Involuntary churn 101: what is it and how it relates to Failed Payments

Involuntary churn

Subscriptions churn

Failed Payments churn

Gal Cegla

Dec 23, 2024

For subscription-based businesses, customer retention is the backbone of sustainable growth. Yet, even with the best products or services, companies face a silent but significant revenue leak: involuntary churn. This often-overlooked phenomenon, caused primarily by failed payments, can lead to a staggering loss of recurring revenue. But what exactly is involuntary churn, and how can businesses combat it effectively?

What is Involuntary Churn?

Involuntary churn occurs when customers unintentionally lose access to a subscription service due to payment issues, such as:

  • Expired credit cards

  • Insufficient funds

  • Incorrect billing information

  • Fraud prevention measures

Unlike voluntary churn, where customers actively cancel their subscriptions, involuntary churn happens without their intention, often leaving customers unaware until they lose access to the service. This not only impacts the business’s revenue but also damages the customer experience.

The Cost of Involuntary Churn

Failed payments can quickly snowball into lost revenue, increased customer acquisition costs, and reduced customer lifetime value (CLV). Studies show that 20-40% of churn for subscription-based businesses is involuntary. For a company generating millions in annual recurring revenue (ARR), even a small percentage of involuntary churn can result in hundreds of thousands of dollars in losses.

Beyond financial impact, involuntary churn can harm your brand’s reputation. Customers who lose access to a service due to payment failures may feel frustrated, leading to negative reviews and decreased loyalty.


Why Do Payments Fail?

Payment failures can occur for various reasons, including:

  1. Card Expiry: Customers’ cards may expire, and updated details are not provided.

  2. Insufficient Funds: Temporary cash flow issues can lead to declined transactions.

  3. Bank Declines: Fraud detection systems or incorrect information can cause banks to reject payments.

  4. Technical Errors: Payment gateways or processing systems may encounter issues during a transaction.


How FlyCode Tackles Involuntary Churn

FlyCode’s mission is to empower subscription-based businesses with the tools they need to recover failed payments and retain customers. Here’s how we make it happen:

  1. Smart Payment Retries: FlyCode uses advanced algorithms to optimize payment retry attempts based on timing, customer behavior, and payment processor insights. By strategically retrying transactions, we significantly increase the likelihood of successful payments.

  2. Alternate Payment Methods: We enable businesses to seamlessly charge alternate cards on file, reducing friction and ensuring customers can continue their subscriptions without interruptions.

  3. Proactive Customer Communication: FlyCode helps businesses send timely notifications to customers about payment issues, encouraging them to update their payment information through personalized emails and SMS reminders.

  4. Data-Driven Insights: By analyzing payment failure patterns, FlyCode provides actionable insights to help businesses understand the root causes of failed payments and implement long-term solutions.

  5. Seamless Integration: Our platform integrates with major payment processors like Stripe, making it easy for businesses to enhance their payment recovery processes without overhauling their existing systems.

Automatically Protecting Against Failed Payments

Proactively addressing payment issues can significantly reduce the risk of involuntary churn. Here are some ways businesses can protect themselves automatically:

  1. Automatic Card Updates: Many payment processors, including Stripe, offer features like Account Updater, which automatically updates customers' card details when they receive a new card. This prevents failed payments caused by expired or replaced cards.

  2. Machine Learning Models: Use machine learning to predict and flag high-risk transactions. This allows businesses to take preemptive action, such as notifying customers about potential issues or validating payment methods in advance.

  3. Real-Time Payment Notifications: Implement real-time alerts for declined transactions. This helps customers resolve issues immediately and minimizes disruptions to their subscriptions.

  4. Flexible Billing Cycles: Offer customers the ability to adjust their billing dates or payment schedules to align with their cash flow.

  5. Local Payment Methods: Support region-specific payment methods to ensure successful transactions across different currencies and geographies.

  6. Dunning Management Tools: Implement automated workflows that manage retries, notifications, and customer outreach after a payment failure. Optimizing these workflows can improve recovery rates and customer satisfaction.


Best Practices to Reduce Involuntary Churn

While FlyCode provides cutting-edge solutions, businesses can also adopt these best practices to further minimize involuntary churn:

  • Keep Payment Methods Updated: Encourage customers to update their payment details regularly. Automated reminders can help.

  • Offer Flexible Payment Options: Providing multiple payment methods can reduce the likelihood of failed transactions.

  • Leverage Machine Learning: Use predictive analytics to identify high-risk accounts and take preemptive action.

  • Optimize Dunning Strategies: Balance persistence and customer experience by tailoring the frequency and tone of payment reminders.

  • Enable Tokenized Payments: Securely store payment details to facilitate seamless recurring transactions without requiring customers to re-enter their information.

    Involuntary churn doesn’t have to be a silent revenue killer. With the right tools and strategies, businesses can recover lost payments, improve customer retention, and enhance their overall subscription experience. FlyCode’s innovative approach to tackling failed payments ensures that businesses not only recover lost revenue but also build stronger relationships with their customers.

    If your business is struggling with failed payments and involuntary churn, let FlyCode help you turn the tide. Contact us today to learn more about our solutions and start recovering your revenue!

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