Passive Churn: The Quiet Monster of Recurring Revenue
There are a ton of techniques out there (many of which we’ve already covered in depth) for building long-term relationships and retaining customers over time. That’s all well and good, but there’s a much more insidious issue hiding in the numbers, one that can cost your SaaS business thousands in lost revenue if you’re not paying attention: Passive churn.
Passive churn is a silent killer for so many businesses. Because it’s subtle. Passive churn rarely correlates to changes that founders make in their businesses. It can fly under the radar, which is what makes it so dangerous. While many retention techniques can help build an attentive, involved user base, passive churn (also known as involuntary churn) chips away at those numbers over time.
Don’t have an air-tight solution for passive churn? As a founder, that should keep you up at night. Luckily, we’ve got everything you need right here to build up a proactive strategy for dealing with passive churn.
What exactly is passive churn?
In a nutshell, passive churn is the process of customers leaving a subscription service due to an unresolved billing issue. A new credit card, for example, can cause a subscription charge to fail, leading to a customer churning without realizing that anything has changed. A card being overdrawn or put on fraud alert can have the same impact.
Where other active churn rates can be predicted to a degree (i.e. relating to changes in the cost of your service or to feature releases) involuntary churn is erratic, eating away at your profits without regard for your other retention efforts.
Can failed payments really be that bad?
It seems simple. Customer churns, realizes their mistake, returns, and everything is tied up nicely.
The fact of the matter is that passive churn is so much more damaging to your business than you might expect. We’ve seen companies with over 50% of their churn coming from failed payments. On average, it’s around 40%.
That’s up to half of a company’s churn coming from a single, relatively simple source.
Here’s the thing: you need to look at churn over the full life-cycle of a customer. You need to think long-term, big picture, and look beyond the initial loss of a month’s revenue from a customer or two.
We tackled the compounding nature of churn in a recent blog post. That article is definitely worth a read to get the full picture.
Passive churn doesn’t just destabilize your revenue- it impacts every aspect of your business.
If you don’t have automated systems in place, your CS team can be overwhelmed trying to juggle the concerns of active customers and reach out to involuntary churners. Customers with declined payments may be locked out of your service for chunks of time without realizing it, causing headaches for all involved and souring relationships.
Remember: Your customers are likely juggling multiple priorities at any given time.
For example, when a user loses a credit card, their first priority will likely be to update important bills like internet, electricity, and car insurance. Next, it’s the things they use and enjoy daily, like Netflix and Amazon Prime. Depending on your business, you may find that you fall very far down the list- not because you don’t play an important role in your user’s lives, but because you may be in less consistent contact and have a less earth-shattering impact in the moment.
Even upon realizing their mistake, customers may choose to wait another month to return because they don’t want to pay a full month’s subscription for time in which they had no contact with your product.
Many SaaS businesses also have faulty responses to passive churn. Pre-dunning, or reaching out to customers before payments are due, can be irritating and is generally an ineffective technique. Emails can end up in spam filters, or simply get left for later and forgotten.
Without reliable, mobile-ready card update pages, customers may need to wait until they are back at a desktop to make updates, massively lowering the likelihood that they will remember to fix subscription issues. Here at Churn Buster, 70% of our emails are opened on a phone.
Ghost customers are another huge concern. Essentially, this happens when a customer updates their payment information outside of the retry timing window and aren’t automatically reactivated. They’ve taken the steps they need and will think they are resubscribed, but future payments won’t go through.
The problem here is that there are so many different cracks for users to fall through when a payment fails. So how do you respond to passive churn?
Take on the monster
Luckily, passive churn is an easy revenue leak to plug if you fight it the right way. Start by automating your response to passive churn. Chances are, your existing dunning strategy is less effective than it could be, costing you in the long-run and adding unnecessary strain on your team. What should you look for in an automated solution?
- Custom retry schedules: Some passive churn solutions have strict retry schedules that are coupled with emails. Instead, use a tool that includes custom retries disconnected from emails. About one in five recoveries can be made without ever sending an email. Don’t bother your customer unless you have to.
- Secure card update forms: This should be a given. Again, you want these forms to be mobile-optimized, but also look for easy ways to add your branding and set them up on your domain so customers know that they are official and can be trusted.
- Emails optimized for recovery: Clean, trustworthy, and branded emails are the name of the game here. Look for strong pre-written templates with a history of success and the ability to set a sender address from your domain (not bill@company via dunning provider).
- Automatically reactivated subscriptions: Remember ghost customers? More advanced responses to passive churn should include a solution for this issue.
Make sure that your solution gets you paid as soon as possible and doesn’t wait until the next retry to send money to your bank account. Flexibility is key in this business, so look for options that allow you to respond to different customers differently. Finally, make sure your dunning system has enough analytical heft that you can tell what’s working, what isn’t, and why.
Don’t underestimate your opponent
Your current dunning system is almost definitely underperforming. Take a look at your current processes. Do you have visibility into the issue? Are you happy with your solution? Or are you letting customers slip through the cracks because of simple billing issues?
Passive churn is a simple issue, but if you aren’t taking steps to respond to it, you could be losing astounding amounts of revenue. Taking passive churn seriously, on the other hand, stabilizes your revenue, protects your customer relationships, and provides a simple, powerful response to nearly half of your overall churn. Take it seriously. You’ll be amazed by the results.