Pssst! Wanna know a secret? There’s a problem in the subscription industry responsible for almost half of the churn that you — and all of your competitors— experience: failed payments. Because failed payments harm every subscription company, there’s a status quo within the industry that limits the total revenue, customer LTV, and profitability any business can earn — a faulty equilibrium that suppresses every subscription company’s performance far below its true potential.
Fortunately, finding the answer to this problem reduces customer churn by up to 50% and grows revenue by over 20% within 12 months. Best of all, this revenue growth doesn’t require any additional customer acquisition costs — essentially making it free money.
As this secret becomes commonly known over the next couple of years, the status quo will change, and eventually, every subscription business will deploy a solution to solve it.
This means there’s a short window of opportunity open, right now, for proactive, early adopters to solve this problem and unlock the financial performance and critical advantages their competitors won’t be able to match.
Unlocking the Opportunity
The first step to grabbing and sustaining this competitive advantage is to start tracking and reporting failed payments and measuring their impact on the bottom line.
To do this, begin by measuring the amount of revenue lost to failed payments over a set period of time. This is a narrow view of the cost of this problem but is the best place to start.
Calculate short-term measurement of costs by adding together the dollar amount of all of the customer credit card authorization requests that are declined and not resolved. This shows the total lost transactional revenue
Next, measure true costs. This is built upon the understanding that the full cost of unresolved failed payments requires the calculation the LTV of customers who churn due to failed payments. Any failed payment that is not resolved results in a churned customer. This is called involuntary churn, which can be as high as 50%.
To calculate true costs:
- Calculate the Average Customer Lifespan (in the number of billing cycles)
- For each customer with an unresolved failed payment, calculate the number of billing cycles between their first billing period and the month of the failed payment.
- Determine the number of lost billing months by subtracting this number from the average customer lifespan. This difference is the forecasted number of billing months lost due to the early churn of the customer.
- For each customer with an unresolved failed payment, calculate the number of billing cycles between their first billing period and the month of the failed payment.
- Multiply the Customer Order Value by the number of lost billing months to get the total lost LTV for each customer due to the failed payment.
- The total measurement of lost LTV caused by failed payments, or the total lost revenue generated by involuntary churn, is generated by summing the total lost LTV of all customers with unresolved failed payments.
Once the true cost of failed payments is accurately measured, it will be clear how much potential revenue can be recovered. These calculations will quickly show that it’s never just one month’s billing that’s lost when a payment fails.
These calculations may indicate a painful fact: substantial amounts of money are being lost each month. What is the solution to this problem? Selecting and implementing a failed payment recovery solution that performs each of the following:
- Optimizes failed payment recovery
- Maximizes customer retention following recovery
- Offers merchant account health protection
A Powerful Growth Driver
Using a failed payment recovery solution delivers compounding financial benefits. First, each properly recovered customer has a full and complete lifespan following a failed payment recovery. Second, a recovered customer delivers new revenue the month of recovery and in each subsequent month. Lastly, it fundamentally raises the bar for a company’s financial performance.
Unlocking the Opportunity
Early adopter companies that recognize and solve the failed payment problem can take advantage of these financial benefits before their competitors. With the right failed payment recovery solution in place, you, too, can see more than 20% revenue growth within 12 months. The simple act of reducing involuntary churn creates a window of opportunity for you to capture and maintain market share years before the competition.
Your opportunity is here. Don’t let it pass you by.
