Involuntary Churn & How to Prevent Its Effects

If your business is experiencing a high number of cancelled subscriptions, involuntary churn might be to blame. Though it’s normal even for successful businesses to lose customers, customer churn—or the rate at which a business loses customers—is something that should be monitored closely.

For subscription businesses, involuntary churn is a common but not unavoidable obstacle that can be tackled with the right business decisions. Businesses that wish to optimise their payment strategy to reduce involuntary churn must first recognise the signs and take steps to minimise its effects.

What Is Involuntary Churn?

Involuntary churn can sometimes be referred to as delinquent churn or passive churn. “Churn” is a word used in the business world to refer to the rate at which a business loses customers. Some customer turnover is a normal part of every business. However, involuntary churn happens due to factors partially or entirely out of the customer’s control. These factors don’t necessarily reflect the customer’s level of satisfaction with your product or service and so must be avoided.

Involuntary churn typically happens when a payment failure occurs, resulting in a customer’s subscription or recurring payments being cancelled. This is very harmful to subscription businesses because you not only lose a valuable customer but also a chunk of your monthly recurring revenue.

Because acquiring new customers requires time and effort from your marketing and sales teams, its cost is higher than retaining existing customers. For this reason, businesses must focus on preventing avoidable churn and retaining the customers they already have. This can be achieved through providing continuing excellent service, keeping up with competitors, answering customer demand, and ensuring there are no preventable problems like payment failures.

Why Does Involuntary Churn Happen?

Losing customers to involuntary churn is particularly frustrating for businesses as it doesn’t necessarily reflect a customer’s dissatisfaction with the product or price. Because involuntary churn often occurs because of failed payments, losing customers can sometimes be put down to poor communication or lack of motivation to update their details.

There can be several reasons why involuntary churn occurs:

• The customer doesn’t update their billing information or credit card information. This usually happens when the customer doesn’t realise that their card has expired, or forgets to update the information. Credit card issuers typically issue new cards every three to five years. This means it’s easy to forget when your card is about to expire.
• The card gets declined after being lost or stolen.
• The customer has maxed out their card limit and the transaction is declined.
• The customer lacks the funds to complete the transaction.
• The bank declines a card for any other reason.
• The payment failed because of technical issues with the credit card.
• Restrictions on the credit card or other payment method caused the transaction to fail.

Businesses need to pinpoint why involuntary churn happens and take steps to help their customers stay on board. A payment processor can help prevent some of the problems associated with failed payments with tools like automated card update reminder e-mails and automated payment failure notification e-mails. These kinds of tools are especially important for subscription companies that rely on recurring revenue.

Voluntary Churn vs Involuntary Churn

Involuntary churn happens because a payment fails due to reasons beyond the company’s control. However, voluntary churn happens when a customer actively decides to cancel their subscription with a company.

Voluntary churn can come as a consequence of low customer satisfaction, the business not looking after their customer relationships, or a poor focus on customer retention. Other times, it may be difficult to avoid. Customers can cancel their subscriptions due to their financial situation or because they perceive that another company offers better value.

The following are some of the reasons why a customer may choose to terminate their relationship with a company:

• Change of mind. Customers can sign up for your service in good faith but then change their minds as their circumstances change or they find an alternative.
• The business doesn’t meet the customer’s needs. It can be hard to predict exactly how you will use a service before you try it. If a customer realises their needs aren’t being met by your product, they’ll move on. To avoid this, consider implementing a clear onboarding process to ensure your customers know how to get the most out of your product or service.
• Customers have negative experiences with the product, service, customer service team, or the brand in general. When customers have frustrating experiences with customer service or their concerns aren’t being addressed promptly, they may cancel their subscriptions.
• The customer perceives they can get better value from another company. This may come down to pricing, customer service, or simply the fact that a customer identifies with another brand more than with yours.
• The sales team targets the wrong clients. This is especially relevant in SaaS companies. If a sales team targets clients with the wrong profile, they’ll likely churn somewhere down the line.
• Pricing issues. If customers believe they can get better value from another company, they will often leave.
• Your competitors offer a better overall service. This could be a better or more appealing product, lower prices, more offers or other incentives, better branding, or other factors.

Revenue Churn vs Customer Churn

Revenue churn rate is a term connected to customer churn. Whereas customer churn records how many users or customers you lose over a period of time, revenue churn is how much revenue you lose in that same period as a result of losing customers.

Why Is Low Customer Churn Important?

Retaining existing customers is essential for the long-term viability of a business. Good customer retention rates reflect your customers’ satisfaction with your service or product and reduce onboarding costs.

Essentially, a low customer retention rate equals more revenue for your business. This in turn means that you can invest more into your service or product rather than spending that money on attracting new customers. Satisfied customers are likely to recommend your service to friends or colleagues, leave good reviews, and continue to purchase from you in the long term.

According to researchers at Colorado State University, negative information changes people’s attitudes more strongly than positive information. For businesses, keeping your customers satisfied and avoiding negative reviews is a must for retaining your customers and, vitally, for onboarding new ones.

How to Prevent Involuntary Churn

Avoiding failed recurring payments must be a priority for every subscription business. Because involuntary churn is largely avoidable, retaining your customers should be simply a question of putting the right practices in place to prevent payment failures.

Indeed, reducing involuntary churn is one of the simplest ways of increasing your customer lifetime value (CLV). This also leads to higher returns on your customer acquisition cost (CAC).

Top Ways to Avoid Involuntary Churn

These simple steps can increase your customer retention rates and cut down on failed transactions:

Identify Customers with Expiring Cards

Proactive action is necessary to catch churn before it happens. Payment processors can provide you with a payment gateway with an interactive dashboard where you can store and access customer data and anticipate (and address) problems with payment information in time.

Having all your customer data at your fingertips allows your team to develop an effective strategy for avoiding involuntary churn and maintaining your customer base. A payment gateway also helps you set up and manage recurring payments.

In-App Messaging

Encourage your customers to use your app. As well as being an effective branding and sales tool, an app allows you to communicate with your customers more effectively than e-mail. Remind customers again if they don’t respond to the first message.

Communicating through your app means you can send targeted messages to customers whose cards are soon going to expire. You can send additional messages when their account is at risk of closure due to failed subscription payments. Make it easy for them to follow your call of action by providing in-message account updates and payment links.

Partner With an International Payment Processor

A globally-focused merchant services account with an integrated payment gateway can help you accept a wider range of international cards successfully and prevent churn due to cross-border card issues.

Optimise Your Checkout Page

Make it as easy as possible for your customers to update their card information. The last thing you need is for a customer to lose patience and not update their details because the process is too difficult.

Authorise Recurring Payments

Make sure you authorise recurring payments in your payment processing system so that multiple charges to the same credit card aren’t flagged as suspicious or potentially fraudulent.

Brand Customers’ Bank Statements

Chargebacks can happen when a customer doesn’t know where a charge originated. Giving your charge a clear description could lower your chargeback rate.

Encourage the Use of Direct Debit

Direct debits are one of the most reliable payment methods as they have a low failure rate and bank account details don’t expire. Encourage your customers to pay via direct debit to reduce involuntary churn.

Follow-Up E-Mails

Follow up with your customers alerting them when a payment has failed. It’s important to include a direct link to their account so they can update their details quickly and easily.

Organise Your Billing System to Reduce Payment Failure

When customers cancel their subscriptions, businesses must find out why. Businesses that offer subscription services must additionally take proactive steps to avoid losing customers through voluntary and involuntary churn.

Payment processing issues that lead to lost revenue have clear solutions, and these solutions can be made much easier by working with a reliable payment processor. Look for a payment processing partner that can process international cards and stay on top of card expiry dates so you can run your business without worrying about payment glitches costing you customers and cutting into your revenue.