Most business owners know how much profit they’re raking in at the top of the funnel, but how many are aware of how much failed payments are holding them back?
The Cost of Failed Payments
Every year in America, customer churn costs businesses $136 billion. On top of that, 47% of companies lose auto-renewals due to changes in payment data. However, auto-renewals can be lost many other ways.
Customer churn is considered any instance in which customers, or subscribers, cease relations with a business or service. With that, reasons for cession may either be voluntary or involuntary.
Any instance in which a consumer, or subscriber, makes an intentional effort to leave a service is known as voluntary churn. On the other hand, involuntary churn refers to consumers who unintentionally leave a business or service.
What Causes Involuntary Churn?
Most commonly, involuntary churn is caused by payment failure. In fact, payment failure is the #1 cause of involuntary churn.
That brings us to ask: what causes payments to fail? Most commonly, insufficient funds. 53% of failed payments link back to the consumer not having enough funds. However, not having enough money isn’t the only reason a payment may fail.
Submitting a payment with outdated card information (i.e. expiration date, zip code) can cause a payment to fail. This can easily happen with automatically renewing subscriptions. 35% of subscriptions automatically renew, but credit card changes account for 40% of payment failures.
However, payments may still fail for other reasons. For example, systemic errors. If a merchant’s system is down, it’s unlikely a transaction will succeed. Banks with autonomous firewalls can also cause any attempts over the customer’s daily limit to be blocked. Statistically, credit card limits account for 42% of payment failures.
Does Auto-New Increase Risk of Failed Payments?
From a business outlook, failed payments raise expenses.
For instance, 48% of businesses state that chargeback rates reduce their forecasted revenue. Comparably, there’s also an increased customer service contacts when payments don’t go through. Hence, it only makes it more expensive to retain customers, according to 43% of businesses.
Moreover, 35% of available subscriptions can be auto-renewed, and renewals constitute 62% of subscription-based revenue. Still, auto-renewals contribute to higher instances of failed payments. What’s more, 47% of businesses end up losing auto-renewals because of changes in payment information. What can businesses do to decrease this kind of involuntary churn?
Is Improving Customer Retention Effective in Reducing Involuntary Churn?
65% of a company’s business comes from their existing customers, and 32% of people will stop doing business with a brand after just one bad experience.
Furthermore, 66% of consumers want companies to show they value their time, and 69% prefer shopping with merchants who offer consistent customer service. Still, only 15% of customers respond to emails seeking updated payment information.
With this information, businesses should work toward building trust while finding unique solutions to outstanding payments. These solutions, of course, will be contingent on each individual business’ weak areas.
Here are some facts to consider along the way:
- Poor customer service experiences discourage manual renewal after a failed payment.
- How do clients rate your brand’s customer service?
- Many customers may only learn their payment has failed when their service stops.
- How does your company contact customers regarding urgent account matters? If your typical approach is email, consider alternatives such as SMS or phone calls.
- Creating on-platform software that can audibly or digitally interrupt clients concerning their subscription status may also improve communication.
- Payment declines and fees create customer frustration.
- Remember, the customer is always right. What tactics do your call representatives use to make administrative experience stress-free on the client?
Paying Attention To Failed Payments
Reducing card declines has proven potential to bring payment failure rates as low as 0.5%, which can produce a 70% reduction in involuntary churn. Knowing this, businesses using automated card updates, intelligent retry logic, and human personalization to dilute involuntary churn rates may find more financial relief than those who do not.
Research has also found it costs 6 times more to attract new customers than to keep existing ones. As a result, businesses actively working to reduce their involuntary churn rates will likely see more success than those strategizing methods to draw in replacement clients.
Every year, 34% of customer churn costs are due to involuntary churn and failed payments. By improving consumer retention, brands can save money on marketing expenses, increase profits, and improve their quality of service. What software to prevent failed payments are you using?
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Author: Brian Wallace
Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency based in Louisville, KY and Cincinnati, OH which works with companies that range from startups to Fortune 500s. Brian also runs #LinkedInLocal events nationwide, and hosts the Next Action Podcast. Brian has been named a Google Small Business Advisor for 2016-present and joined the SXSW Advisory Board in 2019.