“A failed payment disrupts the connection and trust between the subscription provider and the subscriber,” Vindicia Head of Customer Success Meena Srinivasan told PYMNTS.
Not only do these breakups give customers an opportunity to explore alternate options that are available in the market, but she said they’ve proven to be a reliable leading indicator for trouble.
“There is a very close relationship between failed payments, customer churn rates, and customer LTV [lifetime value] for a subscription business,” she said.
Calling it “unfortunate” that so few companies are giving failed payments their due when it comes to customer retention, Srinivasan said that many companies dealing with involuntary churn “mostly chalk it up to business as usual,” which she said marks both a failure of strategy and systems.
“The savvy subscription businesses realize that failed payments have a direct connection to lifetime value, and they not only lead to immediate revenue loss, but a loss of future recurring revenue from the subscriber, and that often leads to passive churn,” she said.
Along with the loss of subscribers is potential reputation damage to brands, which can create a negative feedback loop at a time when not even category killers like Netflix can afford that.
Pointing to studies finding that subscription brands lost an average of roughly 9% of revenue to failed payments in the past 12 months — estimated at $278 billion in revenue — she said new solutions are addressing the problem in earnest as subscription brands battle a bad economy.
A 3-Year ROI of Over 500%, You Say?
To combat the failed payments problem beyond the basic retry method many companies use before cutting off subscribers who may wish to keep subscribing, Vindicia has rolled out its Vindicia Retain solution and commissioned research into its effectiveness.
Srinivasan said Vindicia found that subscription providers who deployed the solution were able to realize a three-year return on investment (ROI) of 522%, break even in less than six months, extend LTV by up to a possible five months, and see a 15% improvement in customer service and satisfaction.
She added that subscription’s top performers are dialing up retention efforts far beyond basic retry strategies, going deep into transaction data to determine why payments fail.
“They leverage that information to recover failed payments and prevent lost subscribers,” she said. “In addition to that, they employ powerful retention tools that use machine learning and advanced retention technologies to make sure that this does not happen on a continuous basis.”
The Vindicia Retain card-not-present recovery solution successfully resolves up to half of the terminally failed card payments, Srinivasan said, and it takes actionable data to solve for LTV now.
“It analyzes every individual payment transaction that failed and resolves the issue that causes the failure in the first place,” she said of Vindicia Retain while describing it as an easy-to-deploy Software-as-a-Service (SaaS) solution, which makes it easier on the merchant trying to address LTV problems.
She said “billions of transactions across the globe” are translated into actionable data and payment insights so subscription merchants have a clearer path to solving passive churn.
Asked about the relatively few firms doing deep LTV work, she said as an industry “we shouldn’t ascribe to that. We need to do what we can to improve revenue recognition and revenue rates because it’s not just that one failed transaction,” but the whole revenue stream at stake.
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Getting With the Program
With customer acquisition costs at record highs and the online advertising ecosystem undergoing drastic changes in the past few years, the focus is moving from acquisition to retention among top-performing subscription firms. Others ignore it at their peril.
In this challenging climate, it’s difficult to grasp the gap between those who track and act on LTV versus those who see this churn as the cost of doing business. It’s a very real problem. As PYMNTS’ February Subscription Commerce Tracker® noted: “Failed payment transactions are responsible for 70% of accidental subscription cancellations and can take an enormous chunk out of businesses’ bottom lines.”
That’s why Vindicia (which collaborates on the Subscription Commerce Tracker®) is spreading the “retain” message far and wide as it tries to get more companies out of the retry rut.
“You send us the file and you see revenue coming in, and it’s data-driven,” she said of Vindicia Retain. “It provides clear actionable insights via data intelligence dashboards so you can figure out where you need to make marketing spend, what product features you need to add, and what is your revenue retention on particular brands or products that you offer.”
A clear takeaway is that growth that just flowed to subscription brands with little effort during the pandemic is now in the past, and companies in the sector need to readjust their approach.
“Everybody’s looking to see where they want to spend their dollars. It’s not like the year of the pandemic, when consumers were buying everything online,” she said, adding that “2023 promises light at the end of the pandemic tunnel, but consumers will continue to expect satisfying eCommerce experiences that are seamless, smooth and trustworthy. They don’t want to be associated with brands that are not providing that experience.”
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