Failed payments can have a huge impact on your bottom line. They lead to involuntary churn — dubbed by some as the “silent killer” of subscription businesses.
Overall, consumer subscription brands experience close to a 10% loss in revenue due to failed payments.
Establishing effective failed-payment recovery strategies is crucial for businesses involved in the subscription commerce economy, especially as the 2023 holiday season approaches.
Common Reasons For Failed Payments
A customer’s payment can fail due to any of these reasons:
- Maxed out credit card or insufficient balance
If the subscriber reaches their credit card limit by the time their subscription renews, the payment will not go through. Likewise, if the card doesn’t have enough balance, the payment processor cannot charge it.
- Outdated or incorrect payment method or information
If a subscriber changes their address or credit card, they may forget to update the billing information indicated in their account. This will cause the payments to be rejected.
- Expired credit card
When a credit card has expired but it’s still the main payment method indicated in the subscriber’s account, the payment will also fail.
- Suspected fraud
Credit card fraud happens more often than you might think. According to Security.org, 65% of Americans with credit or debit cards have experienced fraud at least once. There is always a chance that one of your subscribers might be victimized. Some payment processors have some additional security measures to detect suspected fraudulent activities. Stripe Radar, for example, uses machine learning to identify fraudulent payments without blocking legitimate ones. PayPal and WorldPay also have fraud protection in place.
The Bad: Consequences of Ignoring Failed Payments
Failed payments have consequences, such as loss of revenue and customer churn. Here’s a closer look:
- Lost revenue
Even if you have a large subscriber base, a few failed payments can add up quickly and have a significant impact on your bottom line. Did you know that only 17% of subscription businesses track failed payments? According to a report from FlexPay and PYMNTS.com, those that track failed payments lose nearly 40% less revenue than the rest.
- Customer churn
When a subscriber’s payment fails, they may be automatically downgraded or locked out of premium features. If the issue is not resolved promptly, they may become frustrated. Nearly a third of subscribers revealed that they were likely to cancel a subscription following a failed payment.
How to Handle Failed Payments Effectively
Here are some strategies that businesses can explore to recover failed payments:
Dunning Software and Emails (for efficient tracking and documentation)
Dunning software automates the process of informing subscribers that their recurring payments have failed.
The software can be integrated with your billing system and email software so you can send out reminders to those with failed payments. This software can also provide options for updating payment information, so subscribers can easily correct their billing information to prevent future failed payments.
Businesses have different dunning strategies. Some stop after a few emails. Others schedule around five to six emails sent out within a month before they officially tag the customer as lost. Based on research, we recommend setting up three dunning emails.
Dunning emails can be helpful— especially for customers who aren’t aware of their failed payment. In fact, data even shows that dunning emails can sort out close to 9 out of 10 failed payments. Since dunning emails are automated, there are preset intervals and actions so you don’t have to check for failed payments manually.
Automated emails can only take you so far, though, and some cases will require a more personalized approach.
Email Communications (for a more personalized approach)
As mentioned above, most dunning software already incorporates automatic email reminders.
However, some businesses choose to go a step further and add customer win-back email campaigns. A win-back campaign is basically designed to bring subscribers back—and interestingly, the average open rate for win-back emails is higher than 29%. So there is definitely some potential there.
You can also offer incentives like discounts or extended trial periods, to encourage subscribers to update their payment information. Here are some examples:
- Reactivate your subscription and get 10% off your first month back
- Get a free month when you reactivate your subscription for the next year
Cold Calls and SMS Reminders (for an even more personalized approach)
While email communication is effective, phone calls and SMS reminders can also be useful in recovering failed payments. Personalized calls or SMS messages can help subscribers feel valued and encourage them to update their billing information.
Recover Payments (all-in-one solution and platform)
Recover Payments is a solution that helps subscription businesses handle and recover failed payments. It actually combines a digital platform and the human touch to facilitate effective and personalized payment recovery.
The human aspect includes outsourcing dedicated and highly-skilled Failed Payment Recovery Specialists who can:
- Strategize, create, and execute dunning emails (if the business doesn’t have one yet)
- Complement existing dunning sequences by injecting the human touch in follow-ups and reminders
- Ensure that all invoices are paid in a timely manner
- Conduct outbound payment recovery campaigns to complement efforts in other channels
- Handle disputes and chargebacks
- Collect and analyze customer responses and feedback
- Collect information on possible reasons for churn
Meanwhile, the Recover Payments integration removes the manual work involved in tracking the progress of recovering payment. It acts as a digital assistant for specialists. This includes:
- Viewing the agents’ productivity and time spent on recovery efforts
- Giving a bird’s eye view of the number of contacts reached out to and the current status
- Accessing and analyzing real-time data
- Viewing and monitoring recovery success rates
- Syncing with your payment platform for smooth transactions when payment is recovered
Preventing Churn in E-Commerce
While knowing how to handle failed payments is great, it’s also important to know how to prevent churn.
Your win-back campaigns and payment recovery efforts are your last resort. Your priority is to keep your customers happy so there will be no opportunities to churn — whether it’s voluntary or involuntary churn.
Use Data and Analytics to prevent churn
By analyzing data, you can get better insights into the preferences and behaviors of your customers.
Here are some ways how to use data to come up with solutions for your customer churn rate:
- Map out your churn rate across specific time periods and compare it with past time periods. Identify patterns and dive deeper into the reasons for churn at those specific periods.
- Regularly measure your social media and email marketing efforts to identify if there are changes in overall engagement and unsubscribers.
- Observe similarities such as the demographics of those who churn, the reasons behind the churn, and even the months wherein the churn rate was highest.
Preempt Churn Through Emails and In-App Messages
The key to customer retention is delivering an excellent customer experience across all touchpoints. Emails and in-app messages are effective channels that can help with your churn prevention strategies.
In-app messages are hyper-targeted notifications sent to your customers while they’re using your app (whether it’s on mobile or desktop). These allow you to engage users at the perfect time so you can actually create a smooth flow from onboarding, to sharing updates, offering assistance, or even promoting different offers. Plus, in-app messaging has a 75% impression rate and an average click-through rate of 28%!
As long as your in-app experience is cohesive across devices, you’ll be able to provide a great experience. Churning would be the last thing on your subscribers’ minds.
It’s the same thing with email marketing. Since email marketing allows personalization through segmentation and automation, it’s very possible to create a tailored experience for each customer.
Retention email marketing strategies include segmenting depending on the behavior, purchase history, preferences, and even demographics. Some quick examples for more context:
- Send special holiday greetings or exclusive offers to your customers in specific countries
- Create upsells and cross-sells depending on their most recent purchase(s)
- Regular email newsletters with a variety of content: promos, UGC, and even blogs
Stop Letting Failed Payments Hinder Your Growth
Having a failed payment recovery strategy is essential for subscription-based businesses. If you can recover even a small percentage of your lost revenue, your business will continue to grow.
With a Done-For-You Failed Payment Recovery Platform, you can actually recover at least 50% of your monthly lost revenue, according to LTV+ data.
Highly skilled payment recovery specialists can work alongside your win-back campaigns to ensure invoices get paid, run recovery campaigns, collect feedback directly from customers, and improve overall retention.