How Fixing Failed Payments Can Improve Customer Retention (INFOGRAPHIC)
Brian Wallace, Founder & President, NowSourcing
Most business owners know how much revenue is coming in at the top, but how many know the cost of failed payments? For subscription services, more than two thirds of businesses lose 17% of their profits to churn, often involuntary churn. The #1 cause of involuntary churn? Failed payments. The main causes of failed payments are, in order: insufficient funds, credit card limits, and credit card changes.
One factor that increases the risk of failed payments is auto-renewal. 35% of subscriptions automatically renew, but auto-renewal increases the likelihood of failed payments by 47%. Many customers don’t know a payment failed until they lose service, so failed payments drive up customer service contacts, which 43% of businesses say drives up costs. If the customer service they receive is poor, said customer is unlikely to manually renew after a failed payment. 32% of people will stop doing business with a brand or company after just one bad experience, turning failed payments into a failure of customer retention. Seeing as 65% of a company’s business comes from existing customers, this could spell long term trouble for a company.
How can companies recover failed payments? One thing they shouldn’t do is send automated emails. Such forms of contact lack empathy, they put the onus on the customer to act, and they cannot replace traditional customer service. Only 15% of customers respond to emails prompting them to update payment information. Meanwhile, 69% of customers want to shop with retailers who offer consistent and quality customer service.
Instead, companies should employ some combination of direct debit, which allows bank-to-bank transactions; digital wallets, which are more likely to be up-to-date and include backup payment methods; and a payment processor who accepts a wide variety of credit card brands. Reducing card declines can bring down payment failure rates to as low as 0.5%. That would be a 70% reduction in involuntary churn.
Other ways to prevent failed payments include employing an automated card updater, which checks card networks to update payment information behind the scenes, adding sophisticated retry logic capable of selecting the optimal time to rerun transactions based on error type, and integrating more personalization into the process, which allows human interaction to recover failed payments and boost customer loyalty.
It’s time for customer churn to stop costing US businesses $136 billion a year. It’s time to recover your company’s lost payments today with Gravy Solutions.
About the Author: Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency in Louisville, KY and Cincinnati, OH which works with companies ranging from startups to Fortune 500s. Brian runs #LinkedInLocal events, hosts the Next Action Podcast, and has been named a Google Small Business Adviser for 2016-present. Follow Brian Wallace on Linked