Publishers and media companies recognize that involuntary churn erodes their subscription revenue, but many still lack strategies and technology to combat it effectively.
As publishers increasingly emphasize subscriptions as a core revenue driver, the importance of recovering revenue from failed payments has surged. Many are now laser-focused on maximizing direct revenue from their audiences, and financial efficiency is becoming increasingly critical to ensure they do not leave money on the table.
To understand how publishers can combat involuntary churn more effectively — and grow revenue in the process — we sat down with Butter Payments’ CEO and founder, Vijay Menon. He highlighted five myths publishers should reconsider regarding the impact of involuntary churn on their subscription revenues and overall business strategies:
1. Involuntary churn is not a significant revenue opportunity
Involuntary churn isn’t seen as a priority by some publishers partly because they misunderstand how much revenue they could be recovering, Menon says. Payment failure is often shrugged off as a cost of doing business or viewed as an opportunity for marginal gains rather than a significant revenue driver.
Many companies assume involuntary churn accounts for maybe 1% or 2% of revenue, but data from Butter Payments’ clients suggests it’s typically at least five times greater.
“Payment failure is a much bigger opportunity than many people think. When we look at publishers’ data, we usually find that a minimum of 10% of their subscription revenue is lost to payment failure in the prior year,” Menon said. “For a publisher that does $100 million in recurring revenue, this means at least $10 million from failed transactions – and a large portion of that could be recovered.”
The complexity of the problem combined with an underappreciation of how much revenue could be lost explains why many publishers don’t view fixing it as a pressing priority, he added.
2. Publishers can do little to address failed payments themselves
When subscription payments fail, the onus is often placed on customers to address the issue after the fact. Many publishers have established systems to automatically prompt customers to retry payments, update payment details, or communicate with their card issuers, while some dedicate significant customer support resources to communicating with subscribers about failed payments. These approaches often have limited success.
According to Menon, however, many publishers are missing an opportunity to avoid failures in the first place simply by processing transactions more intelligently. Recovering revenue from failed payments is less of a problem if fewer payments fail in the first place.
While multiple variables contribute to successful payments, sometimes simple steps such as billing subscribers within local business hours can make a significant difference. If a subscriber is overseas, for example, charging their card at 2 am local time is much likelier to fail waiting 12 hours and running in the middle of their afternoon.
“Publishers often assume that customers are the solution to failed payments and will structure programs around that as a result. What they don’t often think is ‘before we do these things or put the onus on the customer, what can we do to go and fix the issue before it occurs? What we’re trying to do is help publishers be as non-invasive as possible to customers,” Menon said.
3. Subscribers with recovered payments will churn anyway
A question that’s often raised by publishers around involuntary churn is whether efforts to combat it boil down to charging people who don’t want to be charged. Why bother spending time, effort, and resources recovering payments from subscribers who will ultimately churn anyway? It’s a valid question, but ultimately one that can be answered simply by looking at the data, Menon said.
Publishers taking a more nuanced approach to failed payments – as opposed to the brute force strategies applied by some – often find they’re able to boost revenue while improving customer experience by identifying and throwing out customers who don’t intend to be charged. This can often result in fewer refunds and chargebacks and a boost to subscriber revenue and lifetime value because the most valuable relationships are being maintained.
“There’s an opportunity to be more nuanced and recover revenue without engaging the sleeping zombies. Publishers can cut out the 25% of failed transactions from unintentional subscribers, do a better job on the remaining 75%, and measure the results,” Menon said. “We can identify the folks who are going to churn anyway, the folks who are going to charge back, and the folks who are going to be refunded and throw them out.”
4. Payment service providers know what’s best
Publishers often place the onus for failed payments on their customers in part because payment service providers advise them to. PSPs deal with transactions from thousands of card issuers across hundreds of countries and territories, and often employ rules that “paint too broad of a brush” when it comes to the reasons for failed payments, Menon said.
PSPs typically lump together failed transactions under generic “do not honor” responses, for example, and publishers are often advised to ask their customers to contact their banks for further information as to why payments were declined. Publishers often feel like they have very little visibility and control over failed payments as a result.
When using technology that digs deeper into why individual transactions are declined by specific card issuers, however, publishers often find that a far greater portion of failed payments are recoverable than their PSPs suggest, according to Menon.
“PSPs often can’t keep up with the ever-evolving classifications of hard and soft error types. As a result, their guidance to companies on addressable failures is often outdated and inaccurate. This isn’t the fault of the PSPs but rather a reflection of the issue’s complexity. Consequently, companies consistently miss significant revenue opportunities, leaving substantial money on the table,” Menon explained.
Addressing involuntary churn requires a combination of strategic focus and advanced technology. By rethinking the approach and leveraging intelligent payment processing, publishers can transform involuntary churn from a revenue drain into a significant growth opportunity.
5. Publishers should have involuntary churn under control
Publishers frequently cite involuntary churn as a major challenge to their subscription efforts. However, the complexities involved in addressing it often lead them to focus on other aspects of their products and businesses. Consequently, involuntary churn is frequently relegated to the back burner.
Publishers shouldn’t feel bad if they haven’t got a handle on the issue yet, Menon said, primarily because it’s such a difficult and complex problem to solve. Effective approaches vary significantly from one publisher to the next, the technical expertise required to address it is difficult to find, and keeping track of best practices and rules across hundreds of markets and thousands of financial institutions is a huge task.
Even with the best intentions and unlimited resources, it’s not a challenge the majority of publishers are capable of solving effectively themselves. “It’s something that requires a huge amount of time and resources, and publishers should be focused on creating great content – not on leaky payments architecture,” Menon said.
Publishers that do have systems in place to recover failed payments may still be leaving money on the table. Many rely on crude approaches that attempt to force payments through by simply reattempting charges repeatedly at predefined intervals, rather than optimizing retries more intelligently based on when payments are most likely to succeed. More nuanced and dynamic approaches – including those informed by machine learning – can help ensure higher success rates and a better experience for customers, Menon said.
This post is presented in partnership with Butter Payments. For a limited time, Toolkits readers can discover how much revenue they’re losing to failed transactions and how to optimize their recovery processes with a free payment health analysis from Butter Payments.