What are failed payments and why do they matter?

Failed payments are transactions that are not successfully processed for a variety of reasons, such as insufficient funds, expired credit cards, or technical issues with payment gateways.

These failed payments are critical to address because they can interrupt financial operations and frustrate customers. Your business should monitor payment failures to maximize your revenue potential and stay ahead of competitors. 

Subscriptions magnify payment failure issues

On average, 7% of all recurring charges fail on the first attempt, and their effect is even more pronounced on subscription orders. When a subscription payment fails, you don’t just lose the revenue from that payment—you lose the revenue from all of the subsequent subscription orders that would have been placed if that payment had been processed successfully.

This loss of subscription revenue due to failed payments is effectively a form of subscription cancellation known as passive churn. Failed payments demand immediate attention and effective resolution to prevent them from becoming a significant drain on subscription revenue.

The drivers of failed payments

Most failed payments come from a few common sources.

Incorrect information

Errors like inaccurate card numbers, expiration dates, or billing addresses can cause issues during payment.

Card errors

Insufficient funds or exceeded credit limits can result in a financial institution declining payment for a subscription.

Customer forgetfulness

Some customers simply forget to provide updated payment method information when it’s available.

The problem with manual solutions

Manual solutions make addressing involuntary churn ineffective and time consuming. Many brands manually contact customers about payment failure and have payment systems that simply retry payment over and over, both of which require extra resources and produce less effective results.

Top brands are now pivoting to automated tools that have smart payment processing, timely communication, and analytics to discover when and how charge errors happen.

How top merchants solve failed payments

To minimize customer outreach, maximize your hit rate, and retain customers, use a smart solution that leverages machine learning and artificial intelligence to determine the best time to recover failed payments.

Recharge’s Failed Payment Recovery leverages a custom machine learning model trained on Recharge’s 20,000 merchants and 1.3 million daily transactions to find the optimal time to recover a payment. Our model looks at data including (but not limited to) the type of error, time elapsed since the first retry, and the time of the month or week that retries are most likely to be most effective on.

Effective results

Merchants who have switched to Failed Payment Recovery from our standard dunning solution are already seeing up to a 23% increase in their recovery rate. That means more customer lifetime value (LTV)  and monthly recurring revenue (MRR) retained for those businesses.

Frictionless experience

Thanks to Recharge’s partnership with Shopify, Failed Payment Recovery enables customers to update payment information directly in the customer portal.

This exclusive feature, available only for Shopify Checkout users, eliminates friction from the process, getting payments back on track seamlessly.

Seamless, on-brand communications

Failed Payment Recovery lets you send timely notifications equipped with templates that increase in urgency based on where a failed charge is in recovery. You can even take full control of your notifications by customizing the copy, branding, and HTML and CSS.

Smarter analytics

Use Failed Payment Recovery’s in-depth analytics to understand how and when your payments are recovered. Track your aggregate recovery rate and revenue saved, analyze the daily patterns of when and how your charges are recovered, and track how often payments are recovered via reattempts and payment method updates.

What to do if you’re losing revenue and subscribers

Many brands don’t realize how big an impact payment failures can have on their customer retention. And many of those that do still haven’t implemented smart solutions like Recharge’s to automate and optimize payment recovery processes. Top brands have recovered up to 50% more revenue from failed payments after switching to Failed Payment Recovery.

In a competitive landscape, it’s critical to actively seek out solutions that enhance your customer LTV and MRR. Don’t let involuntary churn erode your hard-earned subscriber base and revenue—implement a smart solution like Failed Payment Recovery to make payment failures a problem of the past.

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At Recharge, we prioritize listening to you and integrating your feature requests into our platform. Our latest addition is a suite of cancellation prevention and customer retention tools designed to help you reduce subscriber churn effectively.

Subscriber churn poses a significant threat to the success of any subscription business. Imagine your business as a bucket you’re trying to fill with water. If there are holes in the bucket, water constantly escapes, preventing you from keeping it full. Subscriber churn works the same way—it negates your sales and marketing efforts with each cancellation. Acquiring a new customer costs significantly more than keeping an existing one, making the battle against churn crucial for efficiency and growth. Regardless of how many new customers you acquire, if you’re losing them at a higher rate, your efforts are in vain. Since 25 out of 26 unhappy customers churn without ever complaining, automated tools to prevent churn and get more insight into why customers are churning are essential.

Introducing our automated cancellation prevention tool

Recharge’s Cancellation Prevention is an easy-to-use tool designed to effectively reduce active churn by offering customers personalized incentives when they attempt to cancel their subscriptions. It also provides insights into the root causes of active churn and strategies to mitigate it. Top brands using Cancellation Prevention have already seen up to a 44% decrease in churn.

Three Highlights of Cancellation Prevention

• Prevent subscriber churn with personalized offers.
  • Offer large discounts to high-spend customers, tailor cancellation reasons based on products, or A/B test offers to determine what effectively retains customers. The possibilities are endless.
• Build a unique cancellation journey that is consistent with your brand.
  • Customize text, colors, format, and embed videos—all without needing to write a line of code. Alternatively, leverage HTML for further customization.

• Leverage AI-powered analytics that uncover the “why” behind your cancellations.
  • Analyze data on top-performing offers and product-specific cancellation reasons. RechargeAI surfaces the underlying reasons behind customer cancellations, providing actionable insights to prevent future losses.

Deepen your cancellation prevention tactics with rewards

Take your cancellation prevention to the next level with our new Rewards feature. This tool builds loyalty throughout the subscriber lifecycle by offering incentives that encourage repeat orders. When both Rewards and Cancellation Prevention are enabled, you can re-engage customers at the moment they’re attempting to cancel with previews of benefits or gifts they’re about to unlock or reminders of unused rewards they’re at risk of losing.

Learn more about our Cancellation Prevention and other retention tools here.

The post How to use Recharge’s Cancellation Prevention and customer retention tool appeared first on Recharge.