Involuntary Churn: How to Prevent Lost Revenue from Failed Subscription Payments

Involuntary churn occurs when a customer unintentionally loses access to your service, often due to a failed subscription payment. For digital subscription businesses, this type of churn can quietly erode revenue and damage customer relationships, especially when the user had every intention of staying subscribed.

Let’s break down what involuntary churn is, why it matters, and how to stop it from cutting into your recurring revenue.

What is churn?

Churn, also known as customer attrition, refers to the loss of clients or subscribers. While it can negatively impact revenue, churn is a natural part of doing business, particularly for digital subscription services, as no customer stays forever.

Churn is normally measured as a percentage, indicating the proportion of users who cancel their subscription or stop using a service within a specific timeframe. The churn rate is an important metric for businesses as it offers valuable insights into customer retention, satisfaction, and loyalty. 

Comparing your churn rate to industry benchmarks is a great way to understand how well your business is performing against competitors. However, churn rates can vary widely across industries. For instance, health and fitness subscriptions typically experience churn rates between 7% and 10%, while education and e-learning apps see rates of 8% to 12%. Meanwhile, media and entertainment subscriptions tend to have lower churn, ranging from 5% to 8% per month.

What is involuntary churn?

Involuntary churn refers to customers unintentionally discontinuing a service or failing to renew their subscription. Unlike voluntary churn, where users actively choose to cancel, involuntary churn occurs without the customer’s intent or awareness. This type of churn is particularly damaging for subscription-based businesses, as it often involves satisfied customers who had no plans to leave or cancel their subscription; some of these customers are acquired again in the future, but most are lost forever, leading to temporary or permanent revenue loss.

Subscription payment failures, caused by issues like expired cards, declined transactions, and banking errors, are the primary driver of involuntary churn. Additional factors, such as gateway problems and regional restrictions, further contribute to the issue.

The impact of involuntary churn

Involuntary churn affects both clients and businesses, with significant consequences. Here’s how it impacts your business performance:

• Revenue loss: every churned customer represents a direct hit to your bottom line, as their payments are no longer contributing to your revenue stream. Over time, even small instances of involuntary churn can lead to substantial financial losses.

• Reduced LTV (Lifetime Value): involuntary churn cuts customer relationships short, reducing the overall revenue you could generate from a customer over their lifetime. This means lost opportunities for upselling, cross-selling, and building long-term loyalty.

• Frustrated customers: involuntary churn often happens due to factors like subscription payment failures or technical issues, leaving customers confused or annoyed. Even if they attempt to resolve the issue, the negative experience can harm your brand reputation and discourage them from returning.

How to reduce involuntary churn

Involuntary churn happens for various reasons, but did you know that most of them are preventable? While no business is entirely immune to customer attrition, proactive steps can significantly reduce involuntary churn and prepare you for future challenges. 

Here’s how to reduce involuntary churn effectively: 

1) Implement intelligent dinning and retry logic

Dunning is the process of recovering overdue or failed payments, and is especially common in subscription and recurring billing models. 

• A/B tested dunning strategies and settings optimization: experiment with different email copy, timing, frequency, and settings to find the most effective approach for recovering payments.

• Retry logic aligned with payroll cycles and bank timings: schedule payment retries when customers are most likely to have sufficient funds, such as after payday or during optimal bank processing times. Local expertise is essential for navigating the environment, including key details like payroll schedules and bank operating hours.

• Repeated attempts spread out over a long period of time: ensure automatic and seamless payment recovery attempts are made over an extended period to increase the chances of success while avoiding pressure on the customer.

• Custom dunning by offer type or customer segment: tailor dunning messages and approaches based on the specific subscription plan or customer profile to increase effectiveness.  

• Built-in analytics to track success and optimize: use real-time payment analytics to monitor recovery success and refine your dunning process for better results over time.

For example, subscription payment solutions like Cleeng recover as much as 35% of failed renewal payments thanks to customer-tailored dunning strategies and local expertise.

2) Opt for smart payment routing

Dynamic routing plays a critical role in increasing payment success rates, and therefore in reducing involuntary churn, particularly for subscription businesses looking to scale globally. By allowing payments to follow the most efficient path (i.e., the most optimal payment gateway for each specific transaction), it ensures smoother transactions and greater reliability. Businesses looking to work with a subscription management platform should always opt for a tool that offers:

• Dynamic gateway switching.

• Intelligent cascading across Payment Service Providers (PSPs) to maximize success rates.

• Smart payment routing for both retries and first-time payments.

Cleeng has partnered with Primer to enhance global payment success rates and minimize churn by optimizing recurring payments and implementing advanced fallback logic. In the event of a payment decline, Cleeng seamlessly redirects the transaction to an alternative Payment Service Provider (PSP), boosting the chances of successful processing.

Additionally, Cleeng conducts regular A/B testing across multiple PSPs, dynamically routing payments based on historical performance and success rates to ensure a smoother, more reliable payment experience.

3) Proactively manage payment methods

Tools like Network Token Optimization (NTO) and Account Updater, integrated into comprehensive subscription management platforms like Cleeng, help keep payment details current, preventing disruptions caused by expired, lost, or reissued cards. Beyond just addressing payment details, these tools overcome limitations in time and space, ensuring seamless and uninterrupted transactions regardless of when or where they occur. By proactively managing payment methods, you can reduce involuntary churn and improve user retention.

4) Use real-time transaction monitoring

One way to reduce involuntary churn is to closely monitor real-time payment analytics, a core feature of advanced Merchant of Record services like Cleeng, to quickly spot and address subscription payment failures and patterns. Immediate action can prevent customer dropout due to payment-related issues. 

5) Prioritize robust payment security

Making sure your payment processing is secure (think PCI DSS compliant) and respects data privacy (like GDPR or CCPA) isn’t just about checking off a compliance box. It’s about building trust, both with your customers and issuing banks, and cutting down on declines caused by security worries. Learn more about Cleeng’s global compliance and how it can help your business scale internationally. 

Optimizing the first payment: reduce churn from day one

We’ve already discussed strategies to minimize involuntary churn in recurring payments, but it’s important to note that this issue can begin as early as the initial transaction. If the first payment fails, potential customers may abandon the process entirely or turn to a competitor instead. That’s why ensuring a seamless and successful initial payment experience is vital, as it sets the foundation for conversion and directly impacts your bottom line.

To optimize first-time payments:

• Use local acquiring banks to minimize decline rates

• Offer multiple local payment methods to improve checkout success

• Route transactions based on acceptance rate estimations for higher conversions

Cleeng: your all-in-one solution to conquer involuntary churn and maximize subscription revenue

Understanding and implementing strategies to combat involuntary churn is crucial, but having the right partner and platform can make all the difference. Cleeng is designed from the ground up to address these challenges head-on, providing a unified, retention-first platform for D2C subscription businesses.

Build trust and ensure smooth global operations with Cleeng's compliant MoR service

A critical, yet often overlooked, factor in preventing involuntary churn is the underlying security and compliance of your payment infrastructure. Subscription payment failures frequently stem from security flags, trust issues, or operational hiccups when dealing with global regulations. Cleeng, acting as your Merchant of Record, fundamentally addresses these risks, creating a more stable environment for your subscriber payments.

Our MoR service is designed with a solid commitment to meeting strict global standards. Here’s how we make it happen:

• Secure payment processing: Protecting sensitive cardholder data (in line with PCI DSS) to minimize breaches and security-related declines.

• Data privacy and trust: Respecting customer data rights (as per GDPR, CCPA, and similar regulations) to build confidence and reduce friction.

• Transaction integrity: Implementing necessary protocols (like those under PSD2 for European transactions) to enhance the security of every payment.

• Global financial and tax compliance: Navigating the complexities of international sales tax (including VAT-MOSS) and financial regulations so your operations run smoothly worldwide.

How does a Merchant of Record reduce involuntary churn?

• Fewer declined payments: transactions processed through a system recognized for its security and compliance are less likely to be rejected by issuing banks.

• Increased customer confidence: when subscribers trust that their data and payments are handled securely and professionally, they are less likely to hesitate in providing or updating payment details.

• Minimized service disruptions: expert handling of global tax and regulatory obligations prevents operational issues that could otherwise lead to payment problems and churn, especially when expanding internationally.

By ensuring these crucial aspects are managed robustly, Cleeng helps create a more reliable payment experience, directly contributing to lower involuntary churn rates.

Involuntary churn, while a common challenge, doesn't have to be an accepted cost of doing business. By understanding its causes and proactively implementing intelligent strategies, from optimized dunning and smart payment routing to robust security and seamless payment updates, you can significantly reduce subscriber loss and protect your hard-earned revenue.

Ready to tackle involuntary churn head-on?