What impacts Recovery Rate?
With dunning solutions, "recovery rate" means the percent of customers, or revenue, recovered after experiencing a failed renewal payment.
Recovery rate is impacted by three factors:
- Customer loyalty—as measured by overall churn rate
- Randomness—natural variance that occurs month-to-month
- Dunning—managed by a service like Churn Buster
Most customers assume recovery rate is only impacted by your dunning process. And some Churn Buster alternatives even charge customers based on changes in recovery rate (read on to understand why this is the wrong approach).
1. Customer Loyalty
The dunning process used for recovering customers with billing issues will have a measurable impact, but the ceiling on performance is set by a variety of factors. These are the exact same factors that define your overall churn rate.
Companies with low overall churn have high recovery rates.
Companies with high overall churn have low recovery rates.
The following factors will impact your monthly churn rate, and by extension, your recovery rate:
What impacts Churn Rate & Recovery Rate?
With only ~10% of customers failing payment each month, even big companies see big swings in Recovery Rate.
Regional holidays, annual promotions, random surges in signups...these all impact Recovery Rate in months to come.
Recovery Rate is often calculated based on dollar amount. When high-paying customers fail payment, Recovery Rate will move more.
Annual subscribers renew less often than monthly. A surge in annual billing issues will impact Recovery Rate in a big way.
Customers who sign up with a discount, or are opted into a subscription without noticing, are more likely to churn later.
Improvements to the quality of your product, support, and onboarding will reduce churn and improve your Recovery Rate.
The factors outlined above will affect your churn rate, and also lead to natural variance—the ups and downs that happen month to month.
Companies of all sizes will see natural variance in their recovery rate. 20%+ swings can happen from one month to another, even while the dunning process is left unchanged.
Examples of Natural Variance
Example 1: COVID-19 Spike
A meat subscription sees a big improvement in Recovery Rate after COVID-19 leads to a surge in demand, with no change to their dunning process.
Example 2: Natural Variance
A smaller beet subscription sees overall churn moving up and down all year long. Small sample size leads to higher monthly swings in Recovery Rate.
Below you will find real examples of Churn Buster clients who haven't changed their dunning process in the last year, so we can measure the amount of natural variance in each.
B2B SaaS: $1.5M Annual Revenue
Running a consistent dunning process, this company sees recovery rate falling between 80% and 100% from one month to the next.
With 10 to 30 failed payments a month, and a large range of customer values ($20/mo - $2k/mo), recovery rate fluctuates dramatically. These swings don't accurately reflect the performance of Churn Buster, so Churn Buster does not bill customers based on these recovery rate swings.
B2C App: $5M Annual Revenue
Consumer apps commonly have the highest churn among subscription models. Lower prices can accelerate new customer acquisition, but it's often easy come, easy go—these customers are more likely to let a subscription lapse, and a failed payment is the perfect time to do so.
This company's recovery rate ranges from 22% to 39%, for a whopping 56% difference!
B2C eCommerce: $50M Annual Revenue
With no change to their dunning process, this company sees recovery rate ranging from 62% to 78%.
At first glance, the slowly decreasing recovery rate may look concerning. But this company's failed payment volume tripled in less than a year. Fast growth often leads to increased churn, especially during the critical 2nd shipment where customers (maybe hunting for a signup discount etc) tend to churn at a higher rate. As early churn increases, recovery rates go down despite—because of—this company's high growth trajectory.
B2C eCommerce: $500M Annual Revenue
Here is another example of a high-growth eCommerce company with a gradually decreasing recovery rate. This example shows how much variance can occur among the largest companies on the planet. In April, this company had a 87.7% recovery rate, which is 14% above their all-time average!
Note: a company with a 76% recovery rate (as shown here) can be assumed to have a relatively low churn rate—probably below 5% monthly overall churn.
Lastly, the dunning tool or process you use will have an impact on your recovery rate.
If you have no process in-place, not retrying payment on existing cards on file, and not emailing customers about their payment issues. You can expect to have an awful recovery rate, regardless of your churn rate.
Assuming you aren't doing nothing, your dunning process will dictate where your recovery rate falls within the range of possibilities determined by your churn rate, and month-to-month variance.
If you are a B2B SaaS, with low churn, you should expect to have over 70% recovery. The dunning process you use can be the difference between 70% average recovery and 80% or 90% average recovery.
Your focus should be on not letting customers who want to renew, slip through the cracks. Our focus at Churn Buster is building a platform that automates most recovery with a great customer experience, and also enables your team to get involved with high-value customers before they churn.
An intelligent dunning tool, plus a bit of elbow grease, is how you can reach the peak recovery rate unique to your business.
Curious what impact a change to your dunning process can have? Learn about Short Par 4's experience moving over to Churn Buster.
Since so many outside factors affect your recovery rate, it would be pretty bold for us to say Churn Buster can boost your recovery to XX%. Rather, our goal is to improve your recovery rate and optimize recovery over the long-term as your business grows.
We do our absolute best to be transparent, and share as much as possible about the type of performance we see from companies of all kinds.
You can learn more in our most recent analysis: What is Churn Buster's Recovery Rate?