Some churn is inevitable and there are many reasons that subscribers choose to cancel their service that are simply out of the content owner’s control. But according to Matt Goldman, many subscription businesses don’t realize how much revenue is lost to involuntary churn. Matt is the CEO at Churn Buster, where he’s focused on making subscription businesses more efficient and profitable. Before Churn Buster, Matt was a co-host on The Rocketship Podcast, where he interviewed 300+ subscription-business founders and learned the ins and outs of raising capital, growth, churn, and everything in between.
We had the chance to hear from Matt about the ways that subscription businesses can easily increase their subscriber retention using tools that automatically prevent churn due to failed payments and expired cards. If you're interested in learning even more about video monetization, check out our comprehensive guide to video monetization for a complete look into the nuances of video monetization.
SVOD businesses often charge a large volume of customers, a very small monthly or annual fee, so it’s critical to have scalable systems in place. You need to automate most billing processes to not involve your team. Ideally, your support tools enable your team to solve a dynamic set of problems, while limiting the number of customer conversations. Finally, you need to work to decrease churn across a variety of subscribers, that are often getting different kinds of value out of the service you provide.
About 40% of churn can be involuntary–meaning that the customer didn’t intend to cancel. The most common cause is declined credit cards.
Involuntary churn can be solved with automated systems, in contrast to voluntary churn, which requires the smart folks on your team to be proactive, throughout all stages of the company.
Voluntary churn is something you should always be directing energy towards improving. It even has a direct impact on involuntary churn since the more customers love your service, the more likely they’ll be to update their credit card when payment issues inevitably occur in the future.
Teams really shine when they focus on their core service and automate or delegate the network of processes surrounding it.
I mentioned involuntary churn above...most folks think that simply includes failed payments due to expired cards, but it’s quite a bit more complicated.
Many payment processors, like Stripe, have a service called " Card Updater" which automatically updates card information when possible. These tools continue to improve, and can now solve 70% of expiration-related issues automatically. They save the customer from needing to log in to 10s or 100s of services to update their credit card whenever any changes (expiration, or changing cards within the same bank) occur. That said, they don’t solve all issues.
Card Updater can’t resolve spending limits, temporary declines due to fraud, getting a new card from a different bank, or several other temporary, or permanent reasons why cards get declined.
These days, it’s much less likely to lose a customer to a credit card expiration and much more likely to lose them due to hitting a spending limit, which can be an easy problem to navigate, if you have the right tools.
So the question is, “how do you level up your tools?”
Pre-dunning emails are automated messages that give customers a heads up 30 days, 15, days, 3 days before their card expires, prompting them to update their payment information.
First, you should disable your pre-dunning emails. An email sent to 10 customers telling them their card will expire soon, is an email telling 7/10 customers they have a payment problem when they aren’t actually going to run into any issues (thanks to Card Updater running in the background).
We find it better to avoid sending these misleading emails, and instead let the minority of at-risk charges go on to have a chance at succeeding, and if they fail, trust that they’ll be picked up by your dunning process.
Once a payment fails, most business-owners are tempted to email the customer right away....but it’s important that you don’t! Especially for SVOD businesses.
We find that about 20% of payment failures are temporary (i.e. hitting a spending limit), and can be resolved simply by retrying the card a few times. Before any emails are sent, you should make sure that your dunning tool lets you trigger payment retries automatically.
The reason this is important for SVOD businesses is that when you email a few thousand people about a payment problem that doesn’t require intervention, you’re bound to get hundreds of replies along the lines of, “try charging the card on Feb 11.” or “it should work if you try it again.”
Not only does this burden your support team at-scale, it also requires that salaried team members do manual work, and back-and-forth with customers when smart computers could have automatically handled it start-to-finish.
Once you’ve tried retrying the payment several times, you should start sending emails. Our first email goes out on day 5 of a campaign.
You should send at least 5 emails, spread out over at least 25-30 days. You never know when your customer is going to be traveling, distracted, or when your emails will miss the inbox for whatever reason.
You should monitor your outbound emails for delivery confirmation. If an email bounces (doesn’t get delivered), you should track that, alert your team, and possibly change your strategy for that customer.
You can increase deliverability by setting up SPF and DKIM records to ensure secure and trusted delivery, making your emails look trustworthy, and not like phishing scams.
But inevitably, customers will misspell their email address, or change it, leaving you with a bad point-of-contact.
Depending on subscription value, it may be worth it for your team to jump in and save the day, finding a way to get a hold of the customer to retain them. But at the very least, you should have reporting around this, so that you can react if email deliverability takes a dive for whatever reason.
Stripe and Braintree make it really easy to tackle this problem.
If you have a development team, they can use “webhooks” from Stripe or Braintree to automate emails to be sent when payments fail. This isn’t ideal for the reasons listed above, and won’t work well at-scale, but is certainly better than nothing.
When you’re growing, you should start to consider working with a product like Churn Buster, which is 100% focused on tackling this problem, and is a) guaranteed to outperform your current setup, and b) guaranteed to deliver a positive ROI.
Specific to involuntary churn, it’s important to know the total and percentage of failing payments. And how those change month to month.
It’s also critical to track your recovery rate: Of the payments that fail, how many of those customers are retained?
Specific to voluntary churn, segmented user and revenue churn can be helpful in truly improving various aspects of your business and team.
When you know how many payments are failing and why, and how many you’re recovering, at a granular level, you’re able to iterate with different campaign lengths, retry strategies, etc. to improve recovery. Without visibility, you’ll always be in the dark. And with failed payments being a recurring problem, it’s easy to make mistakes-on-repeat, which should always be avoided.
Learn more how Churn Buster helps subscription businesses take control of involuntary churn, visit churnbuster.io.