According to Recurly’s comprehensive study on churn, subscription based businesses have an average involuntary churn rate of 1.39%. That may sound like a tiny percentage, but that’s the monthly rate. Over a full year, a large percentage of subscribers leave involuntarily—and it’s very possible to save them by taking the right steps.
One of those steps is dunning.
The dunning process refers to communicating with customers (usually via email) to arrange for the collection of overdue payments. This dunning definition sounds simple and straightforward. But the optimization (or lack thereof) of the dunning process can have a significant impact on involuntary churn.
To reduce involuntary churn, we have to move beyond the dunning meaning, and look at the dunning process—step-by-step.
The first step is typically updating account details. By doing that, recurring billing software can prevent expirations and cancelations from leading to hard declines.
If the account details aren’t the culprit, it’s very possible that insufficient funds, credit/debit card restrictions, or technical issues could be responsible for the declined transaction. A subscription billing system uses a “smart”, data-driven approach to retry transactions at a time that is likely to lead to a high success rate.
In many cases, however, the first two approaches are unsuccessful. This makes personalized communication necessary to salvage the transaction: enter dunning.
There are five steps to dunning:
Step 1: Your customer’s invoice isn’t paid on time.
Step 2: Your subscription billing system sends an email alerting the customer that the payment method on file was declined. It provides instructions on how to update payment information.
Step 3: The software sends reminder emails on a customized schedule, based on your preferences (this step is optional).
Step 4: If the dunning emails and other revenue recovery strategies are unsuccessful, the invoice fails. You can elect to cancel the subscription, so it doesn’t renew again.
Step 5: You email the customer, letting them know that their subscription has been cancelled. You also include a link to pay the invoice and re-subscribe, in case there is a change in circumstances.
Since dunning is a complex process, the dunning ROI provided by each subscription billing platform can vary dramatically. Recurly, with over a decade of experience in recurring billing across a number of industries, has created a customizable dunning process that gets results: our platform has a 25% average recovery rate from dunning.
How does Recurly help its merchants recover revenue that would have otherwise been lost through dunning?
Here are a couple of ways:
Customized communications: your company is unique, which means that your dunning process has to be unique too. For example, an optimized dunning process for a B2B SaaS company is going to look a lot different than an optimized dunning process for a B2C consumer goods company. In any case, you need a subscription billing platform, like Recurly, that has experience across industries.
Recurly separates the dunning and retry process: we separate the dunning and retry process because, again, not every company’s subscribers respond the same way to dunning emails. In addition, our past experience has indicated that the best time to retry payments varies by company.
Recurly’s approach to revenue recovery has helped merchants report an average drop in involuntary churn from 6% to 1%. But we know that there is always room for improvement, so we continue to take steps to improve dunning at Recurly. Here are some of our new dunning features:
Optimize dunning lengths or emails by plan
Vary dunning approach for trial vs. paying customer
Utilize web-hooks to manage dunning with a marketing automation platform
Get insights into the effectiveness of dunning performance
The first two features are geared towards further customizing the dunning process because targeting your communications to each group of customers is key to a successful dunning process.
By managing dunning with a marketing automation platform, you can reduce the burden on your staff. This allows you to redeploy them to higher-value tasks.
Finally, with insights into the effectiveness of dunning performance, you gain access to the data you need to constantly improve upon your dunning results.