Your customers love your service. They use it every day. You have been charging their credit card each month for the services they consume. Let’s assume that one of your customers’ payment failed. Now, what do you do in this situation?
Dunning Management

It is unfair to cancel their subscription just because their card didn’t go through. You also cannot afford to forget the charges. You might be thinking, why can’t I just follow up with that customer? Sure, that sounds like a good option when you only have one payment failure to deal with. But, what happens when your customer base grows and you have to deal with multiple payment failures? It’s not feasible for you to keep track of all card failures and follow up on each of them manually. If this is not handled carefully, it could lead to involuntary churn.

Let’s take a look at what involuntary churn is all about and how you can solve it.

Involuntary churn takes place when the company stops providing service to the customers due to non-payment and is not a direct result of the customer’s decision. Payment failure is one of the top sources of involuntary churn.

According to Spreedly’s Gateway Index, an average transaction fails over 17% of the time. Transactions can fail due to a number of reasons including:

  • Card expiry
  • Insufficient funds
  • Card restricted
  • Processing errors

Fortunately, these issues can be easily solved with the help of dunning management found in a good subscription billing system.

Dunning is not just a town in Nebraska!

Dunning or Delinquent User Notification is an automated process that is set in motion whenever a recurring payment fails. It notifies the customers of the failure with the intention of recovering overdue payments. Typically, this is accompanied by a payment retry, where the system tries to charge the customer’s card again, based on a frequency of your choice. The number of retries depends on the type of subscription billing system you use. A minimum of 3 retries is recommended with a frequency of 3 – 5 days in between.

For card expiry, it is recommended that you notify customers a few days before their cards are set to expire and also on the day of expiry. Ideally, your subscription billing system should be able to identify those cards which are about to expire and send automated email reminders to your customers.

How does dunning help?

Let me give you an example of how dunning management in Zoho Subscriptions helped Faith Music Missions. Faith Music Missions, an organization that produces gospel music, sends their latest albums to the members of their monthly music membership program. They had initially used spreadsheets to track member details and spent a chunk of their time manually following up on failed payments, retrieving updated or valid card information.

Dunning management helps Faith Music Missions:

  • Automate the process of notifying customers when online payments fail.
  • Retrieve payments through the payment retry process.
  • Save additional time and resources on the admin side that were previously spent on follow-up.

Ryan Libbey, the director of development and marketing of Faith Music Missions, says ‘ We were able to salvage 85% of those customers who had payment issues. Using the built in features, we are able to mitigate the churn rate by being proactive about payment issues instead of waiting until it has already happened.’

So, what’s the takeaway?

One of the biggest challenges of running subscription-based business is retaining customers. Your business depends on your repeat customers for revenue. Retaining your existing customers will lead to a more stable source of recurring revenue. Gartner, an IT research firm, suggests that a company that retains 20% of its current customers will secure 80% of its future revenue. With such a huge percentage depending on your existing customers, it is probably worth taking extra care of them and not cancel their subscription because their cards failed. That’s exactly how dunning can help.

If you didn’t pay attention until now or you just want to skip to the point, well, then here are the main takeaways:

  • Dunning helps you recover overdue payments when there’s a card failure. It increases customer retention.
  • It automatically notifies customers of the failure and retries charging their card.
  • With dunning, you can reduce involuntary customer churn.
  • It saves you the hassle of manually following up for payments.