Improve Customer Retention by Fixing Failed Payments

In the United States, customer churn costs businesses over a hundred billion dollars per year, 34% of which is “involuntary churn” prompted by failed payments. Most business owners know their top line revenue numbers, but not all understand how much failed payments are costing them. Two-thirds of subscription businesses lose at least 17% of their profits to churn. Fixing failed payments can turnaround your business.

What Causes Payment Failure?

The three biggest causes of failed payments are, in order: insufficient consumer funds, credit card limits, and credit card changes. Either a customer can no longer pay or be charged for a service, or the billing information a business has is no longer accurate. The latter issue is especially prevalent when auto-renewal is in practice. While renewals account for 62% of subscription revenue, auto-renewal increases the likelihood of failed payments by 47%. Failed payments are a problem that both cuts into forecasted revenue and increases the cost of customer service.

On the customer side of failed payments, most customers are unaware a payment has failed until a service stops. This is frustrating for the consumer. If not handled well by customer service, it will cost a business customers. After just one bad experience, 32% of people will stop doing business with a brand or company. Since 65% of a company’s business comes from existing customers, churn carries some steep costs for businesses.

How You Can Preserve Customer Loyalty

If businesses can preserve customer loyalty, the benefits are enormous. 80% of customers are willing to pay more for a better experience. Reducing churn by 5% has the potential to double profits for some companies. Customer service is vital to recovering failed payments and keeping customers. Despite that, just 15% of failed payments are recovered by traditional methods.

How can businesses do better? One step is to stop dunning. Automated emails demanding the customer take action lack the empathy of traditional customer service. Only 15% of customers respond to emails that prompt them to update payment information. Alternatives businesses can pursue instead are: direct debit, digital wallets, and payment processors that accept a wide variety of card brands. The benefit of direct debit is that bank-to-bank transactions reduce the probability of failed transactions. Digital wallets are useful in that they are more likely to be up-to-date and include backup payment methods.

More intensive solutions to failed payments worth considering include employing an automated card updater to check credit card networks and update payment information behind the scenes. Also possible is the implementation of sophisticated retry logic, which selects the optimal time to rerun transactions based on the type of error that occurred, potentially resolving payment failures autonomously. The best idea to implement, however, is personalization; authentic human interaction can recover failed payments and boost customer loyalty simultaneously.

Learn more about how to take better care of recurring customers, stop churn, and fix failed payments in the infographic below: