Why the Payments Experience is Crucial for Maximizing LTV

Darryl Hicks of FlexPay and Karen Webster of PYMNTS.com share findings from a study about what makes a subscription company a top performer.

As part of our “Best of Subscription Show” members-only series, we’ll look back at some of our most popular speakers and sessions and share key takeaways that show why this information remains relevant and how you can use it to grow your subscription business or inform your decision making. In this article, Darryl Hicks, CEO & Founder of FlexPay, and Karen Webster, CEO of PYMNTS.com, share the findings from the study they conducted on what makes a top performer in the subscription industry.

It’s a question that’s on the top of every subscription business owner’s mind: What do I need to do to become a top performer in the subscription industry?

Luckily for Subscription Show 2022 participants, this question was answered during the grand keynote session, The State of the Subscription Industry. Darryl Hicks, CEO and Founder of FlexPay, and Karen Webster, CEO of PYMNTS.com, led the session and dove into the findings of their research on this very topic.

2022 Subscription Industry Benchmark Study

In setting up the study, Hicks and Webster, along with their teams, sought to better understand the business drivers and performance excellence in the subscription commerce space. Specifically, they looked at what metrics are tracked and how relevant they are to Customer Lifetime Value (LTV).

The research hypothesis for this study was: Is there a relationship between the payment experience, the ability to manage and track the payment experience, and the lifetime value of the customer as managed by subscription commerce companies?

“Our prior going in is that payments are an action, not a driver of the customer experience. We wanted to see if that hypothesis was correct,” stated Webster.

For this study, FlexPay and PYMENTS.com surveyed 200 subscription company executives. They collected data on priorities, outlook, best practices and performance drivers. They also collected data on metrics tracked and the follow-up actions taken when payments fail. This information helped them draw a correlation between the LTV and payments. Each company’s results and practices were mapped in high, medium and low-performance tiers.

The researchers talked to companies in five different verticals: online gaming, publishing & media, retail, health & fitness, and home security & home services. Though each of these industries differs from one another, they shared commonalities in the metrics they track.

“We always suspected that some of those [metrics] correlate to performance, but it was really exciting to see some of the data that came out of this,” Hicks shared. “Even the top performers didn’t rank super high in every category, meaning even the top-performing companies had areas where they could improve, compared to their peers.”

This is good news for subscription businesses. They don’t have to have everything already figured out; instead, it is their willingness to learn and make meaningful changes that will allow them to move into the top-performer category. 

Key Finding #1 – LTV is not widely measured or understood.

The report shows that 58% of executives in the study actively track retention and churn. This means that there’s someone within the company who knows exactly when customers are churning and leaving the company. However, this rate of churn is not broadly reported within the organization and is not a KPI to which people are held accountable.

“The other key finding is that only 9% of the companies that we talked to actually track the lifetime value of a customer. That suggests there’s a lot of opportunity for improvement. Those who [already] do are top performers, they do a lot of things well in managing their business. But they also recover more of those failed payments,” says Webster.

The challenge for companies is learning to properly measure LTV and therefore fully understand it. Though most companies measure churn, retention and acquisition costs without an issue, they fall short of accurately measuring LTV. While a high LTV is ideal for many subscription businesses, it’s not widely measured or understood. Many businesses fail to track how acquisitions, retention and churn feed into the lifetime value of a customer.

The research indicates that top performers are those that track the metrics that drive LTV and recover the relevant percentage of failed payments, so they minimize revenue lost.

One of the reasons why subscription companies aren’t measuring LTV as often as they could or should is because some of the executives surveyed didn’t understand how to track it, according to the study. Should they measure gross LTV? Or net LTV? According to Hicks and Webster, the most standard LTV equation is as follows:

[Successful Billing Cycles x (Order Value – Cost of Goods Sold)] ‒ Acquisition Cost = Customer Lifetime Value

It’s a good idea for businesses to use this equation and run some scenarios. It will offer a clearer understanding of areas in the company where they can improve operations. Usually, one of the biggest drivers of success is how many times a company can bill a customer. Improving LTV delivers revenue and profitability gains as well as creates new opportunities to invest and increase market share.

It’s not enough to simply track LTV, however. The research shows that LTV measurement and accountability correlate with company performance. Top performers, for example, are 8.2 times more likely to track LTV than bottom performers. Widespread visibility and accountability of LTV within the organization lead to focused improvement of LTV.

“One of the things we’re trying to do here is to build the bridge between the lifetime value of the customer and the relationship to the payment experience and the ability to track and recover failed payments,” says Webster.

Successful billing cycles are an important part of the LTV equation. But tracking failed payments may be even more important. Top performers track failed payments. In other words, tracking failed payments leads to top performance.

“Companies that track failed payments are also 1.5 times more likely to recover revenue…as a result of managing and connecting the dots between payment experience and lifetime value,” says Webster.

The LTV equation can be used in creative ways to align actions and results to metrics that matter within the business like failed payments, retention and acquisition. While only 9% of all companies measure LTV for customers recovered from failed payments, these companies deliver industry-leading performance; they achieve 24% higher failed payment recovery rates. This measurement has a strong correlation with a better performance on these KPIs which is a massive driver of lifetime value.

“What we found was that those on average lost ten percent of their top line if they were not proactive about managing the lifetime value of the customer and failed payments,” says Webster.

Ten percent of the top line going away, based on something that can be measured and managed, but simply isn’t? Across the five segments in the survey, that totaled about $278 billion annually. There’s a compounding effect of losing a customer to a failed payment ‒ one that can deeply affect the bottom line.

Why take the risk of losing revenue when there’s a way to manage and minimize it?

Customer Lifetime Value
Source: Bigstock Photo

Key Finding #2 – Outcomes are measured, but not the drivers that cause the outcomes.

In the study, Webster and Hicks found that about two-thirds of the respondents understood there’s an important connection between failed payments, customer churn and LTV. But of that number, only about 42% of them are actually tracking failed payments. And of those tracking, only half of them reported that it is the most important metric they track. Only a third of them reported it is a driver of LTV for their business.

These numbers suggest there’s an awareness of the correlation between failed payments and LTV. However, where companies fall short is when whoever is tracking the failed payments doesn’t report that information upward to the primary decision-makers within the business who understand this is an important metric to manage.

“The top performers were almost all tracking this and understood it’s a key driver to lifetime value. They’re tracking, they understand it, they manage it, and it turns into objective results that pull them away from everyone else in their cohort,” says Hicks.

Strictly measuring outcomes doesn’t provide insights to solve problems. While churn is measured by nearly all subscription companies, there’s an aspect of churn that fails to get noticed. Involuntary churn caused by failed payments is responsible for up to 50% of all churn, yet only 49% of subscription companies measuring churn track this metric. Also, companies that track involuntary churn are two times more likely to be top performers. This information validates that the real cost of involuntary churn is not well-understood and merits deeper attention.

One of the primary drivers of involuntary churn is failed payments. In the study, two-thirds of companies identified failed payments as a driver of churn. Yet only 26% of those companies actually track it. This speaks to the psychology of failed payments and how they are perceived in subscription companies.

“The fact that only 26% [of companies] track to report it, basically says that, ‘I’m tracking it, but there’s not really anything I can do about it,’” Webster pointed out.

Though organizations may be aware of involuntary churn, many of them don’t proactively report it. Instead, they view it as a cost of doing business (COB) or a moot point because it seems like nothing can be done about it. This is where companies can benefit from a mindset shift. Instead of believing it’s simply a COB, they should consider what is already in place to lower failed payments and what other strategies can be implemented.

“When a payment fails…it’s oddly emotional. It’s almost like you’re sending a message that you’re not accepted by your tribe, you’re not accepted by your community, that you’re not credit-worthy. And the way you communicate about that failed payment to your customers as well can really punch way above its weight in the emotional impact and the brand experience,” said Hicks.

Regardless of what segment of the subscription industry a business falls into, they can absolutely track failed payments and look into improving their customer payment experience.

This is great insight for businesses. Less than half of all companies cited the payment experience as a perceived value of consumers in their subscription-based experience. But top-performing companies have figured this out. They recover 57% more revenue from failed payments than bottom performers. This is partly because they track and manage failed payments, but also because they use an average of three methods to recover failed payments.

“This speaks to the level of rigor and priority that they have internally,” says Hicks.

Forty-seven percent of top performers recognize that most failed payments are caused by an issue with how the payment software processes payments. One hundred percent of top performers in the study rely on third-party recovery software to recover failed payments whereas bottom performers lean on collections and customer service outreach. On average, companies that use third-party payment recovery software recover 84% more failed payments compared to companies that do not use payment recovery software.

“A couple of the takeaways for me are that there is the recognition that you can do something about this, and I think you see top performers going on offense, rather than taking the position that it’s just something we have to consider as part of our business performance,” says Webster.

Recovering failed payments isn’t the only strategy top performers focus on. They layer many strategies together that are related to LTV and failed payments, to improve satisfaction with their business and eliminate any kind of issue that could cause a subscriber to churn. In essence, they minimize customers coming up against their own subscription fatigue.

“The average top performer is using three different solutions just for that one problem of failed payments. It’s not all customer service. It’s not all invisible recovery. It’s not all emails and texting. They’re using third-party solutions and other solutions holistically, in concert, in order to get that really top performance,” points out Hicks.

Key Finding #3 – Organizational design lacks alignment to desired outcomes.

The report also revealed that companies are not only failing to measure what matters, but they’re not aligning the organization around their desired outcomes.

“Top performers had alignment across all departments in common metrics they knew were going to drive success. Everyone was on the same page about the metrics they were going to use and why. They have a universal playbook they’re working from, they’re on the same page, and they’re reporting up and holding each other accountable on what they’re each doing within their respective departments,” says Hicks.

Webster and Hicks urged attendees to modernize their organizational design. This means aligning measurement, operations and accountability. And, ideally, it means hiring a Chief Subscription Officer (CSO). Though this is not a common role yet, it correlates with top performance. Less than 5% of survey respondents have a CSO role. However, two-thirds of companies with a CSO are top performers.

“This is an early, nascent organizational construct. But what we observed is that those subscription companies that decided to look across the organization and create someone who is not managing to a specific metric, but someone who is looking at all of the inputs to customer lifetime value and making that part of their remit…were top performers,” says Webster.

What gets measured gets managed. This is a learning opportunity for businesses. Who is managing the tracking and measuring of payments, failed payments and LTV in the organization? Should it and can it be delegated to a single person?

“The way you communicate failed payments to your customer punches so far above its weight class in emotional impact to your customers more so than what you do in customer care or product experience a lot of times,” says Hicks.

A bad product experience? Annoying. A bad customer service experience? Annoying. A failed payment handled in a sub-par manner? Infuriating.

That’s why the role of a CSO is crucial. They serve as overall accountability within the organization. They remember the various departments and who is responsible for the different metrics of LTV and failed payments. They also determine what can be done about the metrics, what tools are needed for leverage, the processes to follow, and the people that need to be involved. A CSO ensures all of this is done right instead of as an afterthought.

A burgundy notebook on a white background. On it is a black calculator, a pen and a wooden block with a ALIGNMENT text. Business concept
Source: Bigstock Photo

Best practices and action items

Talking about increasing LTV may sound like something that only large companies can achieve. But, as Hicks and Webster pointed out, any company that digs into the payment experience and takes advantage of the wealth of resources available to help them achieve their desired outcomes can be a top performer. Managing the business from the perspective of what matters to the customer is very important and any sized company can do it.

Here are a couple of best practices Hicks and Webster shared with attendees:

  • Standardize the LTV definition
    • Share universally across the organization
    • Use LTV to optimize process outcomes such as measuring LTV of customers recovered from a failed payment
  • Add measurement of all inputs and processes to improve outcomes
    • Share universally across the organization
    • Use LTV to optimize process outcomes such as measuring LTV of customers recovered from a failed payment
  • Create a CSO or equivalent role
    • Align organization accountability and increase team collaboration for improved results

The theme here ‒ define, align and manage.

“It’s the companies with the mindset and leadership to invest in the people, process and technology…to deliver on the customer lifetime value, [that become top performers]. Every subscription commerce company can be a top performer,” says Webster.

When it comes to being a top performer in the subscription industry, Hicks and Webster make the path to success very clear: clearly define LTV within the organization; enhance the payment experience for the customers; reduce involuntary churn to increase LTV; and manage the failed payment experience in a way that keeps subscribers returning for more. By changing their mindset and aligning their organization around these desired outcomes, any subscription business can become a top performer.

Business, Technology, Internet and network concept. BEST PRACTICE successful business concept.3d illustration
Source: Bigstock Photo


Darryl Hicks, CEO & Founder of FlexPay, and Karen Webster, CEO of PYMNTS.com, share the findings from the study they conducted on what makes a top performer in the subscription industry. There are several factors that set top performers apart from the rest.

Key Finding #1 – LTV is not widely measured or understood.

Top performers have figured out how to optimize the lifetime value of their customers (LTV). The research indicates that most subscription companies neither measure or fully understand LTV. But, by increasing their understanding of it ‒ and the fact that it directly relates to the payment experience ‒ subscription businesses can increase their bottom line and become top performers.

Key Finding #2 – Outcomes are measured, but not the drivers that cause the outcomes.

Most subscription businesses measure churn, yet not nearly as many measure involuntary churn. And even fewer of those that measure involuntary churn implement strategies to reduce it. Involuntary churn is one of the biggest contributors to a low LTV and must be appropriately managed.

Key Finding #3 – Organizational design lacks alignment to desired outcomes.

If the entire company is not on the same page about desired outcomes, then the company is not going to reach top-performer status. A mindset shift and hiring of a Chief Subscription Officer (CSO) are crucial to support the implementation and management of subscription operations that will lead to an increased LTV and, ultimately, an increased bottom line.

Best Practices

Hicks and Webster offer three best practices:

  1. Standardize the LTV definition in the company and make it widely known internally.
  2. Add measurement to all inputs and processes to improve outcomes.
  3. Create a CSO role that ensures accountability across the organization.

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