Losing valued customers due to payment failures—also known as passive churn—is a frustrating reality for any subscription business. To tackle this, effective dunning strategies are key.

There are two ways to recover failed payments:
1. Retry the existing payment method
2. Request a new payment method

Even small errors in recurring payments can significantly impact growth due to the compounding effect of lost revenue.

Who are we? Since 2013, Churn Buster has been helping subscription companies fix billing problems, partnering with some of the fastest-growing E-commerce and SaaS companies in the world.

We've safeguarded billions of dollars in subscription revenue and learned what works—and what doesn't.

In this Dunning Best Practices guide, we’ll show you how to fight passive churn like a pro.

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1. Dunning is a Holistic Process

Effective dunning goes beyond simply retrying payments. It requires that the customer take action, usually to update a payment method, which accounts for roughly 50% of payment recovery.

Well-timed customer outreach does more than maximize recovery—it also reduces billing-related support issues, minimizes premature cancellations, and improves the experience for your subscribers.

Outreach typically begins with an email to the customer. Follow-ups continue until the issue is resolved, or the customer churns. Best practices for email include a process optimized for transactional email delivery, with the right service provider and minimal links or link tracking. The right messaging, prominent branding, and an easy process for updating payment details are also key. Monitor deliverability and measure the effectiveness of each email sent.

SMS can be a helpful tool for escalation when emails don’t work.

In some cases, bringing in your support team to personally assist high-value customers can be beneficial. To streamline operations, these escalations can be triggered later in the process after automation has resolved a majority of the failed payments.

Retries still play a major role, often accounting for the other half of recovery efforts. The key to success lies in balancing retries with three core factors: recency, frequency, and duration. This means retrying at the right times, with the right frequency, and over the appropriate period to make the most of the existing payment method on file.

Retries can be an exciting part of failed payment recovery, as they work behind the scenes to almost magically recover lost revenue. We’ll dive deeper into effective retry strategies later in this guide.

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2. Learn Passive Churn

Measuring passive churn is straightforward but involves several key steps. First, you need to understand concepts like Recovery Rate and when to use Rolling Time Periods. Passive churn is one of four possible outcomes after a failed payment, alongside active recovery, passive recovery, and cancellations. All outcomes should be tracked.

You can’t accurately measure recovery rate immediately after a failed payment. For example, in a 20-day recovery campaign, you start measuring on day 21, once the full process is complete. It's important to note that recovery rates will fluctuate daily, so gathering at least 30 days of data is critical to seeing the bigger picture.

Natural variance adds complexity. Recovery rates can swing up and down, even without changes in your process, and this fluctuation depends on factors like customer behavior and data volume. Brands with 10,000 failed payments per month can see recovery rates vary by 10% or more from month to month. This makes it difficult to measure improvements when rates naturally fluctuate.

Some tools may take credit for these swings, claiming perceived gains in performance by comparing simple time periods. However, real improvement requires accounting for natural variance. Churn Buster’s analysis framework does this automatically, but you can also use a spreadsheet to calculate it yourself.

Finally, Segmentation is essential to getting a clear view of passive churn. By segmenting different customer groups—such as monthly subscribers who have renewed multiple times—you can minimize inconsistencies and better understand what’s happening. Customers who signed up with a promo code or are on annual plans, for instance, will behave differently from others.

In summary, measuring passive churn takes time, attention to natural variance, and careful segmentation to see the full picture.

Learn more about how to measure passive churn.

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3. Decouple Emails and Retries ✉️

Basic dunning setups will send emails whenever there is a failed payment.

This is the entry point for most businesses, and provides little control over optimizing the recovery process.

To truly optimize your dunning process, you need to separate emails from payment retries. When emails fire off automatically after every failed payment attempt, you lose the flexibility to manage each situation effectively. It’s limiting.

By decoupling these two actions, you get complete control over both communication and retries, which becomes essential as your subscription program grows.

Sometimes, the best strategy is to front-load retries. Try to collect the payment again before even involving the customer. In many cases, you’ll recover the payment without them ever knowing there was an issue. Simple, seamless, no need for emails. You can also stagger retries—retry the payment between communications—without overwhelming the customer. This prevents unnecessary emails while still attempting recovery.

With Churn Buster, subscription brands use an adaptive process with sophisticated logic based on customer properties to determine when retries should occur.

By decoupling emails and retries, you’re not locked into sending an email after every failed payment. Instead, you can focus on resolving the payment issue first and communicate only when it’s absolutely necessary. This keeps the experience smooth for your customer and helps you recover more revenue with fewer disruptions. The end result is fewer emails, less churn, and a more strategic approach to your entire dunning process.

Side benefit: By resolving payments more effectively via retries, your recovery metrics will be more insightful. With a more rigid process of emailing after each failed attempt, there is no way to separate necessary card updates from frivolous ones.

4. Run an Adaptive Process

To optimize your dunning strategy, run a custom, adaptive process tailored to key customer attributes and payment data.

A one-size-fits-all approach won’t cut it. Different customers behave differently, and your strategy should reflect that. As your company grows, the need for this level of optimization becomes even more important.

Take decline codes, for example. They should never be treated the same way. A "hard" (permanent) decline—like a canceled card—will almost always require the customer to update their payment method. In contrast, a "soft" (temporary) decline—such as insufficient funds—can often be resolved by retrying the payment. The trick? Timing. Managing recency, frequency, and duration ensures you’re giving each retry the best possible chance of success.

Beyond payment types, subscription intervals also demand customized approaches. Monthly and annual subscribers have different payment patterns and behaviors. An annual subscriber might need a longer grace period, while a monthly subscriber could respond better to quicker, more frequent retries. Each group needs to be handled differently for optimal results.

Then there’s the question of customer value. High-value customers—those with a higher lifetime value (LTV)—deserve special treatment. Sometimes, a bit of manual intervention or personalized outreach can make all the difference in retaining them before they churn out.

There are many factors to consider when refining your dunning process: decline types, subscription frequency, customer value, and more. Running an adaptive process allows you to fine-tune these elements for better payment recovery. It’s not just about boosting revenue; it’s about creating a smoother, more personalized experience for your customers.

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5. Simplify Card Updates📱

When someone signs up for a subscription service, the expectation is automatic payments that they don’t have to concern themselves with.

In order to gain positive responses from your update requests, you want to make the experience of updating card information seamless and easy for the customer.

• Make the page mobile-responsive: Most of your customers will update their cards using a mobile device. In fact, we see over 70% of updates happening on mobile devices. They will read your dunning email, click through to the page, and (if you’ve got it set up well), quickly input their information. Done deal. If your card updating page is not mobile-friendly, you risk losing these people to simple frustration– and that’s just not worth it.

• Bypass the log-in: Again, simplicity and ease of use are key on your card update pages. The less friction you add into the process, the more likely your customer is to input that information. If your customer clicks through to update their card info and then is prompted to input a password, you’ve established a real hurdle for them. Most people won’t know the password off the top of their head. Some will guess, get it wrong, and feel frustrated. Neither is a good experience, and neither results in a recovered customer. Simply put, if you ask for a password, and they don’t think you’re worth the time to find it, they will churn.
• Check-in on your pages: It’s easy to forget about card update pages as your company grows. But as site changes are made, things can break. You never want to send a faulty card update page to a customer; it’s a massive load of friction on their experience. Create a schedule to check the functionality of those pages and avoid a massive headache.

6. Personalize Your Emails

In dunning, establishing trust is crucial due to the rise in phishing and scams, making customers cautious about links requesting credit card details.The solution? Personalization. Beyond just using the customer’s first name or engaging copy, subtle changes can significantly enhance trust.

These are transactional emails to existing customers, so trust in the sender is paramount, even more than the email content itself.

Quick tips for boosting personalization and trust:

• Maintain consistent branding: ezititoAlign the look of your transactional emails with your marketing ones. Consistent branding, like including the most current version of your logo, reassures customers. It's also a best practice to include at least one plain-text email in your dunning sequence, as a workaround for customers who block HTML emails.
• Use a recognizable “from” name: Ensure the sender name is familiar and clearly associated with your organization to avoid customer anxiety. Decide on the sender identity based on what your customers are accustomed to, whether it's a personal touch or a generic company email. Adjusting the sender based on the urgency level of the email can also be effective.

• Refine the email copy: Tailor each email in your dunning series to reflect increasing urgency as the account approaches cancellation. The tone and style should match your brand to maintain trust. Vary the content while keeping it aligned with your brand voice.ri
• Limit links and CTAs: To direct focus towards updating payment information, restrict your email to a single call to action and minimize links or promotions.
• Set up a reply system: Ensure replies to your dunning emails are directed to someone who can address them promptly, maintaining customer engagement and trust. Even if emails appear to come from high-level executives, the reply-to should be manageable and responsive.

7. Prioritize Email Deliverability

While ensuring deliverability is a no-brainer for marketing emails, many companies fail to consider this key aspect when it comes to transactional emails–and it’s costing them.

Transactional emails often carry a much heavier weight than your marketing emails. Everything from password resets to, yup, you guessed it, dunning emails, are extremely important to your bottom line. What good is your card update request if it never even reaches your customer’s inbox?‍

When it comes to dunning, ensuring email visibility should be top priority. Here's how to do it:

1. Use a dedicated transactional email service to avoid the deliverability issues common with mixing marketing and transactional emails.
2. Implement DKIM/Return-path records with DMARC alignment to build trust with email servers, improving deliverability and your chances of getting paid.
3. Monitor for bounced emails to address and rectify deliverability issues promptly. For Churn Buster users, this monitoring can be automated via Slack, webhook, or direct to your email inbox.
4. Automate email verification at signup, employing tools like Mailcheck to catch common typos (e.g., name@gmil.com) and reduce incorrect emails in your list.

Focus on practical steps to ensure transactional emails reach customers, thus safeguarding your revenue and background communications.

8. Personal Outreach

While automation is highly efficient for dunning, it's crucial to have safeguards to ensure everything runs smoothly. This includes identifying when a personal touch is necessary.

Develop a method to monitor customers who haven't responded, haven't opened emails, or are high-value clients at risk of leaving. As your automated dunning efforts progress, and if efforts like sending multiple emails yield no engagement, it's a signal to investigate. For example, if a customer hasn't opened any of the five emails sent, their contact details may have changed. Although tracking down the correct information might require extra effort, retaining a high-value customer justifies this.

Is a high-value customer at risk of churning, but have failed to respond to your card update requests? Consider stepping in and sending a personal email (preferably from someone recognizable in your company) and try to get on their radar.‍

Note: Make sure you get notified of high-value failures. If every failure looks the same to your automated system, a $10 account and a $10,000 account will be treated the same. Set up systems to notify you of high-value failures so you know when to bring in resources and customer success team members to make the save.‍

Automation is wonderful, and increases business efficiency. But when it comes to dunning, it's also important to know when to manually intervene.

9. Focus on Key Metrics 📊

Performance visibility is often missing from in-house dunning setups.

And for setups with dashboards provided, poorly attributed metrics can create a misleading picture of where value is being created.

For services that charge based on performance, understanding how performance is attributed is crucial. Without clarity, optimizing your strategy as your business scales becomes challenging.

Churn Buster offers detailed insights into every customer and their campaign history, so you can recover as much recurring revenue as possible, even when manual intervention is required.

Besides tracking performance statistics, it's vital to keep tabs on your customers who encounter payment issues.

Here are some good things to know:

• Current past-due customers (those who have missed payments and are unresolved or not yet marked as churned).
• Each customer's stage in your recovery "funnel" (e.g., received 3 of 5 planned emails, next email scheduled for Friday).
• The reasons behind successful payment recoveries, such as whether a customer updated their payment method and the timing related to your outreach efforts.
• Email deliverability (are they making it to customer inboxes?).
• Are your card update pages loading reliably?

While these metrics might not always lead to immediate action, they will, over time, deepen your understanding of your business, which is invaluable. For instance, noticing a decline in payment reattempt success could prompt investigations into the cause, like an increase in customers using prepaid cards or banks marking your charges as suspicious.

Low email open rates could signal issues with email authentication (related to DKIM records and DMARC alignment), overly aggressive or passive subject lines, or emails being marked as spam.

Gaining a comprehensive understanding of these aspects not only helps you pinpoint and address potential issues but also assures you that your systems are functioning correctly. This is especially comforting when dealing with thousands of billing-related communications, ensuring you can rely on more than just hope that your processes are effective.

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10. Keep Your Setup Well-Maintained 🔧

Maintaining your system isn't just a one-off task. It's crucial for ensuring smooth operation and avoiding costly oversights that can take months to identify.

After setting up your system, it's essential to continuously check for issues like broken links, unresponsive pages, email deliverability problems, and updates to your payment processor's API. Remember, if you can measure it, you can improve it. Identifying and addressing failures promptly is key. Automation and tools like Slack alerts can streamline monitoring, but ensure someone is responsible for responding to these alerts.

Consider scenarios like a customer updating their card, but the payment fails and they don’t retry. You might inadvertently restart the dunning process or stop outreach altogether. Being proactive in such cases can make a difference.

Adjust your system as needed to provide the right customer experience automatically.

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Wrapping Up:

Failed payments can be a silent killer for your company, if you don’t handle them properly.

With the right dunning management, this avoidable issue can be effectively addressed, preserving your revenue. Churn Buster offers comprehensive tools and strategies tailored to your unique business needs, helping you combat involuntary churn and keep your customer base strong.

When you’re hustling to grow your customer base, it’s frustrating to churn customers.

Churn Buster is your ally in fighting churn, equipped with expert knowledge and solutions tailored for subscription eCommerce and SaaS. Take action against churn by exploring what Churn Buster can do for you.