The Impact of Failed Customer Payments and Passive Churn
Failed customer payments for recurring subscriptions are often seen as a cost of doing business when using subscription revenue models. Payment failure rates approaching 25% of recurring transactions are not uncommon. And these failures can happen for a variety of reasons, including an expired credit card, an incorrect billing address or insufficient funds, for example. Regardless of the cause, the consequences for the business go beyond a missed payment event. Often referred to as passive churn, these failed payments can severely affect the entire economics of the business, and therefore treating these as unavoidable can be a very expensive mistake. The impact of failed customer payments should be of concern to many in the organization including the CEO, CFO, CMO and COO. Today, complementary third-party technologies exist that address the issue in a comprehensive way and that can have a meaningful impact on the bottom line.
Traditionally, organizations have approached failed payments using a standard escalation process. The first step is to retry the payment through repeated attempts by the processor and the merchant billing platform. If that does not work, most organizations then attempt to contact the customer via email or text. A further escalation is then to move to a phone call and a high-touch recovery process via the customer service team. This approach may achieve the recovery of that payment, but it comes at a high cost in personnel time. Furthermore, this approach may not necessarily produce a lasting recovery and can instead be an indicator that the customer will require future manual, costly efforts.