Failed payments are a frustrating challenge to solve. Unlike active churn, where customers decide to cancel their recurring orders, payment failures force subscribers to churn, often unknowingly.
As a result, the downstream effects of payment failures create a huge, hidden drain on top-line revenue — working against your company’s financial growth.
As CFO, you’re tasked with solving this challenge. Luckily, failed payments also mean you have an untapped opportunity for immediate growth, thanks to payment recovery.
Addressing the common causes of payment failures with a strong payment recovery strategy—especially one that leverages machine learning, optimizing each payment retry for optimal success—increases customer retention, which drives up lifetime value (LTV) and lowers overall acquisition costs (CAC). Combined, these three metrics can catapult profit margins and serve as growth levers.
Curious how your failed payments are impacting your revenue growth? Get a free payment health analysis and we’ll show you.
Payment recovery increases your customer retention, improves lifetime value, and lowers acquisition costs. But by preventing failed payments in the first place, this strategy can also keep your top line from taking a dip. Here’s how.
Higher retention leads to increased LTV
The most accurate impact of payment recovery is best reflected in customer LTV. Rather than losing customers without reason, payment recovery is designed to target potential involuntary churn before it happens.
To do this, precise recovery strategies use dynamic error code handling and optimized retry timing to prevent customers from churning out.
This keeps involuntary churn from hurting subsequent billing cycles, increasing LTV and protecting the company's financial health.
For example, if your average subscriber lifetime is 15 months, billed monthly at $150/month, you can expect and ARPU of $2,250.
But say a payment fails in their third month (maybe that subscriber lost their card and forgot to update their account), and they involuntarily churn. That means you lose out on the remaining 12 months of revenue ($1,800 total).
If when that payment fails, you were to successfully retry and recover that payment instead, you'd increase this customer's LTV from $450 to $2,250. That's a 400% increase.
Now, imagine amplifying this recovery across your entire subscriber base. The compounding impact to your business are indisputable.
Increased LTV lowers your overall CAC
With lower churn and higher LTV, you don’t need to rely as heavily on customer acquisition to grow revenue. This naturally reduces CAC.
But, you can further lower CAC by preventing unsuccessful payment retries in the first place. Unsuccessful retries not only interrupt your ability to collect revenue, they also harm authorization rates — and customer loyalty.
Here’s why this matters: Satisfied, loyal customers are also more likely to become brand advocates, contributing to organic growth and even further reducing the need for costly customer acquisition efforts. A more efficient CAC drives quicker payback periods and higher profitability.
In fact, a single satisfied customer can give your company up to nine customer referrals. Even better, people who hear about your company from a friend are 4x more likely to make a purchase than other marketing methods. Referred customers typically have a 16% higher LTV than non-referred customers.
Optimized payment recovery builds positive payment health
Addressing payment failures goes beyond recovering revenue; it creates a ripple effect that positively influences various aspects of the business landscape for improved payment health.
Intelligent retry handling reduces chargebacks
Organizations can minimize instances where customers dispute transactions with intelligent retry handling and a nuanced approach to failed payments.
Rather than retrying at a preset cadence, intelligent payment recovery tools will optimize your company's recovery strategy for each payment.
This reduces the number of retries, preserving revenue and safeguarding the company's reputation. How? By decreasing the total amount of chargebacks and ensuring the payment is recovered seamlessly, without disrupting the customer experience.
Prioritizing retries based on odds of recovery lowers PSP fees
Every unsuccessful payment attempt incurs charges from the Payment Service Provider (PSP). These failures also affect the chances of future retries succeeding. Each time these payment retries are run it also costs you money. Successfully retrying a payment, faster adds to your top-line revenue.
By minimizing the number of attempts on payments with a low chance of success, you’ll reduce costs and recover more funds in the long term.
Proactive payment recovery enhances fraud protection
Intelligent retry handling ensures that payment attempts are deliberate and well-informed, reducing the risk of retries being flagged as potential fraud. A proactive approach rigorously analyzes transaction data to minimize the likelihood of false positives in a fraud detection system, creating a more secure payment environment.
Butter recovers revenue sooner, driving more revenue lift—faster
With Butter’s ML solution to failed payments, you can expect a clear ROI that pays for itself. Our approach works behind the scenes to solve the common causes of failed payments — transforming them from revenue drains into opportunities for substantial growth.
Discover how Butter adds 5%+ of top-line ARR growth with a free payment health assessment. In one example, Butter helped add an additional $20m ARR for a public ed tech company within 8 months of launching. Contact us because your business and your customers deserve Butter.