Dunning Management: How to Reduce Involuntary Churn and Recover Lost Revenue
As the successful owner of a SaaS subscription business platform, you kick off your day with a coffee in one hand and your revenue dashboard in the other—because, let’s be honest, nothing jolts you awake like a surprise spike (or dip) in earnings. Although most of your mornings follow this routine, the once-in-a-while dip does eat away a bit of your happiness.
You may ask why, since it is not frequent? The reason is simple. Most of the time this dip is often not because customers are cancelling their subscriptions; it’s simply because their payments are failing. What makes this situation even more frustrating is that these customers still want to stay subscribed, but payment failure issues are blocking their way. Some of these issues are technical or due to expired cards or insufficient funds.
The best way to tackle this challenge? A strong dunning process—your subscription business’s secret weapon. This isn't just about recovering failed payments alone; it's also about preventing revenue loss before it happens.
So, it's best not to ignore this issue but to embrace the dunning process to keep your subscription business running smoothly. The good news is that with an effective dunning process in place, situations like these can be handled with ease and are usually reversible.
Thus, dunning isn’t just about chasing those failed payments that you hope to recover. It is about proactively addressing payment failures and preventing any foreseeable payment failures through automated retries, timely notifications, and better payment processes.
Excited to know more about dunning? This blog will help you unbox and understand the hidden truths behind dunning management and why it is crucial for subscription businesses. It will also help to understand the ways and means to implement such a strategy such that revenue can be recovered effortlessly.
What is Involuntary Customer Churn?
Before moving on to understand the nitty-gritty behind the dunning process and how involuntary churn fits into the picture, it’s good to understand what the latter means in a subscription business.
To be precise, most often involuntary churn happens when the customer's payment against a subscription fails because of issues that are not under their control, such as bank declines or temporary processing issues. However, in some cases, failures occur due to reasons within their control, like expired cards, insufficient funds, or incorrect payment details.
Want to explicitly know some of the reasons for these payment failures? Let’s have a quick look at them:-
- Expired or cancelled credit cards
- Insufficient funds in the customer’s account
- Bank rejects the payment due to suspicious activity.
- Wrong payment information entered by the customer.
- Technical glitches with payment gateways
Although voluntary churn occurs when customers actively decide to cancel their subscription, involuntary churn is often preventable by using dunning management.
How the Dunning Process Reduces the Cost of Involuntary Churn?
Involuntary churn contributes to the major chunk of issues affecting subscription businesses. This is a problem that comes unexpectedly and hits you the hard way even before you could realize it. Studies show that 20-40% of churn in subscription businesses happens due to failed payments, not because customers are unhappy. This means a substantial loss of revenue for businesses with many subscribers.
Let’s understand this concept with some quick math. You are a happy, successful company boasting a count of 10,000 subscribers. You suddenly experience a revenue leak. After a bit of analysis, you realize that you are facing a 5% monthly churn rate. At first look this might seem like a small figure, nothing to worry about. But, digging deeper, you realize that 30% of this churn is involuntary, leading you to lose around 150 customers every month.
Now, assuming a consistent churn rate (though, in reality, churn can fluctuate based on seasonality, pricing changes, or market conditions), simple math shows that this amounts to a loss of 1,800 customers in a year—a significant hit to your revenue.
And what’s worse? These customers did not actively cancel their subscriptions or choose to leave. Instead, their payments got declined, and their accounts eventually got cancelled due to multiple, unsuccessful retry efforts.
The good news? With the right dunning management strategy, much of this revenue can be recovered. Let’s understand why and how.
Dunning Management: Your Secret Weapon Against Revenue Leaks
As previously discussed, dunning management is all about tackling involuntary churn that happens mainly due to losing customers over failed payments due to many reasons, like expired cards or insufficient funds.
Investing wisely in dunning management helps not just recover lost or failed payments, but also improves customer relationships and makes the inflow of revenue smooth and without much hiccups.
The digital subscription marketplace is a highly competitive one where the value of every subscriber counts. Therefore, dunning management here is more than just important—it’s essential, and here’s why it is so.
1. You get to Reclaim your Lost Revenue
Dunning helps subscription businesses recover lost revenue due to failed payments such as expired cards or insufficient funds. It does this by automating retries and customer notifications. This is critical since failed payments lead to revenue loss for the business.
However, by having efficient dunning management processes, many such payment failure issues can be successfully resolved. Some of the dunning processes are about sending regular and automated payment retries and timely customer reminders.
These help recover revenue that would otherwise be lost. This keeps the business’s cash flow stable, increases profits, and strengthens customer relationships.
2. Increases Customer Retention by Preventing Payment-Related Cancellations and Strengthening Loyalty.
As mentioned above, revenue is required for any business to succeed, but only when this translates to profit can a business be considered successful and reliable. But to get to this revenue or profit, it is essential to have a long list of customers or subscribers, especially loyal ones that want to stay and upgrade.
However, in the subscription business, there are a whole number of times when the customer’s payment fails due to a variety of reasons. What happens most often is that the payment just does not go through or reach the right hands, and the businesses end up wondering if it’s due to customer dissatisfaction.
Often these payment failures happen due to issues on the customer’s end (e.g., expired cards, insufficient funds) or due to processing errors of the financial institution backing the process. The dunning process comes in as a savior in such situations, helping to recover the failed payments.
This fosters stronger customer relationships and improves retention. They understand that the business values their association and wants them to stay with them in the long-run. Research from Bain & Company and Harvard Business School shows that boosting customer retention by just 5% can increase profits by 25% to 95%.
3. Streamlines Operations and Frees Up Resources for Growth
Integrating the dunning processes in a subscription business can be complex, but the results can be so much worth the trouble. It can end in improved revenue recovery, reduced churn, and finally stronger customer retention.
Once integrated, it can handle payment failures smoothly and far more efficiently. It can easily free-up all the manual work involved in handling payment failures, thus saving your team a lot of their time that can be wisely utilized for timely follow-ups and payment retries.
With the dunning process running seamlessly in the background, your team now has more bandwidth to focus on bigger priorities like attracting new customers, improving the product, or enhancing customer support. This increases efficiency, drives business growth, and provides a seamless experience for your customers.
Dunning Optimization: Best Practices for Recovering Lost Revenue
It all lies in the ‘HOW?’ Just having the ‘Dunning’ process in place will not do all the talking. How you work it out is crucial. It is not about getting back all that well-deserved revenue. There’s a lot more to it than just getting back the revenue you thought was lost. It’s also about keeping your customers happy so that they end up recommending your services to others as well. A good dunning process helps in not just in allowing customers to resolve payment issues; it is also about addressing their payment failure-related frustrations and service disruptions.
In this section, we’ll explore some of the best ways to manage dunning effectively. This will help to maximize your revenue recovery and keep customers satisfied and loyal. Let's look at how you can work on this approach to achieve optimal results.
1. Act Quickly
It's all about being quick and to the point. Payments are bound to fail, but it all lies in the way you act on it. Studies point that responding quicker and faster to a payment failure can help you recover the funds efficiently. The longer you wait, the less likely you are to recover the fund. Remember to send your first reminder within 24 hours.
This keeps the customer very alert about the issue, and he/she is likely to fix it as soon as possible. It ensures a seamless experience for your customers while protecting your revenue.
2. Your Message Should Be Clear, Concise and To The Point
While addressing a customer’s payment issue, make sure that the message is clear, concise, and to the point. They better understand what went wrong and what to do next—without technical jargon. They can be busy people or businesses who value their time and feel that you too do the same.
All that is expected of you is to explain the issue in simple terms, whether it’s an expired card, insufficient funds, or a technical glitch. Provide crystal-clear instructions on how to fix it. Make it easy for them to update their payment details by including direct links or buttons.
Thus, a straightforward message can reduce all chaos and help customers keep their subscriptions active without any hassles.
3. Use a Friendly, Empathetic Tone
It doesn’t harm to stay friendly and empathetic. In fact, it is a must, especially when it is about communicating with customers about their payment problems. Stay friendly and stay empathetic
Sounding robotic or overly professional can do more harm than good. Let them feel valued and give them all the assistance to fix their issue. This way, you can easily gain their trust, such that they are more likely to fix the issue fast so they don’t lose their subscription.
4. Woo them with Incentives
When customers run into payment issues, offering incentives can help nudge them to fix the problem quickly. For loyal subscribers or big spenders, a little incentive can make a huge difference.
A small incentive—like a discount or an extra month of service—can make customers eager to resolve payment issues quickly. Thus, they feel like you are their priority.
Showing your appreciation in this manner not only helps you get your payments back on track but also strengthens your bond with important customers.
5. Use Email, SMS & Push Notifications to Send Reminders
Don’t depend just on email; use all the different and multiple channels. Make sure not to leave anything out. It can be an SMS, in-app notifications, or push notifications. Reach out to your customers and subscribers at their favourite venue where they spend most of their time. This way, you’ll increase your chances of getting back on track with payments by staying in touch with your audience through different methods.
Reaching out to their preferred platform increases the chance they’ll see and respond to your payment retry notifications promptly.
6. Automate the Process
Managing dunning manually can be a real struggle, as it is tedious and prone to errors. Investing in subscription management software that has built-in dunning management processes can automate it as well as ensure smooth revenue recovery and reduced manual effort.
With automation, failed payments are retried on pre-defined schedules, and customers receive personalized follow-up messages based on their payment history.
This saves a lot of time and cuts down the probability of errors, making sure everything stays on track and your funds keep coming in. Automating dunning lets your team focus on more important tasks while still giving your customers and subscribers a smooth experience.
However, for high-value accounts, go personal. This can easily save a valued customer. All that is needed is a friendly reminder, a direct call, or even a personalized email.
7. Know When to Let Go
While it's important to try to retrieve a failed payment, it is equally important to ensure that your customers respond to these reminders. After multiple unsuccessful attempts—based on predefined retry rules or AI-based logic—you may need to stop and cancel the subscription politely.
This way, you can focus on customers who are still interested, making sure your time and energy are utilized well and productively. However, this is not the end to it all.
You can always try to bring back your valuable customers with a special offer or by showing them new features they might like. Knowing when to stop lets you keep loyal customers while also looking for new ones.
Final Thoughts
Involuntary churn quietly eats away the revenue of subscription businesses, but it doesn't have to be this way. Good dunning management can help you catch up on the lost funds, retain your best customers, and ultimately give them a smooth experience.
The key? Act fast, communicate clearly, and use smart dunning automation to turn failed payments into chances to build stronger relationships with your subscribers. So, the next time a payment fails, don’t stress—it’s an opportunity to show your customers how much you appreciate their business.
Looking for subscription management software with built-in dunning optimization?
Want to turn failed payments into retained revenue? Saaslogic Billing makes dunning effortless. Get in touch today!