When businesses think about losing customers, the conversation often focuses on voluntary churn—when a customer actively chooses to cancel their subscription. However involuntary churn is just as damaging, if not more so, and requires a very different set of solutions. Understanding the distinction between involuntary churn and voluntary churn is critical for businesses that rely on recurring payments, whether they’re a membership organization, subscription service, or SaaS company.
What is Involuntary Churn?
Involuntary churn happens when a customer is unintentionally lost due to factors outside their direct control such as failed payments. This type of churn typically results from expired credit cards, insufficient funds, or outdated billing information. Involuntary churn accounts for 20-40% of churn in membership and subscription businesses. In these cases, customers don’t intend to cancel their subscription, but their membership is lost because the business was unable to process their payment. Alarmingly, 34% of failed recurring payments are due to insufficient funds, while 15% occur because of expired cards.
Even though these factors are beyond a customer’s direct control, they result in lost revenue if businesses don’t take proactive steps to resolve these issues. Over time, the effect on your bottom line can be devastating, with 12-15% of monthly revenue lost due to involuntary churn. For a growing subscription or membership business, this kind of revenue leakage can significantly impact profitability and growth.
How is Voluntary Churn Different?
Voluntary churn, on the other hand, occurs when a customer actively chooses to cancel their subscription. This could happen due to dissatisfaction with the product, a change in financial priorities, or simply because the customer no longer see value in the service. The customer consciously opts out, making this a more straightforward decision, though no less challenging to prevent.
Why Tailored Solutions Matter
The key to effectively addressing both types of churn is to use tailored strategies designed to meet the specific challenges posed by each, A one size-fits-all approach won’t work because involuntary churn and voluntary churn happen for two very different reasons. Engaging with members after a failed payment is critical. 40% of subscribers are more likely to churn if there is no attempt to re-engage them after a payment failure.
Strategies for Addressing Involuntary Churn
Fortunately, there are several strategies subscription businesses can implement to reduce churn. Research shows that 70-80% of involuntary churn can be reduced with proactive measures. Since involuntary churn is driven by failed payments, it requires solutions that minimize payment processing issues. Here are three strategies businesses can use to reduce involuntary churn:
- Failed Payment Recovery
Businesses can recover a large portion of lost revenue by implementing failed payment recovery systems. These automated tools use AI and machine learning to retry failed transactions, often recovering the payment without requiring any customer action. The member or subscribers payment is recovered and the service continues seamlessly
- Account Updater Tool
Proactively preventing failed payments by keeping billing information up to date is a powerful way to reduce involuntary churn. Account updater tools automatically update expired or compromised card information, ensuring recurring payments are processed smoothly.
- Communication
Sending timely reminders or notifications when payment information needs updating can reduce involuntary churn. Use multiple channels, such as emails, text messages, or phone calls to engage customers and help them resolve failed payment issues before their subscription lapses.
Strategies for Addressing Voluntary Churn
Addressing voluntary churn requires a more customer-centric approach. Since these customers are consciously choosing to leave, businesses need to focus on delivering ongoing value and improving customer satisfaction. Here are a few strategies to retain customers and reduce voluntary churn.
- Offer Incentives for Renewal
A great way to retain customers at risk of voluntary churn is by offering incentives, such as discounts, loyalty points, or exclusive content. This can provide customers with an extra reason to stay engaged.
- Improve Communication and Engagement
Personalized engagement is key to preventing voluntary churn. By sending targeted messages that highlight the benefits of staying subscribed, businesses can reinforce the value of the product and convince customers to reconsider canceling.
- Customer Feedback Loops
Listening to your customers and action on their feedback and prevent voluntary churn. If a customer is dissatisfied, solving their problem or improving their experience can be the difference between retention and churn.
The Impact of Churn on Customer Lifetime
Churn, whether involuntary or voluntary, directly affects a business’s average member lifetime or subscriber lifetime. The more customers that leave, the shorter the subscriber lifetime, which means lower overall revenue. Implementing strategies for failed payment recovery, updating billing information proactively, and engaging with customers can extend subscriber lifetime and improve membership recovery.
Conclusion
While voluntary churn and involuntary churn both result in customer loss, they require different approaches for resolution. For involuntary churn, focus on preventing failed payments and using tools like failed payment recovery services and account updater tools. For voluntary churn, improving customer engagement and delivering ongoing value is crucial. By addressing both types of churn with tailored solutions, businesses can reduce customer loss and extend their subscriber lifetime, ultimately leading to higher revenue and healthier customer relationships.