Ten Strategies to Minimize Involuntary Subscriber Churn

Edgar Chen, Senior Customer Success Manager for Recurly discusses how businesses can increase the lifetime value of their subscribers.

How do you recover revenue after churn and increase the lifetime value of your customers? This is one of the most important questions a subscription business can focus on. Churn – when customers stop doing business with a company – is often thought has having a singular definition. However, according to Edgar Chen, Senior Customer Success Manager for Recurly, there are two definitions for Churn:

Voluntary Churn: The subscription churned because the customer canceled it themselves. For example, the subscriber clicks a button or calls customer service to end their subscription.

Involuntary Churn: The subscription churned because a transaction failed, the invoice went into the dunning process and was never recovered. For example, the customer still wants to be a subscriber, but their credit card payment didn’t go through.

There are a variety of reasons for involuntary churn. Some examples include:

  • The credit card on file was lost or stolen.
  • There were insufficient funds in the bank account or on the card being charged.
  • General payment issues occur like when a card has expired.

When it comes to involuntary churn, it’s important to remember that the subscriber doesn’t actively want to leave. So it is often worth the time and effort to recapture them through the dunning process.

“Studies show that it costs five to 25 times more to acquire new customers than to retain an existing customer,” says Chen.
This points out the importance of increasing the lifetime value of customers. For most businesses, more money is spent on the front end acquiring new customers than on the back end keeping them.

Churn stamp next to a red circle with the word Churn written in the center
Source: Bigstock Photo

Fighting Involuntary Churn

There are three stages to fighting involuntary churn.

Source: Recurly

“What an ‘account updater’ does is update the address and credit card information for the customer before the transaction,” says Chen.

Many SaaS and subscription services allow customers to “set and forget” during sign-up. From that point on, many people will not check their accounts again once they see their subscription working. However, the issuance of new credit cards or changes in billing addresses can cause involuntary churn because customers forget to update their information. Reaching out to customers before the transaction to ensure all of their billing details are correct can mitigate churn.

Post-transaction, retrying the payment method is another strategy to increase the lifetime value of the customer. Payments may fail due to insufficient funds, for example, so retrying the payment a few days later may allow it to go through when the funds become available. How many times a business retries the payment and over how many days will vary.

Finally, retrying the payment should be done in parallel with contacting the customer — which comes after the transaction. Notifying a customer their card no longer works or their account is past due serves as a great reminder for them to update their account. This allows the customer to increase their own lifetime value with the company through a few minutes spent updating their information.

What is dunning?

Dunning is a process where a company communicates with its customers with the goal to get them to update their billing information, so their account isn’t past-due. The dunning cycle is the period of time during which a company retries soft declines and email communications are sent to customers, alerting them to their failed payments and account status.

For example, dunning can mean sending out an email to a customer (with specific language that will encourage them to take action) and how often that email is sent and for how long.

“Seventy-two percent of all credit card renewals are due to three reasons: generic decline, insufficient funds and temporary hold,” says Chen.

Of these three reasons, the first two can be solved by the customer. Therefore, it makes sense to inform the customer their payment was declined or if there are insufficient funds, because they usually can solve either of those problems themselves. With involuntary churn, customers typically want to remain customers. This means that reaching out directly will allow them to do just that and increase their lifetime value for the company.

Five tips for optimizing dunning

These best practices will help subscription companies maximize the dunning process and reduce churn.

Source: Recurly

When sending out emails, starting with a friendly, understanding tone will increase the likelihood that customers will follow through with updating their information.

“As you get further into the dunning cycle, and their account is further past due, you want to change the tone a little bit,” says Chen.

Indicating the length of time the customer is past due, asking them again to update their information and letting them know their account may be canceled makes the stakes clear for the customer. In the final email of the dunning process, let the customer know when their subscription account will be canceled. These varying tones in the emails ensure the customer actually reads the emails (since they’re all different) and communicates a sense of urgency.

While communication is key, so is the call to action.

“What we recommend is a big button right in the middle [of the email] that says, ‘Update Your Billing Information,’” says Chen.

Customers have so many businesses, apps, devices and people pulling at their attention these days. It’s important they quickly move through the dunning process, making it more likely they will remain subscribers. If a business makes it easy for customers to increase their own lifetime value, the customers often will.

The dunning process is also a great opportunity to remind customers of the value they receive from their subscription. Though they may fall in the “involuntary” category of churn, it never hurts to highlight the ways in which this particular subscription brings value to their day. These messages can be simple and often the marketing department is able to support this aspect of the dunning process.

Much like the changing messages and urgency in the emails, the subject lines of the dunning emails should also change. The subject line is the hook a business uses to get a customer to open their emails. If the email body has urgent information – like updating account information – then it’s important the subject line succinctly and effectively communicates that message.

One of the hooks that can be used in the subject line and in the body of the email is the exact number of days until the account is canceled altogether.

“A lot of people think, ‘I’ll get to it tomorrow, I’ll get to it tonight when I have time,’” says Chen, “But if that email reads, ‘Your account will be closed in 24 hours,’ they’re going to put something on their calendar to make sure they get to [updating their account] before their service is shut off.”

Removing ambiguity and getting straight to the consequences will increase the likelihood that customers will follow through on the call to action.

Five don’ts for dunning

A list of 5 Don'ts for Dunning
Source: Recurly

Though it may feel tempting, sending out dunning emails manually can result in incongruities in the messages. Additionally, it’s not an efficient use of time for whomever is sending out the emails.

“Leverage your email automation tool,” says Chen.

Service providers like Recurly come with a dunning process, making it easier to manage all of the emails for various customers.

Though it may be tempting to provide the customer with a lot of information that seems important, don’t. Distill the facts they need to know and save the rest for the marketing emails.

“We all get emails every day – your customers do, too. Keep the message simple and tight,” says Chen.

Again, this will result in a higher follow-through from the customers and decreased churn.

Though all customers appear the same when it comes to the bottom line, they’re not. Each subscriber will be on a different plan and fall into a different cohort within the business. This means the messaging needs to be different to better reach that customer base.

The language needs to reflect the value the customer receives from their subscription and what actions they need to take in order to remain customers. It should also reflect other factors in a customer’s life, like where they live or cultural norms. This doesn’t mean radically changing the dunning process but making personalized tweaks.

Though dunning may feel like something a business can set and forget, it’s an active process.

“If you think about it, this is communication,” says Chen. “And communicating [to your customers] is a live, active thing. Your customers change. They’re people. People change. Your communication to your user base should change as well.”

Updating language, keeping an eye on the customer base and following trends within the dunning process can help reduce churn. Additionally, checking recovery rates every six months serves as a great indicator of how well the dunning process is working and if it needs updates.

Finally, it’s important to stay top-of-mind with customers. Don’t let too much time pass between communications. This is paramount because, in order to get a customer to take action, it often takes a couple of reminders.

“What we generally recommend is don’t wait too long,” says Chen. “Every three to four days,” is a good length of time.

Not all dunning is equal

According to Chen, the median recovery rate for the dunning cycle between eight and 14 days is 51.6%.

“The takeaway here is the longer your dunning window length is, the higher your recovery rate,” says Chen.

This is evident based on the data collected by Recurly. Clients with a dunning window of 22 to 28 days have a 61.5% recovery rate. Of course, every company is different, and every company has a different subscriber base. But the highest possible recovery rate from involuntary churn should be the goal for any subscription business.

Though the data suggests a longer dunning cycle is ideal, Chen points out several reasons why a longer dunning cycle may not be the right option for every subscription company. For businesses that have to pay additional costs to extend the service to the customer while they’re past due, and the additional time is not worth the cost, a shorter cycle may make more sense.

Another reason to have a short dunning cycle is if there are high numbers of people who try to get a few extra days on their cycle with no intention of updating their account information. It’s also important to consider that B2B and B2C strategies will differ and will require different dunning cycle lengths.

A bigger bottom line

No matter what a subscription business offers its subscribers, the dunning process is crucial for reducing involuntary churn. By reaching out to customers and giving them the option to remain customers, businesses can easily increase the lifetime value of their subscribers. And, with a higher lifetime value, that often means a bigger bottom line.

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