For any subscription-based company that charges on a recurring basis, a key factor is the churn rate: How many customers cancel, either voluntarily or involuntarily?
Losing out on revenue and customers is not a moment you want to experience. Hence, knowing why payment recovery is essential for your business and the various ways to win back customer payments will help sustain your business in the long run.
Before we deep dive into how to recover payments and increase your subscription renewal rate, let us first find out why people fail to renew/cancel their subscriptions.
Reasons why customers cancel/forget to renew their subscriptions
Involuntary or voluntary churn can sneak up on your company without any warning. In a perfect world, every customer would renew their subscription when it is due. Like any subscription company, customers cancel/fail to renew their subscriptions for a variety of reasons.
1. Unaware about membership ending
Most of the time, customers forget to renew their subscriptions. While this is less of an issue for customers on automatic renewals since there’s no need to remember to pay for a subscription before it expires. However, bigger contracts, which customers often renew manually, can become a problem.
2. Less usage of the product
Customers who do not achieve their desired goals using your product are most likely to stop paying for it entirely. For manual renewals, they will often let their subscription get over. Whereas for automatic renewals, those customers could become a “zombie” customer who continues to pay without using your product.
3. Expired payment details
Many countries have anti-fraud laws that mandate credit cards expire every three years. It means one in every three customers needs to update their payment information by providing a new expiration date. It’s easy for customers to forget about renewing their subscriptions every time their card is updated.
Although none of these problems seems so challenging to deal with on the surface, the issue arises when you begin to scale and have a large subscriber base. Even minor issues like expired credit cards can lead to a considerable churn rate.
4. Credit card stolen
Credit card thefts continue to rise. Every time a card is reported stolen, customers are required to update their billing information across a wide range of subscriptions, eventually forgetting some in the shuffle. False positives frequently occur since most credit card users have become more careful about flagging potentially fraudulent transactions before becoming a big problem.
Now let us dive into how to recover payments and reduce your churn rate.
Tactics for increasing your subscription payments and renewal rate
1. Prevent delinquent churn
As your business scales and your subscriber base grows, credit card delinquencies will become the significant reason for your churn rate. Luckily, most of this revenue is easy to recapture.
If you’re an early-stage company, manually reattempting failed credit card charges for sending payment request emails— a primary email campaign can save up to 30% of delinquent churn. Although as you grow, you should invest in a solution to capture these failed payments automatically. Having an effective and automated dunning process can save a lot of potential customers and recover lost revenue.
The process of asking customers for money that they owe the company is known as dunning.
Working with companies that help reduce customer churn can help you recover a significant chunk of your lost money automatically.
2. Be empathetic
Most companies have a terrible and cold dunning process. They usually abandon the best practices of customer service while trying to convince customers to pay up.
The best way to recover your lost revenue is always to put the customer first. In every interaction with the customer, from emails to calling them up, be empathetic and understand their issues.
When payments fail, don’t blame them; they are most likely unaware that their payment didn’t go through. Explain why their payment didn’t go through with as many details as you can provide and provide them with the steps for moving forward.
The best way to deal with forgotten renewals is by sending them a friendly reminder email periodically before their subscription expires.
3. Choose the right billing platform early on
Every subscription-based company should choose a strong billing stack that can scale as and when the company grows and avoid changing platforms in the long run.
Every subscription billing platform should have these components:
- Payment gateways to connect with credit card companies and accept payments easily.
- Subscription management services to ensure that the right customers are charged every month.
- Empathetic dunning tools to reduce the impact of failed payments.
- Revenue systems to automate legal accounting processes.
4. Make cancellation seamless and ensure you’re learning
Creating barriers for customers to exit may reduce the churn rate initially, but it will eventually result in unhappy customers and bad PR in the long run.
Instead, create an easy cancellation process that gathers information about why they are leaving and tries to win them back if possible. Use automated emails or directly reach out to them via phone to understand why they want to leave better. With these details, you’ll get insights into common reasons customers chur, which you can leverage to build a better system to maintain those customers.
You must provide customers with incentives to stay and use your product/service. For instance, if they find your product too expensive, you can provide them with a targeted limited-time discount to try to keep using your product/ service for a bit longer to get hooked.
5. Understand when to stop
Don’t be one of those companies that use the wrong tactics to reduce churn rates. Instead, get feedback and analyze the right metrics to focus on building a better retention process.
If you’ve reached the point where you have sent over 3-5 emails with no response, it is a clear indication to stop and terminate that customer’s subscription.
Providing an excellent customer experience is essential for any business that wants to retain subscribers in today’s competitive age.
Being transparent and empathetic with your customers and allowing them to leave whenever they want is the best way to recover lost revenue wherever possible.