Avoidable Failed Payments Cause 50% of Subscription Churn

Failed card payments are the topmost factor in subscription churn, and it’s a fixable problem.

This is examined in the study “The State of Subscription Business: Best Practices and Business Performance Drivers, a PYMNTS and FlexPay collaboration based on a survey of 200 executive decision-makers at companies that offer subscription-based services and products in retail, health and fitness, media and publishing, home security and online gaming.

More broadly, the study revealed that subscription merchants and brands are often not tracking metrics that matter most, such as customer lifetime value (LTV), which 91% of subscription firms don’t actively track, despite the importance of LTV to the health of subscription businesses.

“Subscription businesses do not fully grasp the extent to which failed payments contribute to customer churn and the resulting impact on business performance,” the study found. “Our data shows that over two-thirds of subscription-focused firms recognize the negative impact of failed payments on customer retention, yet only 27% consider it the most significant contributor to churn.”

Considering that involuntary churn caused by failed payments is the cause of half (50%) of all customer churn, the fact that only slightly more than half of subscription firms (53%) track involuntary churn helps define top performers from the rest of the pack.

Additionally, only 20% of the firms that track failed payments believe it’s the most critical metric for sustaining the business. As the study noted, “most firms are either underestimating the severe impact of failed payments on customer LTV or overlooking this dynamic completely.”

Given that close to one-third (27%) of subscribers are likely to cancel a subscription due to an avoidable failed payment like those that occur from expired cards and changes of address — issues that are easily handled by subscription management platforms — “only 15% of the subscription providers we surveyed say they track failed payments primarily to improve customer LTV — meaning that 85% view failed payments as ‘the cost of doing business’ and out of their ability to control or improve,” according to the study.