How to prevent subscription revenue loss through automated payment recovery

Picture1322242 - Global Banking | FinanceBy Ash Lomberg, Vice President GTM, EMEA, Chargebee 

Many organisations today take advantage of the subscription-based business model to steady their cashflows, lower the barrier to entry for their products and services, and attract new customers. With 80 percent of consumers in the UK signed up to at least one service – from TV and music to education and self-care essentials – the subscription model continues to be a popular choice for businesses and consumers alike.

Getting started with subscriptions can be easy – the challenge for most organisations comes from keeping customers interested over the long haul. In today’s macroeconomic climate, how well organisations can add value to their customer relationships is a key indicator of their long-term success.

Customer retention a top business priority

A definitive 87 percent of subscription leaders view retaining customers as important or more important than acquiring them. Yet, a whopping 96 percent acknowledge that cancellations occur for reasons that can be managed or resolved, highlighting the urgent need to proactively address and prevent customer churn.

Churn, or customer attrition, is on the rise across all major market sectors and 64 percent of respondents in Chargebee’s latest State of Subscription Industry Report expect the trend to continue in the future, too. With churn expectations increasing, businesses are increasingly becoming aware of the value of retention.

Involuntary churn – the silent killer

Losing a customer is never a great outcome, but in many cases, businesses will be surprised to know it’s not even the customer’s intention to end their relationship with the brand.

‘Involuntary churn’ occurs without action from the customer; it is the cancellation of a subscription due to a customer’s payment method, rather than active choice. This can happen when a payment fails due to issues such as an expired or maxed-out credit card, forcing the customer to churn. It could be a brand’s most loyal customer who has regularly used its products or services, but if the brand doesn’t live up to its responsibility to safeguard the relationship, a small payment issue can turn a once-happy customer into a detractor.

Left unchecked, failed payments can directly lead to a loss of revenue, customer loyalty, and customer lifetime value, all of which impact the long-term financial success of the business.

The role of automation in reducing churn

Bringing the customer relationship back from the brink is a difficult task. Businesses can either retry the failed payment later or proactively remind the customer to update their card information. However, manually identifying payment failures and initiating retries and reminders for each transaction can be a time-consuming and error-prone process.

Here, an effective dunning strategy can help subscription businesses cut through the complexities. ‘Dunning’ refers to the processes and communication practices that businesses employ to manage failed payments. Modern technology helps subscription businesses recover lost revenue from involuntary churn in four key ways.

  1. Implement automated payment collection retries

Using smart retry logic, businesses can automatically retry failed transactions at dynamic intervals based on the reason for the payment failure. Additionally, businesses can customise rules for the time delay between payment failure and retry, the number of retries, and how customers are notified to update their card information. For restaurant management SaaS Zenchef, implementing automated payment collection retries meant the business was able to recover 60 percent of unpaid accounts.

  1. Automate the customer retention workflow

Communication is key in the payment failure management process. Businesses must keep customers apprised that a payment date is approaching; that a payment card is about to expire or has expired; or that a payment attempt has failed. Rather than relying on employees to manage this process, businesses can set up automated reminder emails and SMS messages to customers that require no manual intervention.

An auto-engagement workflow capability enables businesses to send personalised messages to specific customer cohorts. It allows for the customisation of email frequency, escalation of pending invoices, and follow-up sequences based on customer interactions. Automating customer communication processes this way can save time and reduce the risk of human error.

  1. Simplify the card update process

Savvy businesses know that the payment failure management process starts even before a transaction fails. To prevent involuntary churn, businesses must facilitate a smooth and frictionless card update process for customers. To achieve this, dunning emails should be designed to create a positive customer experience with minimal hassle. A direct and concise message, accompanied by a clear call-to-action (CTA) button linked to a dedicated page for updating card details, can help streamline the process.

In addition, businesses can leverage self-service portals that allow customers to easily manage their payment and subscription information. These portals enable customers to update their payment card details and ensure that businesses have accurate and up-to-date information for future billing cycles. Simplifying the card update process can enhance the customer experience and reduce the risk of involuntary churn for subscription-based businesses.

  1. Personalise communication

Customers are more likely to engage with dunning messages when they are personalised. This requires businesses to develop a deep understanding of their customers and their behaviour. Modern subscription management tools can help businesses automatically segment customers into cohorts based on factors – such as their payment history, number of invoices, and the value of those invoices – to help them create contextually-aware engagement strategies.

Conclusion: Unlock growth by automating subscription revenue management 

With subscriptions gaining traction as a powerful business model for ensuring growth and a predictable revenue stream, organisations must focus on customer retention as a top business priority. What better place to start than those customers who never intended to leave in the first place?

By reducing involuntary churn, subscription businesses can create a more loyal customer base, increased customer lifetime value, and more word-of-mouth referrals. As they set out on this continual optimisation journey, they must keep in mind that while some symptoms of attrition may look the same, every customer is unique – and as a result, the approach to engage them must also be unique. A successful strategy will leverage automation and personalisation to make each customer feel valued. This way, subscription businesses can turn their customer-centricity into a competitive advantage and drive consistent revenue growth.