Relationships, Retention, and Revenue
The Connection Between Payments and Subscriptions
The subscription business model is founded on the premise that creating ongoing, long-lasting relationships with customers creates a healthy
business. The customer gets regular delivery of the product or service they desire, and the business gets predictable, ongoing revenue.
Smart subscription businesses recognize the value of increasing customer retention since it ensures an ongoing stream of money coming in. They understand that the health of the business increases when customer retention increases, so they invest significant resources to reduce customer churn. They build programs directed towards reducing customer cancellations, measure and maintain customer satisfaction, and work to save customers when a cancellation request is made by a customer. All these actions are based on the belief that customer churn is caused by customers cancelling their subscriptions.
But this is only part of the story. In reality, up to 48% of customer churn is caused by failed payments, otherwise known as involuntary churn. The good news is that many subscription businesses have started to recognize this, and have undertaken efforts to recover failed payments and reduce the churn they create.
However, there is a central problem with the way that many businesses view failed payments — they are perceived as a transactional problem.
Meaning the payment authorization request is declined, and so attempts are made to recover the payment transaction.