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How Revenue Stacks Lower Churn by Minimizing Failed Payments

Posted by Origins Ecommerce - March 16, 2018 in , ,

For any business selling products online, a comprehensive revenue stack can be a total game-changer. By integrating all aspects of your sales, marketing and customer relationship management, a revenue stack can provide you with deep insights about your customers, and allow you to engage with them much more effectively.

In the case of SaaS businesses, however, there is another major benefit of revenue stacks that is not discussed as often: the ability to reduce churn by minimizing failed payments. Unlike businesses that sell single-purchase products, the lifetime value of a SaaS company’s customer base depends on continual renewals over a long period of time.

Given that payment methods and account details can change over time, companies cannot take it for granted that recurring transactions will remain consistently successful. In fact, studies show that 20-40% of SaaS churn is often due to failed payments, not active cancellations!

To reduce such “delinquent churn,” it’s critical for SaaS companies to have an automated system that maximizes the success rates of recurring payments, while minimizing the hassle for customers. A sophisticated revenue stack can do that for you in a reliable, cost-effective way.

Here are four ways it can do so:

Account Updater

Sometimes, the reason for a failed payment is more straightforward: the credit card has been cancelled, expired or changed.

In an ideal world, customers would always update the credit card information when there are changes. But that doesn’t happen.

An automated revenue stack can help you avoid these “hard declines” through the use of an account updater. This is a program that updates your database of customer credit card information with the latest data from issuing banks. As a result, your customers can remain subscribed with minimum hassle, greatly reducing churn.

Essentially, the system receives regular updates from issuing banks, including credit card expiration dates, renewals, account number changes and “contact cardholder notices.” This information is stored in the database, and when the customer’s subscription comes up for renewal, the system sends the updated payment details to the acquiring bank.

At the end of this process, the customer gets a renewed subscription, the acquiring bank gets the latest credit card data and you get a successful payment – no human labor required.

Retry Logic

Other reasons payments get declined includes insufficient funds, exceeding card limits or even simple technical failure.

The simplest solution is often just to retry the transaction at a later time. In many cases, this is all it takes to turn a failed renewal payment into a successful one.

A sophisticated revenue stack enables you to do this with the retry schedule determined by the reason for the decline. You can specify the total number of attempts and define the exact time intervals between attempts.

In addition, you can also charge alternate credit cards or route the payment to another acquiring bank if the first attempt fails.

Dunning Management

Sometimes, despite your best efforts, a customer’s payment just won’t go through. In such cases, you essentially have two options:

  • Cancel the customer’s subscription
  • Maintain the customer’s subscription, and follow up with them directly to resolve the issue

The first option is obviously unappealing, because customers are likely to be unhappy with an unexpected cancellation – especially if they were unaware of the failed payments in the first place. And because online customers are easily frustrated by inconvenience of any kind, that could be enough for them to switch to another provider.

For that reason, most companies choose the second option. But manual follow-up can be costly and time consuming, and human staff can sometimes miss delinquent accounts, leading to even longer payment delays.

Enter dunning management – an automated process of sending reminder emails to customers about past due payments and giving them options to immediately update their payment information. While your revenue stack should allow you to configure these reminders for your exact needs, most companies opt for a simple three-part series:

  • An initial notification that the charge did not go through, with details of the payment methods attempted
  • A more urgent follow-up email that is sent a few days later
  • A final email reminding the customer to update their payment method, including a specific deadline by which the service will be cancelled

Not only is this automated cycle more cost-effective than manual communication, it also establishes greater consistency to your follow-up process.

Lifecycle Marketing Automation

Effective automated communications shouldn’t be limited to delinquent accounts. Instead, you should seek to communicate throughout the customer lifecycle, including when customers or prospects:

  • Register for a trial account
  • Make their first subscription payment
  • Upgrade their subscription to a higher tier
  • Continue renewing their subscription
  • Cancel their subscription

The goal of lifecycle marketing automation is to send strategic communications to customers at each stage of the relationship, maximizing both conversion and retention.

For example, one of the most important steps in this process is when a lead first transitions from a trial account to a paid subscription. At this point, you might want to send them an email, notifying them that their free trial is expiring soon, and that their credit card is going to be charged automatically. Not only will this friendly reminder reduce the likelihood of chargebacks, it will also build trust with your new customer from the outset.

Such messages can be designed for every stage of the customer lifecycle. By taking full advantage of your revenue stack’s automated lifecycle marketing features, you’ll be able to greatly reduce failed payments while increasing long-term customer satisfaction.

Plugging Revenue Leaks

Maximizing customer retention is an important priority for any SaaS business, and one of the simplest solutions is to minimize failed recurring payments. An optimized revenue stack can allow you to automate this process, cutting down on delinquent churn in a cost-effective way.

About the Author

Origins Ecommerce

We love sharing our expertise in online payments and helping our customers succeed. From the technical team to our customer service team, everyone at Origins Ecommerce is ready to support your success. Our goal is to reduce your expenses and risks while optimizing your revenue, by managing your online payments for you. The Origins Ecommerce payment solution is there to keep your payments in motion, so you don’t have to.
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