Your Action Plan for Tackling Involuntary Churn

By Leanne Beattie, Content Marketing Writer, FlexPay

With consumers tightening their household budgets, retaining existing customers has never been more crucial for subscription and recurring billing businesses—even the most successful companies are finding it harder to maximize retention. Read the full report

The result? Lost revenue and unrealized growth potential.

For subscription and recurring billing businesses, bridging the gap between current retention rates and optimal customer lifetime value (LTV) is critical. And this means understanding and measuring both types of churn. While this might sound straightforward, many companies fail to differentiate between voluntary and involuntary churn and often lack strategies to address the latter. Understanding and addressing involuntary churn could be just what your business needs to achieve long-term success.

Voluntary vs. Involuntary Churn: Key Differences

Voluntary churn occurs when customers consciously decide to cancel their subscriptions. To combat this, businesses invest heavily in improving customer experiences, offering flexible plans, and providing exceptional support.

Involuntary churn stems from failed payments, also known as false declines. These payment failures often result in customers losing access to services unintentionally. Surprisingly, failed payments are responsible for up to 50% of all involuntary churn. The good news? Unlike voluntary churn, involuntary churn is preventable with the right tools and strategies.

Why Involuntary Churn is a Hidden Threat

Involuntary churn doesn’t just reduce your revenue; it impacts growth rates, customer LTV and profitability. This compounding effect leaves businesses with fewer resources to invest in customer acquisition and product development. However, the reverse is also true. When involuntary churn is reduced, customer LTV increases, and recovered customers continue generating revenue over time. This creates a virtuous cycle where improved retention leads to accelerated growth, giving businesses a significant competitive edge.

Recovered customers also contribute to ongoing revenue gains, which can fuel investments in marketing, product enhancements, and customer support—ultimately helping you gain market share. By reducing involuntary churn, your business will outpace competitors struggling with suppressed revenue and reduced profitability.

Measuring and Calculating Involuntary Churn

Before you can tackle involuntary churn, you need to measure it. Surprisingly, many companies don’t track this critical metric. Research shows that while 58% of subscription businesses monitor overall churn and retention, few track voluntary and involuntary churn separately. This oversight prevents them from identifying the root causes of customer loss.

Here’s how to calculate involuntary churn:

1. Gather Data:
   • Total churn: Includes customers lost to both voluntary and involuntary churn.
   • Customers lost due to failed payments: Includes those whose subscriptions ended because of payment failures.
2. Run the Calculation:
   • Divide the number of customers lost due to failed payments by the total churn. The result is your involuntary churn rate.

This simple formula gives you a clear picture of how much involuntary churn is affecting your business.

Reducing Involuntary Churn: Strategies That Work

Let’s consider an example. A company measures its churn rate at 25%. After calculating, they discover that 48% of this churn is involuntary. By implementing a failed payment recovery solution, they could potentially recover 50% or more of those lost customers, reducing overall churn by 12%.

Here's how subscription businesses can effectively reduce involuntary churn:

• Invest in Technology:
  • Advanced solutions, particularly AI-powered payment recovery systems, can identify the specific causes of failed payments and create tailored recovery strategies. For example:
  • Addressing issuer-specific payment declines.
  • Understanding reason codes for failures (e.g., insufficient funds, expired cards).
  • Differentiating recovery methods for credit card types.
• Focus on Retention and LTV: High-performing recovery solutions not only recover failed payments but also ensure customers remain engaged long-term. The quality of the recovery experience plays a significant role in determining post-recovery LTV.
• Optimize Recovery Processes: Certain payment issues, such as expired cards, require customer involvement. However, notifying customers about failed payments can lead to additional churn. The best solutions minimize customer visibility of payment issues, resolving most problems within the payment system itself. When customer interaction is necessary, an empathetic, collaborative approach is critical.

Best Practices for Long-Term Success

To maximize the benefits of reduced involuntary churn, businesses should adopt the following best practices:

1. Develop a Cross-Functional Team: Create a team from finance, technology, and reporting departments to analyze churn data and implement recovery strategies.
2. Monitor Key Metrics: Measure customer LTV, retention rates post-recovery, and the overall financial impact of reduced churn.
3. Leverage AI and Automation: AI-powered solutions can personalize recovery strategies at scale, delivering better results than manual or one-size-fits-all approaches.

Conclusion

Reducing involuntary churn is not just about recovering failed payments—it’s about creating a competitive advantage. Subscription businesses that address this often-overlooked issue can unlock significant revenue growth, improve customer retention, and boost profitability. By taking proactive steps to measure, understand, and reduce involuntary churn, you position your business for sustained success in a highly competitive market. Contact us to learn how your company can tackle failed payments.

About FlexPay

FlexPay is the leading failed payment recovery platform for subscription and recurring payment businesses, using multiple technologies to deliver the highest failed payment recovery rate, longer life span after recovery, and reduced involuntary churn. Learn more at flexpay.io.