Involuntary churn 101: What it is, why it happens, and seven ways to reduce it

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Saiba mais 
  1. Introdução
  2. What is churn?
  3. What is involuntary churn?
  4. Involuntary churn vs. passive churn: How they’re different
  5. How to prevent involuntary churn
    1. Refine your payment processing
    2. Automate payment failure notifications
    3. Offer multiple payment options
    4. Make dunning management a top priority
    5. Give customers flexibility with billing
    6. Communicate clearly and promptly about billing issues
    7. Use machine learning to flag signs of risk
  6. How Stripe can help

Involuntary churn is a type of churn that is somewhat resistant to many of the go-to churn reduction strategies that work for other kinds of churn. For example, it’s not possible to combat involuntary churn by continually synthesizing customer feedback into regular product updates. Unlike voluntary churn, involuntary churn doesn’t happen because customers don’t like what you’re offering them, so it requires a different approach. That said, there are ways to minimize how often involuntary churn happens. We’ll discuss what involuntary churn is, why it happens, and what you can do about it.

What’s in this article?

  • What is churn?
  • What is involuntary churn?
  • Involuntary churn vs. passive churn: How they’re different
  • How to prevent involuntary churn
  • How Stripe can help

What is churn?

Churn refers to when customers or subscribers stop using a business’s products or services within a certain time frame. This term is commonly used in industries such as telecommunications, software-as-a-service (SaaS), and other online services, especially those with subscription-based models.

The churn rate is a measurement, usually expressed as a percentage, that shows the rate at which customers discontinue their subscriptions or stop using services. This rate is important for businesses because it affects their revenue and gives insights into customer satisfaction and loyalty.

Average churn rates vary by industry. Computer software and information technology (IT) services have the lowest annual median churn rates, at 14% and 12%, respectively. A high churn rate may indicate issues with the product, service, pricing, or competition, while a low churn rate likely suggests customer contentment and a successful business strategy. Businesses often focus on reducing churn because retaining customers typically costs less than acquiring new ones.

What is involuntary churn?

Involuntary churn happens when customers unintentionally stop using a service or subscription. Unlike voluntary churn, in which customers choose to cancel their service, involuntary churn occurs for reasons beyond the customer’s control. Common causes include payment issues such as expired credit cards, declined transactions, and bank errors.

Involuntary churn vs. passive churn: How they’re different

Though involuntary churn and passive churn sound similar, there are some important distinctions to consider when creating your churn reduction strategy:

  • Cause and level of control: Involuntary churn occurs because of factors outside the customer’s control, such as payment failures or banking issues. Passive churn, on the other hand, happens when the customer unintentionally retains a service without active usage or decision to renew. It’s often linked to a lack of awareness or forgetfulness about the subscription.

  • Customer intent: Customers who involuntarily churn usually intended to continue the service but have been blocked by external obstacles. In contrast, passive churn involves customers who may not have a strong intention to continue or discontinue the service; they may have kept their subscription because of inertia or oversight.

  • Engagement levels: Involuntary churn often involves customers who are otherwise satisfied with the service. Passive churn typically concerns less active customers, who might not be actively using or deriving value from the service.

  • Preventive measures: Addressing involuntary churn involves improving payment processes, sending reminders, and offering alternative payment options. Tackling passive churn requires re-engaging customers, providing value reminders, and creating opportunities for the customer to make an active decision about their subscription.

  • Impact on retention strategies: Though involuntary churn can be mitigated with technical and process improvements, passive churn requires more dedicated efforts in improving customer experience. Understanding the difference is key for effective retention strategies.

  • Data analysis for insights: Monitoring patterns in involuntary churn can provide insights into payment system efficacy and customer financial behavior. Analyzing passive churn can help you understand how engaged your customers are and where you can fine-tune your service to match their priorities.

  • Communication approach: Serving customers at risk of involuntarily churning can involve proactive troubleshooting and support. For those in passive churn, your communication strategies should focus on rekindling interest, highlighting benefits, and prompting active choices regarding their subscription.

How to prevent involuntary churn

Involuntary churn can happen for several reasons, all of which are likely preventable. Though there are no churn-proof businesses, being proactive can help you dramatically reduce all kinds of churn, especially involuntary churn. Here’s how to go about it:

Refine your payment processing

  • Updating and optimizing payment gateways: Make sure your payment gateways are up to date and functioning optimally. This minimizes transaction failures that result from outdated systems or compatibility issues.

  • Regularly testing payment processes: Conduct regular tests on your payment processes to detect and resolve issues before they affect customers. This preemptive approach helps maintain a smooth payment experience.

  • Implementing smart retry logic: Introduce intelligent retry mechanisms for failed transactions. Attempting to process a payment that initially failed multiple times over a given period increases the likelihood the transaction will succeed.

  • Maintaining payment security standards: Adhering to high security standards such as Payment Card Industry Data Security Standard (PCI DSS) compliance is important. This secures customer data and builds trust, reducing the chances of payment rejection due to security concerns.

  • Having easy update mechanisms for payment details: Provide a user-friendly interface for customers to update their payment details. Regular reminders for updating expired or expiring credit and debit cards can prevent failed transactions.

  • Using real-time transaction monitoring: Implement real-time monitoring to quickly identify and address payment failures. Immediate action can prevent customer dropout due to payment issues.

  • Providing detailed payment error messages: Clear and informative error messages can guide customers to resolve issues themselves, such as using a different credit or debit card or checking transaction limits with their bank.

Automate payment failure notifications

  • Immediate notification and follow-up: As soon as a payment fails, the automated system sends an alert to the customer. That initial notification allows for prompt action, and follow-ups can be sent automatically if the issue goes unresolved. This reduces the time the customer is in a state of involuntary churn and helps the customer quickly settle the issue.

  • Consistency and reliability: Automated notifications eliminate the risk of human error in failing to notify customers. Every payment failure triggers an alert so no customer will slip through the cracks.

  • Customizable messages: Automation makes it easier to quickly personalize messages based on the reason for the payment failure. Automated messages can offer specific instructions customers can use to resolve their particular issues.

  • Multichannel delivery: These notifications can be programmed to reach customers through various channels such as email, SMS, or in-app messages. This multichannel approach increases the likelihood customers will receive the notification and resolve the issue.

  • Tracking and analysis: Automated systems can track the success rate of these notifications in resolving payment issues. This data is valuable for understanding patterns in payment failures and refining the notification strategy.

  • Integration with customer support: Whenever customers need assistance, automated notifications can be sent that include useful links to your knowledge hub and contact details for customer support.

Offer multiple payment options

  • Diverse payment methods: Include a variety of payment methods such as credit cards, debit cards, direct bank transfers, digital wallets, and newer forms of payment such as cryptocurrency to cater to the different preferences and capabilities of a wide customer base.

  • Global accessibility: For businesses with a global customer base, it’s important to offer payment options that are widely accepted worldwide. This might include region-specific payment methods to accommodate customers in various countries.

  • Redundancy and backup options: When one payment method fails, customers can easily switch to an alternative method. This flexibility prevents service disruption because of issues with a particular payment type.

  • Ease of updating payment information: Make it simple for customers to update and switch between payment methods. A user-friendly interface in the customer account settings can facilitate this process.

  • Adaptability to customer needs: A range of payment options cater to customers’ varied financial situations. For instance, some might prefer bank transfers or debit card payments, while others who want to manage their cash flow might opt to use their credit card.

Make dunning management a top priority

  • Strategic integration: Dunning is the process of communicating about a failed or lapsed payment. Your business’s dunning management strategy is likely at the core of your long-term financial strategy. It’s not an isolated task but an important part of the overall customer experience and retention strategy.

  • Advanced analytics and predictive modeling: Invest in advanced analytics and predictive modeling to anticipate payment issues before they occur. Use data to understand customer payment patterns and identify potential risks before your customers involuntarily churn.

  • Executive-level involvement: It’s important to stress the importance of dunning management to your business’s top executives. Executives are actively involved in setting priorities and reviewing performance. The entire organization must understand the importance of dunning.

  • Holistic customer view: Develop a more holistic view of your customers’ journey that incorporates dunning management into the customer lifecycle. Understand how payment issues affect the customer experience, and address them in the context of the overall relationship.

  • Innovative payment solutions: Explore innovative payment solutions and partnerships. For instance, you may want to collaborate with fintech companies that can help you explore new payment technologies that can deliver more flexible and customer-friendly payment options.

  • Employee empowerment and incentives: Give employees the authority and tools to resolve dunning issues themselves. Create an incentive system that rewards successful dunning management and customer retention.

  • Customized and dynamic dunning tactics: Move beyond a one-size-fits-all approach. Develop dynamic, customer-specific dunning tactics based on individual customer profiles, behaviors, and preferences.

  • Culture shift: Encourage your team to empathize with customers experiencing payment issues and to see the value in doing everything possible to retain their business.

Give customers flexibility with billing

  • Customizable billing and payment plans: Provide options for different billing and payment plans, such as monthly, quarterly, or annual payments. This flexibility can cater to different budgeting preferences and financial situations of customers.

  • Usage-based billing options: Implement usage-based billing for services where customers pay for what they use. This can be particularly effective for SaaS and utility services, where customer usage may vary from month to month.

  • Payment plan adjustments: Let customers adjust their payment plans if and when their preferences or financial circumstances change or if they experience hardship. For example, customers may want to temporarily downgrade or pause their subscription rather than cancel altogether, which can prevent a customer from churning because of financial constraints. This might include options for deferred payments, reduced plans, or customized support to help them through challenging periods.

  • Early payment incentives: Encourage timely payments with incentives for early payment, such as discounts and additional features. This can motivate customers to prioritize payments to your service.

  • Transparent billing communication: All billing statements should be clear, transparent, and easy to understand. Confusing or opaque statement language or format can lead to disputes or unintentional nonpayment.

  • Self-service billing management: Provide a self-service portal where customers can easily manage their billing options. This empowers customers to make changes as needed without having to go through customer service.

Communicate clearly and promptly about billing issues

  • Immediate alerts with a human touch: When a billing issue arises, send a notification right away that sounds as though it’s coming from a person, not a machine. A message that reads as if someone genuinely cares can reduce frustration and encourage swift resolution.

  • Clear explanations without jargon: Use plain language to explain billing issues. The goal is to make the problem and solution so clear that anyone, regardless of their familiarity with billing processes, can understand and act on it.

  • Diverse channels with a single message: Use different communication methods—email, SMS, phone call, in-app messaging—but keep the core message consistent across all platforms. This reinforces the information and shows organizational coherence.

  • Step-by-step guidance with empathy: Offer clear instructions on resolving the issue, but embed empathy in every step. Acknowledge the inconvenience and guide them as if you’re solving the problem together.

  • Tailored communication: Personalize messages based on the customer’s history and preferences. A message that acknowledges their situation shows respect for their experience with your service.

  • Understanding in tone: Convey understanding and patience in your tone. A billing issue is a hurdle in your customer’s experience, and your tone should reflect a willingness to help them climb over it.

  • Proactive and persistent follow-up: If the first message doesn’t resolve the issue, adjust your follow-up based on their response (or lack thereof). Sometimes a different approach or additional information can make the difference.

  • Open updates and closed loops: Send customers regular updates, especially if the issue is complex. But also close the loop once resolved, with a message that shows you appreciate their patience and cooperation.

  • Easy access to a person: Make sure customers can easily reach a person for help. A readily accessible support team, trained to handle billing queries with efficiency and empathy, can turn a potential churn situation into a loyalty-building moment.

  • Inviting feedback as a growth opportunity: After resolution, ask for feedback. This isn’t just about measuring performance—it’s an opportunity to learn and evolve, showing customers their voice shapes the way you do business.

Use machine learning to flag signs of risk

  • Predictive patterns: Machine learning algorithms excel at identifying patterns that might not be obvious to the human eye. By analyzing vast amounts of data, these algorithms can spot trends indicating a higher risk of churn, such as changes in purchasing behavior, service usage drop-offs, and payment irregularities.

  • Early warning system: Think of machine learning as your early warning system. It alerts you to potential churn risks before they become full-blown problems, giving you valuable time in which to act.

  • Customized interventions: Machine learning can provide insights that help you tailor your interventions to individual customers’ situations. This personal touch shows customers you’re not just monitoring for risks but are proactively working toward their continued satisfaction.

  • Automating risk mitigation processes: Machine learning can automate certain risk mitigation processes, such as sending personalized reminders or special offers to customers who might be at risk of churning. For instance, if a customer’s card is nearing its expiration date, the system can automatically remind them to update their payment information.

  • Continuous learning and adaptation: Machine learning systems use new data to refine their predictions on an ongoing basis. This means your risk detection and prevention strategies get smarter and more effective over time, helping you stay in tune with changing customer behaviors and preferences.

  • Behavioral insights for customer-centric decisions: Beyond just flagging risks, machine learning provides deeper insights into customer behavior. This can help you tailor your products and services, tweak customer service approaches, and refine marketing strategies to better meet customer needs.

  • Empowering customer support with data: Equip your customer support team with data and insights from the machine learning system. This empowers them to understand the customer’s history during interactions and to provide an informed, empathetic, and effective service.

How Stripe can help

Stripe has a powerful suite of features and tools designed to help your business reduce involuntary churn, especially if you use a subscription-based model or another kind of recurring billing. Through automation, data analysis, and customer communication tools, these Stripe tools can help you retain more clients:

  • Stripe Billing: Stripe Billing is a useful churn prevention tool for managing subscriptions and recurring payments. It’s equipped with features such as smart retry logic, which automatically attempts to process payments that initially fail, reducing churn because of payment failures. Stripe Billing also lets businesses customize their billing cycles, so your customers’ financial capacity and preferences guide their journey with your products and services.

  • Stripe Sigma: For deeper insights, Stripe Sigma provides businesses with real-time data analysis capabilities. Your business can use Stripe Sigma’s structured query language (SQL) to analyze payment data and identify trends and patterns associated with churn. This tool is especially useful for businesses looking for a data-driven approach to understand and reduce churn.

  • Automated email notifications: Stripe supports automated email notifications for failed payments. These dunning notifications can be customized in terms of content and timing so customers are promptly informed about any billing issues, with clear instructions on how to quickly resolve them.

  • Stripe Radar: Stripe Radar uses machine learning algorithms to detect and prevent potentially fraudulent transactions. Errant declines—legitimate transactions wrongly declined because of suspected fraud—can inadvertently contribute to churn, but Stripe Radar proactively minimizes that risk.

  • Customer portal: Stripe’s customer portal lets your customers manage their subscriptions and billing details themselves. This gives them control over their payment methods, plans, and personal data, thus reducing the administrative burden on your team and improving customer satisfaction.

  • Flexible payment methods: Stripe supports a wide array of payment methods, including credit and debit cards, direct bank transfers, and newer digital payment methods such as cryptocurrency. That variety helps you cater to different customer preferences across international markets, reducing churn because of limited payment options.

To learn more about Stripe Billing, Sigma, and Radar, go here.

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