Recovery Rate

What is Recovery Rate?

Recovery rate is a crucial metric for subscription businesses, representing the percentage of failed payments that are successfully recovered through your dunning or recovery campaigns. It measures how effectively your business can retain customers who experience payment failures, directly influencing revenue and minimizing churn.

How to Calculate Recovery Rate

The formula to calculate recovery rate is:

# of Recovered Payments / # of Failed Payments

Accurate measurement requires waiting until all recovery campaigns are fully completed. Ideally, assess over 30-60 days of completed data to account for natural variance and get a reliable view of your performance.

Handling In-Progress Campaigns: The Right Way to Measure Recovery Rate

When measuring recovery rate, it’s crucial to handle in-progress campaigns correctly. For example, if you have 1,000 failed payments in a 20-day campaign, results on day 7 might look like this:

• 1,000 failed payments
• 400 recovered
• 100 canceled
• 500 still in progress

You have two options to calculate the recovery rate:

Option A: Exclude in-progress campaigns, calculating 400 recovered out of 500 completed (1,000 total failed - 500 still in progress), which results in an inflated recovery rate of 80%. This approach is misleading because it removes the most uncertain outcomes and overestimates performance.

Option B: Include all in-progress campaigns, calculating the recovery rate as 400 recovered out of 1,000 total, giving a realistic 40% rate so far. This reflects what has been achieved up to that point and allows the rate to increase naturally as more payments are recovered.

While neither option fully captures the final rate at this stage, Option B provides a reliable foundation and avoids the over-optimistic conclusions that Option A produces.

Why Excluding In-Progress Campaigns is Misleading

Removing in-progress campaigns from your calculation creates a distorted view, as these are the payments most likely to result in passive churn. This not only inflates your recovery rate but also leads to decisions based on incomplete and overly positive data. Always include all outcomes in the denominator until the campaign has run its full course.

Waiting for Accurate Results

Accurately measuring recovery rate takes patience. For a 20-day campaign, you won't have fully completed results until after 21 days, and even then, you’ll only have one day of completed data to analyze. Each day after adds another set of completed results, and it often takes at least 30 days of data to smooth out natural variances and draw meaningful insights.

Speeding Up Analysis with Daily Rollups

To reduce wait times, consider calculating recovery stats on a daily basis, using daily rollups. This method allows you to exclude only specific days with in-progress campaigns rather than entire months, providing more timely insights without sacrificing accuracy.

What Impacts Recovery Rate?

Recovery rate is influenced by several factors, similar to overall churn rate:

• Sample Size: A smaller number of subscribers experiencing billing issues can lead to unpredictable fluctuations, even in large companies.
• Seasonality: Annual holidays, temporary promotions, and surges in new subscribers can impact future recovery rates.
• Price Points: Varying price points can cause fluctuations in recovery rate, particularly when payments from high-value customers fail.
• Billing Cycles: Subscribers on annual or quarterly billing cycles renew less frequently, increasing the likelihood of card declines compared to monthly subscribers.
• Customer Acquisition: Customers acquired through large discounts or unintentional subscriptions have a higher tendency to churn, affecting recovery rates.
• Service Quality: Enhancing product quality, customer support, and the onboarding experience can lower churn rates and improve recovery rates.

What’s CB’s Recovery Rate?

Churn Buster users typically see an average recovery rate of 50.3%, with top performers achieving up to 94.5%. These figures demonstrate the potential of an effective recovery process but also highlight that customer loyalty and overall churn behavior are significant determinants of the recovery ceiling.

Optimizing Your Recovery Rate

To improve your recovery rate, refine your strategies by incorporating adaptive technology, personalizing communication, and distinguishing between soft (temporary) and hard (permanent) declines. A well-structured approach aligned with customer behavior can drive higher recovery rates and reduce churn.

Final Thoughts

Accurately calculating and understanding your recovery rate is essential for making informed decisions in customer retention. Avoid misleading metrics by properly managing in-progress campaigns, waiting for complete data, and continuously optimizing your recovery efforts. Accurate measurement may take time, but the insights gained are invaluable for driving growth and reducing churn in your subscription business.