Involuntary churn
In-vol-uhn-ter-ee churn
Involuntary churn, also called passive churn, occurs when a subscriber’s legitimate payment transaction fails, and their recurring order is canceled, even though they want to continue receiving the product or service.
Involuntary churn vs voluntary churn
Unlike involuntary churn, voluntary churn occurs when a customer actively cancels their recurring order. This action usually indicates an underlying problem, such as dissatisfaction with the product, cost, or poor customer service.
Payment recovery: The process of reclaiming outstanding or missing funds
How does involuntary churn happen?
The most common cause of involuntary churn is payment failure, which can happen for any number of reasons, including:
- Outdated card information
- Using an expired card
- Insufficient funds
- Fraud (lost or stolen card)
- Technical issues in the payments ecosystem
Banks may also decline payment for other reasons, such as suspected fraud. For example, international companies might experience increased declines in countries with significantly different time zones.
Why is involuntary churn important?
Retention is the key to operating a successful subscription-focused brand. Involuntary churn reduces retention and customer lifetime value, ultimately stymying growth and lowering profits.
Butter estimates that 50% of involuntary churn is due to failed payments and that businesses lose 10% to 20% of their annual subscription revenue as a result. In other words, a company with $100 million in recurring revenue loses between $10 and $20 million annually from involuntary churn due to failed payments.
From a strategic business standpoint, involuntary churn is important because it’s easier to reduce passive churn than voluntary churn. Subscribers who voluntarily churn are dissatisfied in some way, making them more difficult to win back. Conversely, subscription-focused brands can easily automate payment retries with solutions like Butter.
How to prevent involuntary churn
1. Automate payment retries
Failed payment recovery solutions like Butter automatically retry failed transactions using sophisticated machine-learning models. Unlike other solutions, Butter analyzes payment metadata and develops bespoke retry strategies for each category of each failed payment category. This approach ensures subscription brands capture more would-be-lost revenue faster.
2. Implement dunning management
Dunning is the process of communicating with customers to collect past-due payments. It involves direct and often repeated communication through email and phone calls. The process typically occurs after a business uses a payment recovery solution.
3. Use card account updater (CAU)
A card account updater (CAU) is a service offered by credit card companies and payment gateways. When a subscriber’s card expires or is replaced, a CAU automatically updates card details in an organization’s payment database.