The 4 Outcomes

After a recurring payment fails, there are four possible outcomes. Measuring all four is crucial for accurately measuring the success of your failed payment recovery, or dunning process.

To measure these four outcomes effectively, first establish how long your recovery efforts will continue before considering a customer as churned. Typically, this is about 30 days following a failed payment.

1. Recovery via Card Update

Did the customer update their payment information successfully?

When a payment fails, customers may need to update their payment information. This outcome is tracked when a customer updates their card-on-file, and a payment attempt succeeds.

This outcome is a key business metric because it indicates customer engagement and their willingness to resolve payment issues to maintain their subscription. Measuring this outcome helps you assess the effectiveness of your communication strategies, such as reminder emails and SMS notifications, which prompt customers to update their payment information.

Card update success contributes positively to your overall Recovery Rate.

2. Recovery via Successful Retry

Was the payment successfully retried on the customer's existing card-on-file?

Many billing issues are temporary, and simply retrying the card-on-file can capture the payment. Ideally, retries will be at an optimal cadence of recency, frequency, and duration for your unique business.

Retry success can happen at any time in a recovery process, and should be measured uniquely from the remaining outcomes.

Retry success contributes positively to your overall Recovery Rate.

3. Loss via Cancellation

Did the customer actively cancel their subscription?

Active cancellations occur when a customer decides to cancel their subscription following a failed payment.

This outcome is important because it directly impacts your revenue and indicates that the customer has made a conscious decision to end their relationship with your service. Passive churn can also be a conscious decision, with a customer deciding to ignore the billing issue, however this explicit form of cancellation should still be uniquely measured.

Understanding why customers actively cancel can provide valuable insights into areas of improvement, whether it’s related to pricing, customer experience, or product value. It’s essential to track active cancellations to better understand customer sentiment and refine retention strategies.

Cancellation must be included in a recovery rate calculation, for two primary reasons:

1. A poor communication strategy, improper handling of decline reasons, difficulty with updating a payment method and more can contribute to cancellations. As such, cancellation can still be a measurement of your dunning effectiveness.
2. When a payment fails, it's impossible to know which of these 4 outcomes will occur. Removing this outcome from your measurements after-the-fact will skew results in a non-scientific way. Doing so can disguise spikes in active churn, and it can also lead to an unrealistically inflated recovery rate.

Cancellation contributes negatively to your overall Recovery Rate.

4. Loss via Passive Churn

If payment hasn’t been recovered after 30 days, the customer is classified as passive churn.

Passive churn happens when customers do not actively cancel but fail to resolve their payment issue within the dunning period. This often results from ignored or missed notifications, failed attempts to update payment methods, or simply losing interest in maintaining the subscription.

This outcome is critical to measure because it represents lost revenue without direct feedback from the customer. Passive churn highlights gaps in your recovery and communication efforts, indicating where you may need to improve your outreach tactics, retry cadence, or customer education.

Identifying and reducing passive churn is key to optimizing your dunning process and retaining more customers over time.

Passive churn contributes negatively to your overall Recovery Rate.

Next Up: Active vs Passive Churn

Once your data is formatted in daily cohorts, and you have an understanding of the 4 outcomes, you're ready to explore active and passive churn a bit more.

A common misconception is that active churn, or cancellations, should be excluded from passive churn analysis. But it's so key to understanding your passive churn, how you compare to similar companies, and critical for identifying natural variance and conducting performance comparisons over time.

Learn more about active vs passive churn.