In order to compare these numbers across businesses, I would recommend we measure the number of customers becoming delinquent not as a percentage of all churn in a month, but as a percentage of all monthly recurring revenue. This is because the overall churn rate is going to vary wildly from business to business. We see churn rates even among successful companies anywhere from 2% to 20% or higher and they can still be successful depending on the size of their addressable market and the cost to acquire a new customer. (Overall, churn rates overall tend to be lower from B2B businesses and higher among B2C businesses, which would cause us to compare apples to oranges here.)

That being said, depending on the steps you (or your payment processor) take to mitigate failed payments, 50% of all churn being due to delinquency definitely isn’t out of the ordinary. It’s not uncommon for us to see 10% of all initial payment attempts fail in a given month. So, in a business with a 5-6% overall churn rate, it’s not hard to imagine 3% of that being from failed payments.

So, I run a business that helps people manage this exact problem, but I can say without a doubt that the absolute most valuable tool in bringing this number down is not the type of product we offer, but a behind-the-scene process referred to as an “account card updater” or something similar. This is where card issuers work with payment processors to update in bulk the payment information for cards that are being reissued due to expiration or fraud. This is just recently becoming broadly available as a feature with payment processors like Stripe, Braintree, etc. We’ve been fortunate to be able to watch this feature rolled out across many different types of businesses and it can easily trim your initial failed payments by 50% or more, before they ever happen. If you’re not sure whether your payment processor already has this enabled for your account, you should reach out to them ASAP. In our experience, this is the only truly effective way to reduce failed payments *before* they happen in the first place.

We also find that about 20% of all failed payments on average (although it varies from business to business) will resolve themselves within 5 days if you reattempt the card 3 times, without any intervention or update of information from the customer.

After that, the number of customers you’re able to retain among those who have started failing payments is going to be a result of how you choose to engage those customers and try to get them to update their payment information. We found that there was so much long term value in reducing the churn rate overall that it was worth going borderline-crazy to try and retain as many customers as possible, and in the end we built a separate business around it. (Churn Buster)

With several years of experience in the space, we’ve discovered some clear ways to tackle this problem. We have a published guide, “10 Steps to Eliminate Payment-Related Churn”, which is invaluable and includes techniques that anyone can (and should) implement.

Here are a few highlights for anyone looking to reduce the number of customers churning out because of failed payments:

— Reach out to customers on a schedule that makes marketing sense, not when your payment processor fails the payment. For example, don’t email customers at 3 AM in the morning because that’s when the payment processor failed the payment, but email them at 2 PM on a business day because that’s what MailChimp tells you your most successful time of day for reaching customers is. The effective schedule for reattempting payments is much different than the effective schedule for emailing your customers.

— Reach out to customers at least 4 times before writing off an account. When we used to just send 3 emails before canceling an account, we found that conversion rates on the emails was steady across all 3 emails. This clued us in that sending more emails would convert even more folks back into paying customers.

— If your payment processor has given up on a customer and they update their payment information, make sure you’ve got some logic in place that forces your payment processor to run the charges and get that customer back into a current state. We see a lot of customers end up in billing limbo because of this issue, and it can add up to a lot of lost revenue.

— Make it easy for customers to update their payment information. Most importantly, don’t make them sign into their account in order to update just their billing information. There are ways to do this that are safe and secure.

— Don’t try to email customers *before* their cards expire to tell them to update their payment information. This seems clever and this was one of our “killer features” when we first launched our product, but we disabled it by default because we found that in actuality, 70% of all cards that look like they’re going to expire will continue working just fine. Only 3 in 10 of these customers will actually fail a payment, and the unnecessary emails will often trigger cancelations from customers who are unnecessarily forced to reevaluate their purchase decision in the face an email that says “you owe us money” instead of when they’re receiving value from the product or being reminded why the product is so great on a sales or marketing page. It’s better to just wait and see which customers fail a payment, and *then* email them.

— If you’ve got phone numbers for customers and they’re not taking action on your emails, don’t hesitate to give them a ring on the phone, and then send them a personal follow-up email to your phone call. We handle this for a number of companies and we see some companies where this accounts for 20% of all retained customers and other companies where it accounts for 50% of all retained customers… and that’s *after* sending them 4 emails.

— If you’ve got a product that people sign in and use, then prompt them in-app that their payment information needs to be updated.

If anyone has had great success with any methods not mentioned in that list, I’d love to hear about them so we can incorporate them into Churn Buster. :-)