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How Involuntary Churn is Affecting Your Subscription Business

  • Casey Graham - Founder and CEO
  • May 14, 2021
  • 4 minute read
  • Gravy

Take the first step and book a chat with Gravy today to learn more about how we can empower your business with our team of recovery experts, so you can continue to do what you love – running your business.

Operating as a subscription business can be fantastic. Establishing a recurring revenue stream allows companies to focus on consumer retention and satisfaction instead of constantly chasing one-time transactions. However, retaining subscribers can be challenging for direct-to-consumer subscription brands, as customers can often drop out of the recurring revenue stream for various reasons. This process increases subscription companies’ churn rate — the number of customers within your subscriber base who pause or cancel their subscription in a set timeframe.

Types of Subscription Churn

Voluntary Churn

The most common type of churn. It happens when customers aren’t satisfied with the product offered. In this case, users voluntarily —  as the name suggests — cancel their active subscription because they don’t feel the value of their subscription justifies the price asked by the company. 

Involuntary Churn

In this instance, the customer is pleased with your product, but their recurring payment fails for various reasons. It could be due to insufficient funds in their account, or a configuration error on the payment portal or merchant account.

Whatever the cause may be, many subscription brands are still unaware of this problem and lose customers to unintentional cancellations.

Subscription businesses tend to operate based on the belief that if the customer is otherwise satisfied with their product, there is no customer service approach to reduce involuntary churn. Although this is an understandable intuition, there is no financial difference between losing customers due to dissatisfaction and losing customers because of preventable payment failures in the final analysis.

Likewise, it will cost you the same to task your customer service department with retaining dissatisfied customers as keeping those who may not even know their service will be canceled in the first place.

In some cases, your customers are only made aware of their failed payment by the automatic cancellation of their subscription, resulting in a negative impression of your brand.  

How Involuntary Churn Occurs

The reasons for involuntary churn are typically related to payment methods that were valid at the point of initial subscription but become invalid at a subsequent billing cycle. For example, there can be problems with the account itself — which can be closed or suspended — or the card associated with the account may simply be expired or flagged for fraud, sometimes without the user’s knowledge. 

In some cases, the specific payment to your business may also be processed incorrectly by the payment portal, or the 3D signature check, one-time password, or another authentication measure may have failed — blocking the recurring payment.

In other cases, the account and the card are both in working order, but there are insufficient funds in the account linked to the card, or the credit limit may have been reached, or, in rare instances, lowered by the card issuer. There are also automated anti-fraud measures like blocking a payment if it’s made while the cardholder is abroad or if a purchase deviates from their spending habits.

The problem can be as simple as the customer forgetting to make a required payment to the credit card issuer or the payment processor making a one-time error in sending the recurring payment. 

We all wish involuntary churn was easy to fix — and sometimes, it is — but as a rule of thumb, if your satisfied customers are unable to restart their subscriptions on their own, it’s probably best to call a professional. 

The Recovery Process

You need to be proactive with your customers to prevent a failed payment. This can — and will — turn into a full-time job. Here are a few tips to help retain your subscribers: 

  • Send an email reminder to update your customers’ payment informations
  • Give your customers the option to update their payment information directly through your site
  • Provide your payment processor with as much customer information as possible
  • Break free from dunning emails — emails asking the customers for money owed due to a failed payment 

While the above suggestions can help you improve your failed-payment recovery, you should consider the recovery rate that you are experiencing. Dunning emails alone recover only 15% of failed payments. This low recovery rate is caused by ignored automation, lack of empathy, and inability to problem solve.

Gravy’s Solution

Gravy recovers up to 80% of your failed payments through its signature service, Gravy Recover. You receive field-tested, effective payment recovery and customer-retention results. Our team of payment-recovery and customer-retention experts use proven engagement strategies and leverage our platform of innovative technologies to retain your customers with empathy, problem solving, and the human touch.

Do you want to gain more actionable insights to lower your churn rate? Join SUBTA. We’re a community of doers, excited to share insights, make connections and grow your subscription brand.