Causes of Involuntary Churn And How To Cut It Down Substantially

September 20, 2021
Emmanuel Cohen

You probably don't need an introduction to customer churn if you run a subscription business since it's already on your radar. While there are two types of Churn, Subscription businesses tend to concentrate on voluntary churn, which occurs when a subscriber actively cancels a service due to a range of reasons, especially bad customer service and product dissatisfaction.

Voluntary churn is noisy and calls for your attention with a rise in customer complaints and an increase in cancellations. It forces you to pay attention and actively engage in ending it. Involuntary churn on the other hand is silent and even if your product is a runaway success, and you have zero active churns, your rapid growth still conceals a threat lurking in the shadows in the form of involuntary churn.

The majority of organizations set up their billing system with the expectation that everything would go smoothly; this is what helps involuntary churn remain silent while invading their businesses. 

However, billing systems and credit cards, like any other service, aren't faultless. Problems might emerge in a variety of ways, especially if you're working with a big number of transactions.

To help you understand this article better, and grasp the risk involuntary churn poses, I recommend that you read the previous article: This is why you should never ignore involuntary churn. In this article, we will discuss the top causes of involuntary churn and how to reduce involuntary churn.

Leading Reasons for Involuntary Churn

1. Expired Credit or Debit Cards

While involuntary churn is mostly due to involuntary churn, the expiration of credit cards is the leading cause of involuntary churn. Anti-fraud regulations require that cards expire every three years, which means that one out of every three subscribers in your billing system will need to renew their card number, expiration date, and card verification value in the coming year. The tough part is, the longer a customer stays with you, the more involuntary churn you'll have.

2. Outdated Billing Information

Businesses, especially those that are expanding, frequently relocate their office. Amid this relocation, it's easy to forget to update credit card information. If your subscriber updates their credit card details with their card issuer but forgets to do so with you, their payment will be rejected in a month or two.

3. Charges not marked as recurring

If you don't mark a payment as recurring in your billing system, an issuer will assume there's a problem that results in monthly billing. In the same way that issuers err on the side of caution when it comes to fraud, they may decide not to process a payment for a month to see if their client complains.

4. Hard Declines that occurs after a fraud attempts

The likelihood of your subscriber's credit card information being stolen is significant, given the frequency and size of recent data breaches. 15.4 million Americans were defrauded of $16 billion in 2016 alone, and the figures have been on the rise since. Therefore, credit card declines following a complaint of a stolen card will become more regular. False positives are also common, as credit card issuers and banks want to be safe rather than sorry when it comes to valid automatic card payments.

5. Soft declines that occur after credit limits are reached

SaaS businesses aren't immune to exceeding their credit limit on a single card. They are, in fact, very vulnerable. As SaaS businesses expand, they add additional tools to their stack and pay more for those they use frequently. If your consumer does not pay their account, soft payment declines can grow into hard declines if no one is tracking each card.

These infractions quickly mount up: involuntary churn accounts for 20-40% of your total churn. Here are some things you can take to reduce involuntary churn before you start losing money.

How To Cut Down Involuntary Churn

The only good thing is that, unlike voluntary churn, involuntary churn is relatively easy to eliminate. You don't need to change your product or customer success process to solve involuntary churn; all you have to do is keep customers who don't want to leave from leaving.

You can do this by taking your customers through a streamlined process for updating their billing information. Customer outreach that is tailored to the customer makes it easier to stay rather than leave. Here are a few of the strategies Chargzen is applying as a dunning management approach to help businesses stay ahead of involuntary churn:

1. Lock notification

When a payment fails, locking subscribers out of your app is not the best idea. It's better to inform them of the failed payment via app notifications and emails and provide a grace period during which they can continue to use your product while you work to resolve the issue. This grace time can mean the difference between a bad and a good customer experience. If the grace time has expired, retain their data but block them from using your app until they update their data. If a regular user hasn't paid yet, this will usually compel them to do so.

2. In-app pre-dunning message

Although all businesses are aware when their customers' credit cards are about to expire, few take proactive steps to notify them and get updated information. The easiest method to deliver a seamless data updating experience and lower payment failure rates is to set up a sequence of reminders inside your app to remind users to update their credit card information, which also reduces churn rate.

Customers will be willing to pay to continue receiving value from your product if you send them in-app alerts while they're using it. Sending notifications in advance of a payment failure prevents a service interruption, which could have been damaging to the customer experience.

3. Post-dunning email

It's not always easy to detect a payment failure before it occurs. In these circumstances, you'll want to send your customer a series of emails informing them of the problem and providing a direct link to a page where they can update their information. Chargezen has also used this method to build an email cycle that successfully recovers the majority of involuntary churners.

To recover involuntary churners, most organizations and billing systems rely only on dunning emails. These may help retain some existing consumers, but they are often overlooked. Chargezen has found that combining the above tactics improves recovery rates. We'd be pleased to discuss how we've minimized churn and automated the recovery of 8 out of 10 involuntary churned customers.

Bid farewell to involuntary churn

Involuntary churn is similar to the in-house FBI double agent in that it is difficult to detect until it is too late. While voluntary churn is more visible, involuntary churn requires constant effort to mitigate.

For startup and mid-level businesses, incorporating these techniques may look like a lot to handle as an ample amount of time is required for business development. This is why I always recommend that such businesses leave these technicalities to apps that can take care of it; especially Subscription Management Solutions like Chargezen with an in-built churn bursting algorithm, so you don’t incur extra cost adopting a third-party app for this purpose. With Chargezen’s, you’ve multiple solutions incorporated in one, including dunning management so you can focus on business growth.

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