December 30, 2020 by: Trevor Murphy
You have a product or service where you only bill once, the moment the customer clicks submit on the checkout page. It’s incredibly hard to get that person interested, into your funnel, and finally to the point where they’ve given their credit card and committed to the transaction. They hit submit, and a few seconds later, they are dismayed to see that their transaction declined. They check the number, they look at the CVV again, but your cart tells them that the transaction declined no matter what they do.
How often does this happen to you? Would it surprise you to learn that some merchants see over 10% of their transactions declined by the card issuing banks? This means that all the effort you put into marketing and convincing this consumer has gone to waste. Over your book of business, that 10% is significantly inflating your cost of acquisition, lowering your margin, and having a dramatic effect on your net income.
Naturally, you want to know what to do about it. As a decline salvage company, we spend our days improving those approval rates. We’ve written several articles that provide strategies on how to minimize the number of declined transactions. You’ll find those here, here, and here.
Recovering Failed Transactions
But you may ask, is there anything that can be done to recover a transaction even after the failures at the shopping cart?
Happily, there is. We have several clients who are using our recovery engine for single sale, non-recurring transactions. The caveat is that you may need to handle them differently than a normal approval, depending on your business.
How to Recover Single Sale Transactions
First, you’ll likely want to delay fulfillment until the approval comes through (if you don’t already). So rather than giving an immediate message saying the transaction was processed, you can tell your customer the transaction is in process, and they will receive a notification when the fulfillment occurs.
In an immediate gratification world, it may seem difficult to retain that customer’s interest while he waits for a shipment notification. However, you would be surprised by the number of companies that practice this regularly. The simplest example is when you purchase something that’s out of stock – reputable merchants like Amazon will not charge you until the item ships but will keep your credit card on-file to bill you the moment it comes in.
If you can sculpt a messaging plan that buys you some time, preferably at least a week, then you may have created the space necessary to run a decline salvage process that can recover these sales that’ll contribute significantly to your bottom line.
At any kind of scale, effort spent on optimizing your sales process will be amortized to zero, which means that the gross margin from those sales goes directly to your bottom line. The sales and marketing are already paid, and the SG&A is similarly unaffected.
Beyond delayed fulfillment, there are some other approaches that might seem to be more radical, but if viewed holistically, may prove to be the answer to not only an approval issue but an opportunity for improved customer service and LTV.
Consider a Subscription Model
Have you considered a subscription model? SaaS does it all the time. Microsoft, Adobe and almost every other software business now sell their products on a subscription. If you have a physical product, you can consider a payment plan or a recurring shipment. Depending on the ratio of clients that initially decline, it may serve you to delay the totality of payment to increase the campaign’s overall revenue. This would require more available cash but can be recovered quickly depending on the length of the payment plan.
That opens the door to decline salvage recovering those sales that would have been totally lost. Of course, you’re going to have some attrition on the payment plan, so you would have to measure the uptick in margin from increased approvals against the loss in margin from attrition, but that comes out ahead for nearly all our merchants. One of the hidden virtues of a payment plan is that you have additional time and reasons to communicate with your clients. Each legitimate and expected communication is a valuable opportunity to upsell or cross-sell. That alone might mitigate any of the above risks.
Look at Your COGs
As a last note, why not consider what it would mean if you were to fulfill the product and not get paid. Depending on your COGs, this might work out. With a robust recovery engine, you can get salvage rates above 50%., as has been the case with some of our single sale merchants. That means that if your COGs are 40%, it would be profitable to fulfill every decline even though you know you’re only going to recover 50%. To put this in dollars, imagine that you had $100k in declines and recover $50k of it. The total cost of fulfillment is $40k, so you’re $10k to the good.
Consider too the ancillary benefits that comes with those customers getting your product. They’re going to see the marketing in your packaging. They’re going to try out your product. For those that you weren’t able to capture a payment on, you can entice them to do business with you again and try to capture the payment that next time, as an outstanding invoice.
This is not your typical loss-leading, but a whole new opportunity to build a relationship and expand your revenues. And is worth a bit of financial modelling to see the full value.
Think Differently About Your Declines
Declines are never good, so your best defense is to get it right in the first place. Do whatever you can to improve your approval rate. When that fails, you’re presented with an opportunity to demonstrate your business acumen – combine creative problem solving with effective decline salvage, and you may discover a rich avenue for growing your net income.
So, are you ready to start thinking differently about declined transactions? Learn more about your options for single sale recovery and whether it’s right for you.