By some accounts, there are now over 12,000 subscription businesses globally in categories like health and beauty, software, media, and retail products, just to name a few. These thousands of subscription businesses deliver different products and services but every one of them shares one enormous problem: failed payments — otherwise known as decline decisions on credit card authorization requests.

According to Visa’s own research, an average of 24% of credit cards are declined by the card authorization system when used to pay for a subscription. A whopping two-thirds of those declines are incorrect decisions on legitimate cards.

Why are subscription payments so susceptible to authorization declines? The answer is relatively simple. The existing payment system is an old solution designed for a single purchase, in-person transactions. It wasn’t designed for card-not-present and recurring payments from subscription customers. This system views recurring card payments as high fraud-risk transactions and over-compensates for this perceived risk by choosing to decline legitimate transactions from good customers rather than approving truly fraudulent transactions. In essence, the system would rather be safe than sorry. This is the core reason why failed payments occur and why the problem hits subscription businesses so hard.

The Connection Between Failed Payments and Involuntary Churn

While Visa’s data shows an average of 24% declines, the actual rates of individual businesses varies and is influenced by their product or service, their customer acquisition programs, their customer demographics, as well as many other factors.

But make no mistake, every subscription business suffers from this problem. Worse, customers lost to payment issues can total up to 48% of all customer churn. Most subscription businesses don’t understand the total harm that failed payments cause their businesses. Further, many fail to see the unique opportunity in solving failed payments. Once businesses understand the problem — and realize the opportunities that exist when the problem is minimized or eliminated — they’ll be driven to act quickly.

Involuntary Churn Hurts Every Subscription Business

Since every subscription business has an involuntary churn problem, customer retention results and customer LTV are artificially diminished by involuntary churn. This, in turn, keeps industry-wide revenue and growth artificially low. The loss of revenue caused by involuntary churn not only reduces overall revenue, growth rates, and customer LTV, but also reduces the amount of money available for new customer acquisition.

Luckily, there is a direct connection between involuntary churn and customer acquisition spending. When involuntary churn is decreased, retention is increased and therefore, overall customer LTV is increased. These increases create additional available funds for customer acquisition budgets.

The Power of Compounded Revenue Growth

Reducing involuntary churn caused by failed payments means customers will successfully bill for many more months. These groups of recovered customers create a compounding revenue growth benefit, with the actual compounding amount determined by the length of the customer lifespan following failed payment recovery. The result is higher levels of revenue and profits.

These new levels of financial gains are available for reinvestment in customer acquisition and improvements in product or service experience, which supports increased growth and retention. This cycle of accelerated customer acquisition — powered by higher levels of revenue growth, customer retention, and profit — can translate into increased market share. This offers a powerful advantage to businesses whose competitors are still dealing with a high rate of involuntary churn.

Your Window of Opportunity

When businesses take the opportunity to reduce involuntary churn ahead of their competition, it helps improve your financial performance. For many businesses, they’re able to achieve market share gains at a rate that competitors who haven’t fully solved their failed payments problem simply won’t be able to match.

Solving the problem of involuntary churn — by using a failed payment recovery solution that optimizes short-term recovery and long-term customer LTV following recovery — allows businesses to improve their core metrics so much that others who didn’t adopt a solution early won’t be able to catch up.

While every company in the subscription space will eventually have this solution, it’s only the early adopters who will gain the long-term competitive advantage. Acting now sets businesses up with an edge for years to come.