Subscription-based businesses seek long-term financial success by keeping their customers coming back for more. If you own or are part of one such company, you know that your revenue accounts rely on customers making regular payments to receive your products and services on a recurrent basis.
However, many problems can arise during the payment process, and the sentiment of customers can change over time. That's why revenue recovery is essential for any subscription business. Revenue recovery ensures that net revenue remains sustainable, annual or monthly payments are processed smoothly, and customers are satisfied with their subscriptions.
Keep reading to learn more about revenue recovery, common causes of revenue loss, and how to recover revenue effectively with Revolv3.
Definition of Revenue Recovery
Revenue recovery, also known as churn management or dunning management, is a set of systems that limits customer churn and failed payments to keep customers subscribed to your business.
Since subscription businesses require payment more often than one-time purchases, many things can go wrong in the process of collecting payments. Credit cards can expire, people can change addresses and cause incorrect billing information, or customers may not have enough funds in their accounts.
The revenue recovery process takes into account all these potential problems to reduce failed payments or non-payment, as well as both voluntary and involuntary churn. As you keep reading, you’ll learn about some of the primary causes of revenue loss and what you can do to mitigate them.
Common Causes of Revenue Loss
Revenue loss can occur for a variety of reasons and at different times throughout a customer’s contract with your business. Identifying these common reasons is the first step to recovering revenue and ensuring the long-term success of your business.
Customer churn in subscription businesses refers to the number of customers that cancel their subscriptions within a specific timeframe. Some of the primary factors that impact the churn rate are issues with payments and overall customer dissatisfaction (for several reasons, but usually because of the service quality).
Churn can be either voluntary or involuntary. Voluntary churn occurs when customers actively decide to cancel their subscriptions. This often happens because they are unhappy or no longer need your offering and or don't fully understand the offering or its value to make the subscription worth it. On the other hand, involuntary churn occurs when customers are unaware that their subscription has been canceled, such as after a failed payment.
Customer churn rates are extremely important for subscription businesses. They indicate your future income and the business’s overall financial well-being. In addition, they help determine your customers’ lifetime values (LTVs). The lower your churn rate, the better your customers’ LTV and collection costs.
Failed payments are a primary cause of involuntary customer churn. They occur when billing information is incorrect, customers have insufficient funds, cards expire, or technical issues arise on the business’s side. These obstacles can cause late payments, and some customers may choose to cancel their subscriptions if they experience repetitive payment problems.
Revenue leakage is the money that slips through the cracks if you fail to charge or invoice customers properly. Whether you completely miss a payment or only invoice your customers slightly later than anticipated, you’re missing money and reducing your cash flow.
Subscription businesses must also track various pricing factors that complicate the billing system. If you don’t have the correct information regarding contract renewals, billing dates, discounts, upgrades, or bundling options, you may end up charging less than you should.
Strategies for Effective Revenue Recovery
For revenue recovery solutions to be effective, they must account for the various causes of revenue loss. Therefore, multiple recovery features and systems often work together to achieve maximum results.
Consider implementing the following strategies to recover revenue.
Proactive Customer Communication and Retention
Communicating with your customers is essential to understanding why they cancel subscriptions, determining payment issues, and preventing customer churn altogether.
While you don’t want to spam your customers, send regular messages to highlight the value of your business’s products or services and retain customers who may be on the fence about their subscriptions. In addition, make it easy for your customers to update their payment options as needed.
Customers may ignore your attempt at communicating, so ensure you stand out. Use eye-catching subject lines in your messages, make your brand name visible, and be brief to improve your chances of being read.
You can also set up automated communications to reduce the task load on your business.
Automated Payment Retry and Dynamic Routing
Automated payment retry is the first solution to making financial recoveries if payments fail. Payment collection software can automatically retry processing the same method of payment after a failure to keep subscriptions active. Basic automation will do this every day, but some regulations may limit retry attempts.
In addition, it’s more cost-effective and customer-friendly to retry payments based on data. Rather than retrying payments for the sake of it, innovative technology can assess why a payment failed and try to solve the root problem. For example, if a payment fails because of an expired credit or debit card, the software could send an email to have the customer update their payment method before retrying the payment.
Dynamic routing also improves efficiency when processing payments. Instead of static routing that processes payments using a preset path, dynamic routing systems move along the route in the fastest way possible, taking into account traffic levels and alternate routes. This process increases approval rates, reducing failed payments.
Learn more about what to look for in a payment processing solution to choose one that most effectively maintains your revenue.
Data Analytics and Revenue Recovery Insights
One of the best ways to prevent revenue loss is to analyze data and determine the causes of customer churn, failed payments, and revenue leakage. Data analytics can help you identify patterns of revenue loss. For example, you might find links between customer churn and product or service usage. Or you could track card information to be proactive about updating cards that will expire soon.
Reap the Benefits of Using a Payment Optimization Platform
Losing revenue due to payment issues can feel tiresome and out of your hands. But the good news is that the solution can be simpler than you may think.
Revolv3 provides businesses with an effective payment processing system that uses adaptive technology, including network tokens, dynamic routing, and machine learning, to improve recurring subscription billing. The combination of powerful AI technology and expertise surrounding subscription businesses makes it possible to increase payment approvals, reduce customer attrition, and improve revenue recovery.
Contact us today to learn more about our revenue recovery solutions.