On the surface, growing a subscription business is pretty straightforward. You bill your existing customers, add in your new subscribers, and subtract the number of customers you lose to churn. But what if you can’t get your churn under control? You could end up losing a huge amount of money each month and that’s dangerous. So, what’s the true cost of failed payments?
The most common drivers of customer churn are well understood, such as customer fatigue, competitive loss, and customer service issues. However, there is a fourth cause of churn that is not typically understood or managed: payment system authorization errors. Today’s banks are nervous about fraud and rightly so since they lose more than $30B each year due to fraudulent transactions. This has led banks to shift the risk to merchants, resulting in more than $400B in lost revenue around the world each year. Customers and merchants are bearing the high cost of payment system errors, including failed payments.
Failed payments have a huge impact on revenue and growth.
The Impact of Failed Payments
Failed payments cause two types of churn: Involuntary, where unrecovered declined payments end the subscription prematurely, and voluntary, which happens when the customer decides they no longer want to continue with the product or service and end their subscription early. Either way, failed payments have a huge impact on revenue and growth. Not only does the business lose that one month’s payment, but they also lose all the future income the customer would have provided over the course of their subscription, including any upselling or cross-selling opportunities. That’s the true cost of an unrecovered failed payment.
With so many revenue dollars on the line, it’s important to use a failed payment recovery method that doesn’t tell the customer their payment has failed. You can’t afford to give them an opportunity to cancel their subscription. Besides recovering revenue right away, Invisible Recovery™ also leads to longer lifecycles after the payment has been recovered.
Say for example you have a customer who pays $49.99 per month and has a failed credit card payment that ends their subscription 7 months early. What does this mean for your business?
Total Failed Payment Cost = $49.99 * 7 = $349.93
You’ve lost the full amount of the life of their subscription.
The Value of a Recovered Customer
Let’s look at the equation again where you add in the cost of using 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 * 7) – $15 = $334.93
As you can see, your ROI of Recovery is 96%, which is well worth the small cost of using a PAM system.
How much are failed payments costing your subscription business? Learn more about the true cost of failed payments and what you can do to recover revenue and improve customer LTV by watching this On Demand webinar. Or if you have questions, schedule a consultation with our failed payment recovery team to discuss your needs.