optimal times and frequencies for retrying failed payments. These systems can adapt to different scenarios, improving the chances of successful transactions. Furthermore, a robust dunning communications program is vital. Send timely reminders to customers to update their payment information before issues arise, ensuring their subscriptions remain uninterrupted.

3. Reactivate Accounts When Necessary

Despite best efforts, some customers may still experience involuntary churn. However, these customers often value your service and can be persuaded to return. Develop a reactivation plan that includes targeted email nurture campaigns. These campaigns should remind customers of the benefits they enjoyed, offer incentives for reactivation, and provide a seamless path to renew their subscriptions. Personalized messages and special offers can effectively re-engage these customers and bring them back on board.

 

Putting it into practice

The success of your efforts to reduce involuntary churn boils down to understanding the impact, and knowing where to put mitigations in place. Regularly monitoring and analyzing payment data helps identify patterns and potential issues before they lead to churn. Tracking payment success rates, common failure reasons, and the effectiveness of your retry strategies can all help build a more robust payment structure. 

Implementing all the above tactics can have a significant impact on both retention and revenue. The Seattle Times newspaper is a great example of a company that has worked hard to reduce involuntary churn. When they learned that 62% of their churn was due to payment processing issues, they focused their efforts on creating a more seamless payment experience. The result? They improved retention by 25%.

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