Subscription businesses face many types of churn that can drastically hurt their operations and profit if they don’t manage it properly. Voluntary churn is a little more obvious, whether it refers to customers leaving after a price increase or because there is now an imbalance in the price/value of the products. Voluntary churn is attributed to a customer’s self-elected cancellation of a product.
Involuntary churn also poses a significant threat to your business. In many cases, the losses from involuntary churn supersede those to voluntary losses. At first, you might not notice it because of its more subtle effect over long periods. But if you let it get out of hand, involuntary churn can decay revenue events faster.
As we move into the discussion on involuntary churn, it's important to understand that tracking involuntary churn as a metric within a business's overall churn is important. Specific business actions can turn one type of churn into another. For example, if a card fails, customer service reaches out to get new card information, and the customer informs the representative that they wish to cancel. This would be considered voluntary churn. However, had the card been processed, would they have canceled? The key factor any business should strive for is to use types of churn as a barometer while making business changes to reduce the overall churn.
Involuntary Churn 101
Before taking steps to reduce churn rates, take the time to understand how involuntary churn works and how it can impact your business.
What Is Involuntary Churn?
Involuntary churn occurs when a customer stops purchasing from your business for reasons outside their control. It can occur for several reasons, such as failed payments, declined payments, outdated payment information, or poor communication with your customer.
Churn is typically discussed as a rate. In general, the churn rate is the rate at which customers stop buying from your business. Voluntary churn is when customers will stop buying from you or unsubscribe from your services of their own accord. For instance, they might need to adjust their budgets, or they choose to shop elsewhere.
According to PYMNTS, subscription businesses lose 9% of revenue due to failed payments. Churn can have inconvenient effects on your business and prevent you from scaling as the costs of acquiring a customer continue to increase.
The Impact of Involuntary Churn on Businesses
The specific effects of involuntary churn will depend on what causes customer churn in businesses in the first place. However, the higher your customer churn rate, the more likely you will have negative financial metrics and face difficulty with cash flow or profitability. High churn also indirectly raises your cost of acquisition, as there are costs and lost revenue associated with acquiring the same customer again.
That said, involuntary churn typically isn’t immediately visible in your metrics. Instead, you’ll see less dramatic but longer-term effects throughout each customer’s lifetime. Your customer lifetime value might dip slightly, while customer acquisition costs might rise. Over time, this will have more significant effects on your bottom line.
Aside from the financial consequences, involuntary churn can affect the overall customer experience. If you don’t have the proper systems and communication practices to ensure successful payments, customers can become frustrated when their payments fail. In fact, 62% of customers will churn if they experience a failed payment. They may become unwilling to use your products or services anymore. Even if you fix the issue afterward, customers who have already lost their trust in your business are not likely to return.
3 Causes of Involuntary Churn
Involuntary churn rates only refer to customers who stop purchasing from your business without taking direct action to do so. While many factors impact the churn rate, involuntary churn occurs due to a payment issue most of the time. These payment issues mainly involve:
1. Outdated Billing Information
One common reason loyal customers might stop using your business is outdated billing information. This could include information such as name changes or address changes. If customers update their information with credit card issuers but not with your business, their payment method may eventually fail.
2. Failure to Update Expired Credit Cards Ahead of Time
Another common issue is that credit cards expire, and many billing systems do not set up tokenization to update cards on file automatically. In addition, they haven’t set up the proper communications to alert customers to update their card information ahead of time. The customer’s payment will fail until they provide an updated payment method or you implement network tokenization and real-time account updater.
Note that in many cases, BIN blocking should be enabled for order funnels on recurring subscriptions. Consider a company that offers a subscription product and, yes, accepts non-reloadable ‘gift’ cards for those subscriptions. It doesn’t matter what technology is on offer or how much you spend retiring that transaction; once funds are gone, it’s not going to approve.
3. Hard & Soft Declines
Other payment problems arise with hard and soft declines. Customers may see soft declines, typically caused by your billing platform’s payment infrastructure. Most in-market payment systems treat all payments the same, despite the numerous bank issuers, rules, and data points within each transaction. Due to banks' unique approval processes, data is often packaged generically, leading to compromised data being submitted for approval. In addition, it is well known that different processors perform better with certain bank issuers, card types, and card products.
On the other hand, hard declines might occur if the account is lost, stolen, or at risk of fraud, such as if the owner recently reported their card stolen or was the victim of a security breach. In addition, the decline codes that the bank returns are generic and unreliable in determining why the payment failed.
Do not assume that all declines are due to fraud, credit limits, or insufficient funds. Many payment systems default all decline codes to “do not honor” or “generic decline,” further confusing the complexity of false declines. Most banks choose to use “generic decline.” Therefore, using these codes to determine the reason for the decline is futile.
Success in retrying these declines will vary by merchant and MCC code. In many cases, merchants see increased approvals when retrying hard declines; however, there are significant cost and regulatory issues around this process. Additionally, the same payment method may get different decline codes with various acquirers, so it’s important to not only test but capture the data the bank returns and incorporate it into the retry strategy.
5 Strategies To Reduce Involuntary Churn
The causes of involuntary churn indicate that prevention starts with a high-powered, optimized billing platform that evaluates all the data available for a payment request and then packages and routes the payment request with the highest likelihood of approval and for the least cost. The platform is explicitly configured for the merchant, and rules are customized to every business's uniqueness. Use the strategies below to improve your business’s involuntary churn.
1. Consult with a Payments Expert to Learn About Your Data
Payments are complex. Between the multitude of different providers and the thousands of different card products, reviewing your statements with a payment expert will provide you with unique insight into your payment collection process. There is more to processing statements than your rate, so make sure you speak with someone who will evaluate your entire payment stack. A quarter’s worth of analysis is recommended; a year would be perfect, and a month is sufficient. An advanced payment expert will educate you on your collection rates and point out the opportunities for payment optimization.
2. Implement Advanced Payment Features, Payment Orchestration & Optimization
Utilizing top-tier payment processors, ensuring seamless integration of your billing system, and maximizing advanced payment features are crucial components for operational success. The advanced features you should utilize include Network and Processor Tokens, a Real-Time Account updater, PINless Debit Routing (US Only), ECI Code Optimization, and Specific BIN and Account Range Processing. A Multi-Acquirer platform will allow for ongoing optimization as different card products perform differently across different acquirers.
A fully optimized payment system will utilize multiple MIDs and multiple processor routing. The most advanced way to achieve a fully optimized and orchestrated payment is to have advanced real-time adjustable logic based on the merchant, card, and bank to route each payment dynamically.
3. Payment Retries as a Last Resort
There are many situations where payments fail and then are processed without issue when retried. However, did you know that you are charged fees each time? Automated payment retries can prevent the need for any further action and quicken the recovery from involuntary churn. If you only use automated retries, you will recover a portion of failed payments.
The best practice and the least costly option is to do everything to prevent the payment from failing in the first place, then implement advanced retry logic that evaluates the original payment data and the decline data and puts the retry through a rules engine to determine how to route. In contrast, basic retries will batch all the failed payments and re-run the batch at a different time.
The differentiator in these systems is leveraging intelligence about all the various card issuers and payment processors and determining the most optimal retry per the individual payment.
In addition, your retry process may consider historical data that show days and times when payments are more likely to be successful.
4. Offer Multiple Payment Methods
Offering multiple payment methods is convenient for your customers and gives them an easier way to fix payment issues if their primary payment method no longer works. For example, if they previously used a credit card that was lost or stolen, they can easily log in and update their payment method to use a digital wallet or bank transfer. The customer continues benefitting from your product or service, and your business doesn’t have to suffer the side effects of involuntary churn.
You may also want to choose a payment platform that allows you to gather information for a backup payment method. It will help the customer preauthorize your business to charge the backup method if their primary payment method fails.
With 600+ alternative payment methods globally, we highly recommend working with a payment expert to determine what is best for your business in each region or for your business type. For example, Buy Now, Pay Later methods could increase conversions for your market.
5. Understand Your Merchant Reputation Score
The most noteworthy takeaway from these strategies is that a successful churn management system begins with effective payment technologies that automatically keep card information current and utilize all available payment features to prevent failed payments. Many merchants don’t realize that the banks assign a merchant reputation score that can enhance or reduce their likelihood of receiving payment approvals. This is done at the processor BIN lever (not to be confused with Card BIN) and your specific merchant account. The merchant reputation score is determined by the bank's assessment of the potential risk involved in approving your payment, considering both the business's reputation and past transactions. Banks look at the following items to determine their risk:
- Merchant’s historical Chargeback rate and reason codes
- Overall Chargeback Rate
- Fraud Chargeback Rate
- Amount of Rapid Dispute Resolutions (RDRs) compared to sales and chargebacks
- Transaction Coding (Transaction Type)
- Network Transaction ID
- Network Token vs. PAN and historical performance
- Descriptor history
The better a merchant's history, the better its reputation and the higher the likelihood of payments being approved. Some advanced banks constantly update these metrics in real-time, while others are legacy rules-based systems that can take 90+ days to see results. This is why monitoring all processing metrics, both performance and chargebacks, by BIN is highly recommended.
Reduce Your Involuntary Churn With Revolv3
One of the main components of your customer retention strategy should be a high-quality payment platform. It should provide you with advanced features to manage your billing system with multiple payment methods, automatic payment retries, and communication features to help you and your customers stay on top of payments.
Revolv3 can help you with all your billing needs. Our SaaS payment optimization platform is ideal for subscription businesses seeking to increase payment approval rates. Add advanced payment features to your payment stack: dynamic routing, lower payment collection costs, increased approvals, and customizable capabilities.
Our platform consists of 4 distinct offerings that work together to maximize the best-in-class payment solution on the market. Merchants are free to use 1 or use all 4 of the components to best suit their needs.
Moreover, Revolv3 charges you only for successful payments, never for failed ones. There are no hidden costs, and we scale as you do.
Contact Revolv3 today to learn more about how we can help you reduce your involuntary churn.
Subscription businesses face many types of churn that can drastically hurt their operations and profit if they don’t manage it properly. Voluntary churn is a little more obvious, whether it refers to customers leaving after a price increase or because there is now an imbalance in the price/value of the products. Voluntary churn is attributed to a customer’s self-elected cancellation of a product.
Involuntary churn also poses a significant threat to your business. In many cases, the losses from involuntary churn supersede those to voluntary losses. At first, you might not notice it because of its more subtle effect over long periods. But if you let it get out of hand, involuntary churn can decay revenue events faster.
As we move into the discussion on involuntary churn, it's important to understand that tracking involuntary churn as a metric within a business's overall churn is important. Specific business actions can turn one type of churn into another. For example, if a card fails, customer service reaches out to get new card information, and the customer informs the representative that they wish to cancel. This would be considered voluntary churn. However, had the card been processed, would they have canceled? The key factor any business should strive for is to use types of churn as a barometer while making business changes to reduce the overall churn.
Involuntary Churn 101
Before taking steps to reduce churn rates, take the time to understand how involuntary churn works and how it can impact your business.
What Is Involuntary Churn?
Involuntary churn occurs when a customer stops purchasing from your business for reasons outside their control. It can occur for several reasons, such as failed payments, declined payments, outdated payment information, or poor communication with your customer.
Churn is typically discussed as a rate. In general, the churn rate is the rate at which customers stop buying from your business. Voluntary churn is when customers will stop buying from you or unsubscribe from your services of their own accord. For instance, they might need to adjust their budgets, or they choose to shop elsewhere.
According to PYMNTS, subscription businesses lose 9% of revenue due to failed payments. Churn can have inconvenient effects on your business and prevent you from scaling as the costs of acquiring a customer continue to increase.
The Impact of Involuntary Churn on Businesses
The specific effects of involuntary churn will depend on what causes customer churn in businesses in the first place. However, the higher your customer churn rate, the more likely you will have negative financial metrics and face difficulty with cash flow or profitability. High churn also indirectly raises your cost of acquisition, as there are costs and lost revenue associated with acquiring the same customer again.
That said, involuntary churn typically isn’t immediately visible in your metrics. Instead, you’ll see less dramatic but longer-term effects throughout each customer’s lifetime. Your customer lifetime value might dip slightly, while customer acquisition costs might rise. Over time, this will have more significant effects on your bottom line.
Aside from the financial consequences, involuntary churn can affect the overall customer experience. If you don’t have the proper systems and communication practices to ensure successful payments, customers can become frustrated when their payments fail. In fact, 62% of customers will churn if they experience a failed payment. They may become unwilling to use your products or services anymore. Even if you fix the issue afterward, customers who have already lost their trust in your business are not likely to return.
3 Causes of Involuntary Churn
Involuntary churn rates only refer to customers who stop purchasing from your business without taking direct action to do so. While many factors impact the churn rate, involuntary churn occurs due to a payment issue most of the time. These payment issues mainly involve:
1. Outdated Billing Information
One common reason loyal customers might stop using your business is outdated billing information. This could include information such as name changes or address changes. If customers update their information with credit card issuers but not with your business, their payment method may eventually fail.
2. Failure to Update Expired Credit Cards Ahead of Time
Another common issue is that credit cards expire, and many billing systems do not set up tokenization to update cards on file automatically. In addition, they haven’t set up the proper communications to alert customers to update their card information ahead of time. The customer’s payment will fail until they provide an updated payment method or you implement network tokenization and real-time account updater.
Note that in many cases, BIN blocking should be enabled for order funnels on recurring subscriptions. Consider a company that offers a subscription product and, yes, accepts non-reloadable ‘gift’ cards for those subscriptions. It doesn’t matter what technology is on offer or how much you spend retiring that transaction; once funds are gone, it’s not going to approve.
3. Hard & Soft Declines
Other payment problems arise with hard and soft declines. Customers may see soft declines, typically caused by your billing platform’s payment infrastructure. Most in-market payment systems treat all payments the same, despite the numerous bank issuers, rules, and data points within each transaction. Due to banks' unique approval processes, data is often packaged generically, leading to compromised data being submitted for approval. In addition, it is well known that different processors perform better with certain bank issuers, card types, and card products.
On the other hand, hard declines might occur if the account is lost, stolen, or at risk of fraud, such as if the owner recently reported their card stolen or was the victim of a security breach. In addition, the decline codes that the bank returns are generic and unreliable in determining why the payment failed.
Do not assume that all declines are due to fraud, credit limits, or insufficient funds. Many payment systems default all decline codes to “do not honor” or “generic decline,” further confusing the complexity of false declines. Most banks choose to use “generic decline.” Therefore, using these codes to determine the reason for the decline is futile.
Success in retrying these declines will vary by merchant and MCC code. In many cases, merchants see increased approvals when retrying hard declines; however, there are significant cost and regulatory issues around this process. Additionally, the same payment method may get different decline codes with various acquirers, so it’s important to not only test but capture the data the bank returns and incorporate it into the retry strategy.
5 Strategies To Reduce Involuntary Churn
The causes of involuntary churn indicate that prevention starts with a high-powered, optimized billing platform that evaluates all the data available for a payment request and then packages and routes the payment request with the highest likelihood of approval and for the least cost. The platform is explicitly configured for the merchant, and rules are customized to every business's uniqueness. Use the strategies below to improve your business’s involuntary churn.
1. Consult with a Payments Expert to Learn About Your Data
Payments are complex. Between the multitude of different providers and the thousands of different card products, reviewing your statements with a payment expert will provide you with unique insight into your payment collection process. There is more to processing statements than your rate, so make sure you speak with someone who will evaluate your entire payment stack. A quarter’s worth of analysis is recommended; a year would be perfect, and a month is sufficient. An advanced payment expert will educate you on your collection rates and point out the opportunities for payment optimization.
2. Implement Advanced Payment Features, Payment Orchestration & Optimization
Utilizing top-tier payment processors, ensuring seamless integration of your billing system, and maximizing advanced payment features are crucial components for operational success. The advanced features you should utilize include Network and Processor Tokens, a Real-Time Account updater, PINless Debit Routing (US Only), ECI Code Optimization, and Specific BIN and Account Range Processing. A Multi-Acquirer platform will allow for ongoing optimization as different card products perform differently across different acquirers.
A fully optimized payment system will utilize multiple MIDs and multiple processor routing. The most advanced way to achieve a fully optimized and orchestrated payment is to have advanced real-time adjustable logic based on the merchant, card, and bank to route each payment dynamically.
3. Payment Retries as a Last Resort
There are many situations where payments fail and then are processed without issue when retried. However, did you know that you are charged fees each time? Automated payment retries can prevent the need for any further action and quicken the recovery from involuntary churn. If you only use automated retries, you will recover a portion of failed payments.
The best practice and the least costly option is to do everything to prevent the payment from failing in the first place, then implement advanced retry logic that evaluates the original payment data and the decline data and puts the retry through a rules engine to determine how to route. In contrast, basic retries will batch all the failed payments and re-run the batch at a different time.
The differentiator in these systems is leveraging intelligence about all the various card issuers and payment processors and determining the most optimal retry per the individual payment.
In addition, your retry process may consider historical data that show days and times when payments are more likely to be successful.
4. Offer Multiple Payment Methods
Offering multiple payment methods is convenient for your customers and gives them an easier way to fix payment issues if their primary payment method no longer works. For example, if they previously used a credit card that was lost or stolen, they can easily log in and update their payment method to use a digital wallet or bank transfer. The customer continues benefitting from your product or service, and your business doesn’t have to suffer the side effects of involuntary churn.
You may also want to choose a payment platform that allows you to gather information for a backup payment method. It will help the customer preauthorize your business to charge the backup method if their primary payment method fails.
With 600+ alternative payment methods globally, we highly recommend working with a payment expert to determine what is best for your business in each region or for your business type. For example, Buy Now, Pay Later methods could increase conversions for your market.
5. Understand Your Merchant Reputation Score
The most noteworthy takeaway from these strategies is that a successful churn management system begins with effective payment technologies that automatically keep card information current and utilize all available payment features to prevent failed payments. Many merchants don’t realize that the banks assign a merchant reputation score that can enhance or reduce their likelihood of receiving payment approvals. This is done at the processor BIN lever (not to be confused with Card BIN) and your specific merchant account. The merchant reputation score is determined by the bank's assessment of the potential risk involved in approving your payment, considering both the business's reputation and past transactions. Banks look at the following items to determine their risk:
- Merchant’s historical Chargeback rate and reason codes
- Overall Chargeback Rate
- Fraud Chargeback Rate
- Amount of Rapid Dispute Resolutions (RDRs) compared to sales and chargebacks
- Transaction Coding (Transaction Type)
- Network Transaction ID
- Network Token vs. PAN and historical performance
- Descriptor history
The better a merchant's history, the better its reputation and the higher the likelihood of payments being approved. Some advanced banks constantly update these metrics in real-time, while others are legacy rules-based systems that can take 90+ days to see results. This is why monitoring all processing metrics, both performance and chargebacks, by BIN is highly recommended.
Reduce Your Involuntary Churn With Revolv3
One of the main components of your customer retention strategy should be a high-quality payment platform. It should provide you with advanced features to manage your billing system with multiple payment methods, automatic payment retries, and communication features to help you and your customers stay on top of payments.
Revolv3 can help you with all your billing needs. Our SaaS payment optimization platform is ideal for subscription businesses seeking to increase payment approval rates. Add advanced payment features to your payment stack: dynamic routing, lower payment collection costs, increased approvals, and customizable capabilities.
Our platform consists of 4 distinct offerings that work together to maximize the best-in-class payment solution on the market. Merchants are free to use 1 or use all 4 of the components to best suit their needs.
Moreover, Revolv3 charges you only for successful payments, never for failed ones. There are no hidden costs, and we scale as you do.
Contact Revolv3 today to learn more about how we can help you reduce your involuntary churn.
This article was first published here:
Related Resources
Don't miss an article
Sign up today to receive exciting updates and the latest newsletter from Revolv3.