As companies look to increase revenue and ensure a prosperous future, one of the key blockers for growth often gets sidelined: customer churn. More specifically, the churn caused by addressable factors such as failed payments.
Even the businesses that have multiple teams dedicated to minimizing churn may not be effectively measuring the costs or have the resources to understand its causes fully. Failed payments are often viewed as a “cost of doing business.”
But the solution for sustainable growth is reducing failed payments. Solving it quickly and efficiently leads to better payment health, which improves your top-line revenue.
Voluntary vs. involuntary churn
Businesses often use the term churn as a catch-all for customers who abandon a product or service. Once customers stop making payments, they assume the buyer is completely done with them. But that’s not always the case. Customer attrition can be divided into two fundamental categories: voluntary and involuntary churn.
What is voluntary churn?
Voluntary churn occurs when customers consciously decide to abandon your product or service. Reasons can range from an inability to afford your goods to no longer needing your service.
Voluntary churn often receives significant attention because a customer threatening to leave is an active issue to solve. Companies work to address these issues across marketing, product development, and engineering teams, each working diligently to sustain brand loyalty with an enhanced user experience.
What is involuntary churn?
Involuntary churn, on the other hand, is passive, which makes it more challenging to detect. In this type of churn, a customer’s payment with your company fails, often due to spontaneous errors and without their knowledge. For example, if a customer’s credit card is falsely declined and their subscription is automatically canceled, that’s involuntary churn.
The reasons behind involuntary churn can vary — anything from an expired credit card to processing errors. This makes it a difficult problem to identify, so many merchants overlook it. But involuntary churn can be a massive problem.
- Makes up 20% to 50% of overall churn
- Costs 5% to 10% of top-line ARR
But it is a problem that can be solved.
Cutting out involuntary churn drives customer and revenue growth
Reducing involuntary churn minimizes any possible disruptions in a customer’s subscription to your product or service – leading to sustained revenue growth. The most significant areas of growth potential are:
- LTV: Rescuing customers from involuntary churn doesn’t merely save one transaction; it preserves their ongoing relationship with your product. Hypothetically, if a rescued customer stays for three subsequent billing cycles, then losing one customer is equivalent to losing four.
- LTV to CAC Ratio: In an industry where customer acquisition costs (CAC) are rising, preserving customers is essential. A better LTV to CAC ratio justifies the initial acquisition cost and reflects satisfied customers.
- Network Benefits: Beyond the bottom line, reducing involuntary churn makes your operation more efficient. Faster order fulfillment and healthier relationships with payment service providers means transactions are smoother — reducing chargeback and refund rates.
But understanding the benefits of reducing involuntary churn is only half the battle. You also need to tackle the problem.
Solving your failed payments retains customers and increases ARR
As a common result of failed payments, involuntary churn is both a customer retention and top-line revenue issue. Recognizing the depth of the problem can be the difference between losing customers and increasing your ARR by around 5% on average.
Bridging the gap between growth and churn requires businesses to take the following steps:
- Monitoring and measuring your payment health: Working with a partner like Butter helps you monitor and measure your payment health. Understand how metrics such as initial success rate, failure rates, and average revenue recovery affect your business.
- Factoring payments into business planning: Don’t just optimize your existing setup. Consider payment health when implementing changes in product strategy or monetization. New products can present new opportunities for customers to involuntarily churn.
- Simplifying acquisition and international expansion: Going global adds more complexities to payment recovery. Consider the proper growth and payment strategies, whether it's a multi-PSP approach or multiple wallets.
Prioritizing your payment health isn’t just about financial matters; it’s about holistic business planning that can help you thrive in a dynamic market. To stay ahead of payment recovery and save 5%+ your ARR, Butter’s machine learning solution can offer valuable support.
Turn payment health into a growth lever with Butter
Don’t let silent revenue drains hold your business back. Embrace payment health as a powerful lever for achieving your growth objectives with Butter.
Butter simplifies and optimizes your payment health by reducing involuntary churn. So you can unlock new opportunities for growth and financial sustainability.
Contact us to get started with your free payment health assessment!
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