Passive churn 101: What it is, why it happens and eight ways to prevent it

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Billing

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  1. Introduction
  2. What is churn?
  3. What is passive churn?
  4. Eight ways to prevent passive churn
    1. Automate payment reminders
    2. Offer flexible payment options
    3. Create a fast and intuitive payment process
    4. Stay in touch
    5. Prioritise dunning management
    6. Allow a grace period for payments
    7. Offer flexible subscriptions
    8. Learn early warning signs of churn
  5. How Stripe can help

Below, we'll look at what businesses need to know about passive churn: why it happens, how to prevent it and how Stripe can help you address it.

What's in this article?

  • What is churn?
  • What is passive churn?
  • Eight ways to prevent passive churn
  • How Stripe can help

What is churn?

Churn is the rate at which a business loses customers over a given time. Businesses use this metric to understand the rate at which customers stop using their products or services in addition to other insights. Low churn, for example, can suggest a healthy level of customer loyalty and satisfaction, while a high churn rate can indicate dissatisfaction with the product or service. What makes a churn rate good or bad depends on different factors, including the industry and the business's age. A good way to set a benchmark is to examine the churn rates of businesses with annual contract values similar to yours.

What is passive churn?

Passive churn refers to the loss of customers or subscribers who did not take specific action to cancel the service. Also known as involuntary churn, passive churn is a helpful metric for subscription-based businesses. Many factors can cause passive churn, such as:

  • Expired credit card: The customer's payment method expires, leading to the failure of the subscription's automatic renewal.

  • Payment failure: The customer is unable to renew their subscription because of issues such as insufficient funds or because their transaction was declined by their bank.

  • Inattention or forgetfulness: The customer forgets to update their payment information or renew their subscription, which can lead to an unintended cancellation.

Eight ways to prevent passive churn

Taking steps to prevent passive churn is important for two reasons: 1) you can retain customers you might have lost otherwise, and 2) for the customers who do leave, you can learn meaningful lessons about why you lost their business. Here are steps to reduce passive churn:

Automate payment reminders

  • Timing is key: Schedule reminders before the payment due date. This gives customers enough time to make sure their payment information is current and correct. Send enough reminders to be helpful but not so many that you annoy customers. Respect customer preferences for communication and opt-out requests.

  • Personalisation: Tailor your reminders to each customer's situation. For instance, if a customer's credit card is expiring soon, the reminder should mention the importance of updating their card details.

  • Multiple channels: Use a variety of communication channels such as email, SMS and in-app notifications to reach customers wherever they are most active.

  • Clear and concise messaging: Make sure reminders are straightforward and provide clear instructions on how to update payment information or resolve payment issues.

  • Direct links to user actions: Make the process as easy as possible by including direct links customers can use to update their payment information.

Offer flexible payment options

  • Multiple payment methods: Let customers choose the payment method most convenient for them by offering a variety of options, such as credit cards, debit cards, online wallets and bank transfers.

  • Payment plans: Introduce payment plans that cater to different budgets. Monthly, quarterly and annual payment options give your customers more flexibility while maintaining predictability for your business.

  • Currency and regional flexibility: For companies with a global customer base, accepting payments in multiple currencies and adhering to regional payment preferences can help reduce churn because of payment incompatibility.

  • Easy upgrades and downgrades: Make it easy for customers to change subscription levels or services. This flexibility can prevent churn from those who might otherwise leave because of a mismatch between their needs and your service levels.

  • Transparent communication: Communicate all available payment options and plans clearly. Transparency in pricing and billing builds trust and reduces confusion that might lead to payment lapses.

  • User-friendly interface for payment management: Provide a simple, intuitive online interface where customers can manage their payment options, view their billing history and make changes as needed.

Create a fast and intuitive payment process

  • Simplified payment interface: Design a straightforward and uncluttered payment interface. Limit the number of steps and fields required to complete a transaction.

  • Auto-fill capabilities: Implement auto-fill technology to speed up the process for customers. Letting customers' devices automatically input stored information such as name, address and credit/debit card details saves time and minimises typing errors.

  • Clear error messages and guidance: Provide clear, jargon-free messages that help customers resolve issues during payment.

  • Mobile optimisation: Refine the payment process for mobile devices.

  • Fast loading times: Dedicate engineering time to ensure that your website and app load quickly. Long delays during payment can lead to customer frustration and cart abandonment.

  • Secure payment environment: Make the payment process as secure as possible, in part by using trusted security badges and encryption protocols. Communicate your security features and priorities to customers.

  • One-click payment for repeat customers: Make checkout as easy as possible for your customers by offering one-click payments that populate stored payment information automatically and securely.

  • Immediate payment confirmation: As soon as you process a payment successfully, send the customer an instant confirmation notification, such as an on-screen message, follow-up email or SMS.

Stay in touch

  • Regular updates: Send customers periodic updates about your products and services such as new features, upcoming events and general news.

  • Personalised communication: Tailor your communications to match your customers' interests and preferences. Use data from their interaction with your service to personalise messages and make them more relevant and useful.

  • Feedback channels: Encourage feedback from your customers and facilitate this through surveys, feedback forms or direct communication channels such as social media. Timely responses to feedback show customers you value their input and are committed to improving their experience.

  • Educational content: Provide valuable content that helps customers get the most out of your product or service. This could include tutorials, tips, webinars or blog articles.

  • Consistent social media presence: Maintain an active presence on the social media platforms where your customers spend the most time. Share updates and industry news, and engage with customers through comments and direct messages.

  • Celebrating milestones: Acknowledge important dates for your customers and your business through anniversary emails, congratulation messages or special offers.

  • Responsive customer service: Reply quickly and effectively to all enquiries and issues to enhance customer satisfaction and loyalty.

  • Regular newsletters: Share newsletters that advertise your products and services while providing customers with valuable content. Your newsletter may include industry insights, expert interviews and user stories.

Prioritise dunning management

  • Automated dunning process: Dunning involves making contact with a customer about a failed or lapsed payment. Automating dunning notifications lets customers quickly resolve payment issues. This system should identify failed transactions, notify customers and attempt to reprocess payments within a set time.

  • Tiered communication strategy: Create a communication strategy that escalates in urgency with successive failed payment attempts. Start with gentle reminders and, if the issue persists, move to more direct communication.

  • Customisable payment recovery options: Provide customers with easy ways to resolve payment issues. These may include updating payment details, choosing a different payment method or temporarily suspending the service until the issue is resolved.

  • Clear and empathetic messaging: Craft dunning messages that are clear, empathetic and helpful.

  • Analysis of payment failures: Analyse failed payment data regularly to identify common issues and trends. You may gain insights that can make your dunning strategy more effective.

  • Flexible retry logic: Implement a smart retry logic that determines the best times to retry failed payments, based on factors such as the customer's transaction history and banking patterns.

  • Personalised customer support: Offer dedicated support for payment-related issues. Train your customer service team to give personal attention to failed payments.

  • Monitoring and reporting: Monitor the effectiveness of your dunning process. Track metrics such as recovery rate and the percentage of churn attributable to payment failure, and use this data to refine your approach.

Allow a grace period for payments

  • Clearly define the grace period: Establish a clear policy on the length of the grace period. This period should be long enough to give customers ample time to rectify payment issues but not so long that it disrupts your cash flow.

  • Communicate the policy transparently: Make sure that customers are aware of the grace period policy. Communicate this information in the Terms of Service, during the sign-up process and in the payment reminders.

  • Send reminders during the grace period: Use the grace period to send additional reminders to customers. These supportive and helpful reminders should provide customers with easy steps to update their payment information.

  • Offer flexible extension requests: Consider letting customers who face special circumstances request an extension of the grace period. Showing customers empathy can build stronger loyalty.

  • Automate grace period management: Use automated systems to track the grace period for each customer. This maintains consistent policy application and reduces your administrative burden.

  • Monitor impact on revenue: Monitor how the grace period affects your cash flow and revenue.

  • Evaluate your approach and adapt to trends: Review the effectiveness of your grace period policy regularly. Examine how it affects customer satisfaction and churn, and make adjustments as needed.

Offer flexible subscriptions

  • Variety of subscription options: Offer multiple subscription tiers or packages to cater to a wide range of needs and budgets. These tiers could include basic, standard and premium subscriptions with commensurate features and pricing.

  • Easy plan changes: Help customers find a subscription that meets their needs by letting them easily upgrade, downgrade or change plans. Customers should be able to complete this process without needing to contact customer support.

  • Flexible subscription pausing and suspension: Let customers pause or suspend their subscriptions without losing their account settings or data. Customers facing short-term financial hardship will appreciate the flexibility – as will those who no longer need the service and still plan to leave.

  • Customisable billing cadence: Let the customer choose whether they want to pay their bills monthly, quarterly or annually. This protects your annual recurring revenue (ARR) while giving customers the freedom to choose a payment schedule that suits their finances.

  • Add-ons and customisations: Empower customers to customise their subscription with add-ons and additional features. Tailoring your products and services to their needs will improve your offerings, provide a more personalised experience and increase the value of your service.

  • Transparent policy communication: Communicate subscription options clearly. Make sure customers understand terms of service and how they can modify their subscriptions.

  • Feedback loop for plan adjustments: Encourage customers to offer feedback on their subscription plans. Use this feedback to refine your offerings and make sure you are meeting your customers' evolving needs.

  • Proactive customer engagement: Reach out to customers regularly to understand their changing needs. You can win more of their business by offering plan adjustments and add-ons that satisfy their usage patterns.

  • Trial periods for plan changes: Offer trial periods for customers who are interested in switching to a new plan. This lets them experience the new service level without committing immediately, which reduces the risk they will be surprised –and become dissatisfied – after upgrading their subscription.

  • Automated recommendations: Implement systems that analyse usage patterns and suggest the most suitable subscription plans. This personalised approach can increase customer satisfaction and reduce the likelihood of churn.

Learn early warning signs of churn

  • Engagement insights: Track engagement levels to identify the story your data is telling. What does a decline in one feature's usage tell you about the customer's changing needs and overall satisfaction? This deeper analysis can reveal specific areas for improvement and innovation.

  • Payment behaviours as signals: A change in payment behaviour can reflect more than your customer's finances. Changing payment frequency from quarterly to monthly, for example, may indicate increased scrutiny of your offering or even weaker perceived value. Likewise, a subscription pause could hint at the customer's shifting priorities and risk of churn. Recognising these nuances enables more empathetic and targeted customer service.

  • Decoding customer feedback: Customer feedback can provide important insights on your content, the sentiment with which it is offered and more. Examine the emotions that drive your customers to make particular comments, and use that to inform more effective responses.

  • Customer support as the foundation for a relationship: Each customer support interaction is an opportunity to strengthen your relationship. After resolving an issue, your support team should work to understand the customer's broader journey and experience with your service.

  • Predictive analytics with a human touch: Predictive analytics can provide a strong starting point for customer service, but it's human knowledge and intuition that turn data insights into a genuine understanding of customer stories and potential churn.

  • Behaviour or sentiment changes as conversation starters: Use changes in a customer's usage or attitude to initiate a deeper conversation. Reach out to customers to better understand their needs and any challenges they are experiencing, then offer tailored solutions and guidance.

  • Dynamic customer profiles: Treat customer profiles as living documents. Regular updates that reflect changes in customer situations or preferences can provide a more dynamic and responsive approach to customer management.

  • Industry trends indicate opportunities: Monitor industry trends to better understand the broader context of your customers' behaviour. Use these insights to align your products and services with your customers' evolving needs.

  • Learning from churn: Churned clients can provide valuable feedback. Ask customers who are exiting why they have decided to leave; this can help you improve your products and services for new and existing customers.

How Stripe can help

One major cause of passive churn is poor customer experiences related to payment. From checkout to billing, a wide range of technological vulnerabilities can lead otherwise happy customers to become frustrated and leave. Inflexible subscription options and a failure to study payment operations systems for insight into customer behaviour can also impede your business from meeting evolving needs. Here's how Stripe can help identify at-risk customers and support your efforts to fight churn:

  • Streamlined checkout process: Stripe provides a user-friendly and efficient checkout experience. Your customers can complete their purchase quickly and easily with Stripe's fully customisable, embeddable payment forms.

  • Diverse payment methods: Stripe supports a wide array of payment methods including credit and debit cards, digital wallets and international payment options, which means your customers can pay in the way that works best for them.

  • Automated billing: Stripe's automated billing system simplifies the recurring payment process. Stripe sends invoices, handles subscriptions and manages recurring charges so your customers have a smooth, consistent experience.

  • Subscription management tools: Stripe offers extensive tools for managing subscriptions, including easy plan upgrades and downgrades, adding one-off charges and applying discounts.

  • Smart payment recovery: Stripe's dunning tools automatically retry failed payments with an intelligent retry logic. Customers also receive alerts about failed transactions so they can resolve payment issues quickly.

  • Advanced fraud detection and security: Using machine learning, Stripe's Radar technology identifies and prevents fraudulent transactions, creating a secure payment environment for your customers.

  • Data-driven insights: Stripe provides valuable analytics and reporting capabilities. Businesses that use Stripe can gain important insight into payment patterns and identify potential churn based on customer behaviour.

  • Customisable payment experience: Stripe empowers businesses to tailor the payment experience to their specific needs and customers' preferences, with the goal of reducing friction in the payment process that may lead to churn.

  • API-first approach: Stripe is designed around application programming interfaces (APIs) that promote simple integrations with other business platforms and an efficient, cohesive overall experience.

  • Active customer support: Stripe's proactive customer support helps you and your customers address payment-related issues.

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