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Retain subscribers, increase revenue, and scale your Product-as-a-Service (PaaS) business.
Increasing and retaining your subscriber base is fundamental to your PaaS subscription business; after all, they provide you the growth you need to scale your PaaS business. Payment issues are one of the leading causes for involuntary churn.
Yet, the number one reason for losing customers in the checkout process is due to a failure in the card network infrastructure. Cards weren't designed for recurring payments; typically, credit cards expire every three years, but they can also get canceled, lost, stolen, or hit card limits.
Keeping existing subscribers on board is crucial to increase your customer average lifetime value (CLTV). However, even if you try hard to offer a seamless experience, you can still lose customers due to payment issues or because your customer card details it's out of date.
Preventing failing payments allows you to decrease churn and increase subscribers' retention.
Within a subscription business, customer churn is the number of customers who stop paying for their subscription or unsubscribe during a given period. Addressing your customer churn challenges becomes more and more critical for your subscription business to succeed.
There are two types of churn: voluntary and involuntary churn.
In a voluntary churn, the customer decides to consciously unsubscribe when they feel they aren't getting the full value of your product or can't continue with the subscription. Voluntary churn is often based on customer experience rather than the operational aspects, and regardless of what you do, they might be already convinced to unsubscribe.
Now, involuntary churn is not so related to your customer experience. Rather is more related to operational issues that could happen due to payment issues, expired credit cards, insufficient funds or card number has been updated.
Involuntary churn isn't limited to the least engaged customers; it affects all of your subscribers, even the happiest customers (remember they can be as forgetful as your lowest-value customers). By tackling involuntary churn, you can prevent customers from leaving while continuing offering a seamless subscriber experience.
Involuntary churn harms your customer lifetime value (CLTV). Let's say your monthly recurring revenue (MRR) is $60, and the expected contract time is 18 months. If you have 100 customers and half of them are lost due to involuntary churn, that's 50% of subscribers leaving you, which is not useful when you are looking to optimize your customer lifetime value.
Involuntary churn is somehow easier to prevent than voluntary churn. You can avoid these involuntary challenges without changing your proposition or business model. Involuntary and voluntary churn can be prevented by taking the right measurements and having the proper process at hand.
Implement solutions to reduce churn and prevent customers from leaving you again in the future with these 5 strategies:
1. Understand the root cause
Billing systems or credit cards don't work perfectly. Understand what happens when a payment fails; try to get the why does this keep happening. You can use data for this or ask your customers directly.
If you still have some payment issues this could be due to:
- Insufficient funds from your customer
- Customer bank account was closed
- Credits over the limit to make payments
- The card has expired or is no longer valid
- Other payments issues (like temporary down-time)
These are crucial questions to determine how to prevent failed payments and to retarget customers that are about to leave. If you set your payment schedule around your customer's lifestyle, you can ensure that the funds are ready and available for the payment.
2. Ensure member data is up to date
Expired cards are the most significant contributors to involuntary churn. Most credit cards expire after three years, meaning customers need to update their card number or expiration date (probably during the same time they are your subscribers). The longer the lifetime value (LTV), the more involuntary churn there will be.
Run automated updates, so customer data stays up to date. Communicate with your customers if any changes are done to the billing systems.
Also, keep customers up to date if there's any change in your pricing or logistics. Besides, understand if they are having problems receiving the products, or not enough customer experience and address these issues with a seamless payment process with a proactive customer-oriented billing and payment service.
3. Prevent that customers leave with a seamless experience
Product-as-a-Service (PaaS) subscription services often lack reminders that communicate with their customers about changing their payment options. Friendly reminders are always a great way to include a link that enables customers to update their billing information with an urgent tone.
Avoid the spam folder. Regularly engage with subscribers, ask them in a non-spammy way what they think about the product, if they are happy or dissatisfied with your product, and why. Make sure to send your emails from return email so customers can get in touch with you if needed. By educating customers about special offers, price increases, and product updates, you stay connected with subscribers and increase your customer experience (CX). Make sure to have constant contact with customers to re-engage with them in the future.
4. Have a Subscriber Management system in place
Provide a seamless branded personalized billing and payment experience across all channels—update subscribers' information with a software that can update information more easily. Use a single solution that manages your subscribers through their life cycle, including payment updates and add-ons.
Offer customers flexible and customized payment schedules with constant support. Accept payments through various channels with integration with secure payment gateways that accept multiple currencies and safeguard your customer data.
Subscriber management is also essential once your company starts scaling, and extra support is needed, especially with your customized promotions, customer satisfaction, inventory management, and logistics.
5. Built-in dunning management
Know when subscribers' credit card expires and take further steps to prevent this from happening. One way to remind your subscribers when their payment method needs to be updated is by sending a series of email (app) messages encouraging customers to update their payment method soon.
Pre-dunning messages come in handy when you don't have another payment system to catch card updates.
Keep in mind that it is crucial to dedicate most of your efforts while they are still actively using your product (considering that it would be harder to capture them once they are gone).
Irregular billing can happen throughout your customer lifecycle, so having subscribers engaged can severely impact your customer subscription status. Prompt users to update their billing information while you make sure to have all the systems in place to prevent involuntary churn.
In Firmhouse, we try at least 3 times to collect the payment from the customer. If this is not successful, the customer gets flagged and customer support will take over. Having a well trained customer support team can help you with this.
What to learn how to automate your payment process? You can use a single platform to run your Product-as-a-Service (PaaS) subscription from end-to-end instead of having different systems. Contact us Firmhouse to get started with your PaaS subscription today.