How to Recover Subscription Payments with Dunning: Proven Strategies

A recurring payment model is a powerful engine for predictable revenue and sustainable growth for any business. Automatic payment collection simplifies the customer experience and ensures a steady cash flow. But here’s the plot twist: some payments fail. 

Did you know that 48% of subscription churn is caused by failed payments? Involuntary churn directly impacts subscriber lifetime value, eating away at your revenue. 

This is where a payment recovery strategy comes into play. An effective dunning process can help you save a customer and secure months or even years of additional revenue. In this blog post, we take a look at how to configure your dunning settings to maximize payment recovery, reduce involuntary churn, and ultimately strengthen your business' financial performance.

TLDR; Key takeaways about payment recovery and dunning

• Dunning definition: Dunning strategy or settings are the automated rules (retries, grace periods, etc.) used to recover failed recurring payments.

• Why payments fail: Failures generally fall into two buckets: soft declines (insufficient funds) or hard declines (expired or invalid cards).

• The financial impact: Effective dunning is a major revenue saver. Optimizing retry logic can increase total recurring revenue by 4 percentage points.

• Cleeng’s edge: While the industry average for recovery hovers around 21%, Cleeng’s specialized logic delivers an average 35% retry success rate, with some clients reaching up to 40%. This translates to top Cleeng merchants achieving a recurring payment success rate of 96.8%.

Cleeng’s top clients achieve a recurring payment success rate of 96.8% (including retries).

What are dunning settings in payment recovery?

Dunning settings are a set of rules that control how and when the system attempts to collect a failed payment. When a subscriber's recurring payment fails on the first attempt, the payment recovery process begins. Key components of dunning settings include:

• Number of recovery attempts defines how many times your payment system will retry the transaction after the initial failure.

• Grace period is the time frame during which a subscriber can still access your service despite a failed payment. The recovery attempts happen within this period.

• Retry frequency determines the interval between each recovery attempt (e.g., every 24 hours, every three days, etc.).

The efficiency of dunning settings is measured by two critical KPIs:

• Retry success rate: The percentage of failed payments that are successfully recovered during the dunning process.

• Cumulative recurring success rate: The total percentage of successful recurring payments after all retry attempts are completed.

Why do recurring payments fail?

To design an effective payment recovery strategy, you first need to understand why payments fail. While there are several reasons, two are particularly common for digital subscriptions:

1. Insufficient funds (soft decline): This is the most frequent cause of payment failure. The card is valid but the account lacks sufficient funds. These are temporary failures and the primary targets for automated retries. 

The best payment recovery services for digital subscriptions address these declines by:

• Communication: Notifying the customer via email about the failed payment, prompting them to add funds to their account before the next retry.

• Strategic retries: Attempting the payment multiple times over the grace period, increasing the chance that the transaction will coincide with the customer having sufficient funds (e.g., after a payday)

2. Expired or invalid details (hard decline): Cards expire, get lost, or are cancelled. These are “hard declines” because no amount of retrying the same details will result in success. These required updated information from the user, bank, or advanced payment details storage technology (see below).

3. Bank refusals and fraud checks: Sometimes, a legitimate transaction is blocked by the issuing bank due to aggressive fraud filters, daily spending limits, or international transaction restrictions. These often required a specific retry strategy or customer intervention to clear the block. Such checks are necessary to block any fraudsters still among the user base. 

The first line of defence: preemptive recovery 

Before you even trigger a dunning retry loop, you can resolve a significant portion of hard declines using modern payment technologies. Think of this as the "invisible" recovery layer that operates without the subscriber ever knowing there was an issue.

1. Account updater services: Major card networks (Visa, Mastercard) offer Account Updater services. When a subscriber receives a new card due to expiration or loss, the bank updates the card network. Account Updater services check this database and automatically update the credentials stored in your system. This system captures the new card information as soon as it's issued, often without any action required from the subscriber.

(Automatic Billing Updater visualisation by Mastercard)

1. Network tokens: This technology replaces sensitive card data with a unique token. When the underlying card details change, the token can often still be used to process payments, as it is updated automatically by the card network (like Visa or Mastercard). This bypasses the need for the customer to manually update their information.

The critical impact of dunning on LTV

Effective dunning settings are a primary lever for increasing customer LTV. A small improvement in your recurring success rate can have a substantial impact on your bottom line.

Consider this scenario:

• Your initial recurring success rate after the first attempt is 90%. This means 10% of your subscribers are at immediate risk of involuntary churn.

• With an optimized recovery process, you achieve a 35% retry success rate. You successfully recover 35% of that initial 10% of failed payments.

• This boosts your cumulative recurring success rate from 90% to 93.5%.

This 3.5% increase may seem minor, but its long-term effect is significant. It reduces your involuntary churn rate from 10% to 6.5%. Over six months, a business without an efficient recovery process would lose 47% of its subscribers to involuntary churn. With optimized dunning, that loss is reduced to just 33%, a 14% point uplift in retained recurring revenue (equivalent to 30% improvement). 

For large-scale subscription businesses, every percentage point matters. If you have 300,000 monthly subscribers with an average order value of €15, a 1% increase in your recurring success rate translates to an additional €540,000 in annual revenue.

Finding the optimal dunning strategy for subscription payments 

If more retries lead to more recovered payments, why not just attempt to collect payments indefinitely? The truth is that it doesn’t work as well over time and can negatively impact the customer experience.

To hit that four percentage point revenue increase that payment recovery and dunning deliver, you need a strategy that is smarter, not just harder. 

Here are the best methods for recovering failed payments by optimizing your dunning settings:

1. Differentiate your logic (soft vs. hard). Don’t treat all failures the same way:

• For soft declines, prioritize silent retries. Attempt the charge again during the grace period without immediately alarming the customer
• For hard declines, retrying won’t work. Trigger an immediate communication flow asking for updated details. 

2. Time retries intelligently. Smart retries aren’t just random. Schedule retry attempts based on data and regional factors. Take into consideration things like common payroll days and local bank opening hours to maximize the probability that funds are available.

3. Customize settings by offer. Different subscription plans may attract different customer segments. Tailor your dunning logic (grace period, number of attempts) to each offer type.

4. A/B test your dunning logic. Continuously experiment with your settings. Test different numbers of attempts, grace periods (for example, 3 days vs. 10 days), and email communication cadences to see what drives the highest retry success rate.

5. Monitor key metrics. Keep a close eye on your recovered revenue, retry success rate, and the percentage of declines due to insufficient funds. Use this data to make data-driven decisions. 

Maximize your recovery rate with Cleeng

Cleeng provides a sophisticated Subscriber Retention Management (SRM®) platform engineered to maximize your payment recovery rate. While the industry average for recovery 21%, Cleeng’s average retry success rate is 35%, with some clients reaching up to 40%. This translates to some Cleeng clients achieving a recurring payment success rate of 96.8%. Our solution offers the flexibility and data transparency you need to build a winning dunning strategy.

Here’s how Cleeng helps you recover more revenue:

• Flexible recovery tools: We offer Smart Retries that can be configured based on specific decline reasons, payroll schedules, and bank operating hours. Dunning settings are also customizable per payment method.

• Preemptive account updates: Why wait for a failure? Cleeng utilizes both Network Tokens and Account Updater services to automatically manage changes in payment details, drastically reducing churn from expired or lost cards.

• A/B testing capabilities: Our platform enables you to test different dunning configurations to identify the most effective approach for your business.

• Data transparency: Cleeng provides a dedicated Recovery Dashboard that visualizes every aspect of your dunning performance. Track your retry success rate over time, monitor recovered revenue, and analyze success rates for each attempt. You can also view a breakdown of your main decline reasons to better inform your strategy.

• Detailed view of dunning actions: Cleeng provides you with access to all the details for selected payment method and billing cycle, and also the detailed payment attempts schedule. 

Cleeng Recovery Dashboard showing retry success rates and recovered revenue metrics.

Transform your dunning strategy today

An optimized dunning process is no longer a "nice-to-have" but rather a fundamental component of a successful subscription business. By understanding why payments fail and implementing an intelligent, data-driven recovery strategy, you can significantly reduce involuntary churn, increase customer LTV, and drive substantial revenue growth.

Ready to see how Cleeng's payment recovery solutions can transform your business?