Consistent revenue growth and profitability are key components of any subscription business but losing customers because of failed credit card payments is a huge barrier. For every new customer you bring in, you could be losing dozens more. Measuring your lost revenue isn’t simply a matter of considering one month’s payment, however. You also need to consider all the revenue a customer would have brought to the business if their subscription hadn’t ended prematurely. What is your customer lifetime value? That’s the real cost of a lost customer.
The recovery equation
Say for example you have a customer who pays $49.99 per month and has a failed credit card payment in their second month of billing and your average subscription runs for 10 months.
Total Failed Payment Cost = $49.99 * 8 = $399.92
It’s easy to see how much revenue you’re losing with just that one failed credit card payment. Now multiply that by all your failed payments in a month. That could be hundreds or thousands of failed payments. Most businesses can’t afford to lose that much revenue, especially when you add in the cost of acquisition of a customer (CAC). With every failed credit card payment, you’re losing revenue you were expecting to come in, and the customer isn’t earning out their CAC. Ideally, your Lifetime Value (LTV) of a customer should be at least three times higher than your CAC. That can’t happen if you lose a customer too soon. Plus, you’re also spending money every month to bring in new customers. You’re bleeding money.
Measuring your lost revenue isn’t simply a matter of considering one month’s payment.
The power of failed payment recovery
Let’s look at the equation again when you add in what you would spend to have the customer recovered by a failed payment recovery solution, also known as Payment Authorization Management (PAM). For this example, we’ll say the cost of recovery is $15 per customer.
Total Value of Recovered Customer = ($49.99 * 8) – $15 = $384.92
A PAM solution lets you recover a customer and collect almost all the revenue you would have received over the life of their subscription if their credit card payment hadn’t failed. Multiply the amount of revenue you can recover from all your failed credit card payments and you see it’s a huge economic benefit to your subscription business.
The right way to reduce churn
If you want to achieve the greatest LTV, you must reduce churn. We’ve proven that. But what’s the right way to do this? FlexPay’s research shows that traditional dunning methods that tell the customer their payment has failed prompts 27% of account holders to cancel their subscription instead of providing an alternate or updated credit card. These are customers who were satisfied with a product or service until they found out about the failed payment and decided to cancel their subscription when somebody reached out to them. And the rate of cancellation is even higher— 38% — for customers who were on the fence about their subscription before their payment failed.
You don’t want to give your customers the opportunity to cancel. Using a solution that avoids customer visibility should always be your first step in recovering lost payments.
Our AI-powered solution
Invisible Recovery™ by FlexPay is an AI-powered solution that recovers failed payments without customers ever knowing there was a problem. While you may be able to recover some customers on your own, Invisible Recovery™ typically recovers customers in less than three days, instead of the 30 days needed by other recovery methods. There is no disruption of service and customers don’t have the opportunity to cancel their subscription. Using Invisible Recovery™ doesn’t just let customers fulfill their original subscription, you can see up to a 54% longer total subscription period after retention.
Interested in finding out what Invisible Recovery™ can deliver for your subscription business? Measure the results for your company now and contact us to schedule a consultation with one of our declined payment experts.