Let’s just come out and say it - customer churn is costly for SaaS enterprises! It impacts recurring revenue, and even worse, acquiring new customers comes at a very high cost, and SaaS online businesses depend on subscription renewals for their longevity and profitability. While the generally accepted ANNUAL churn rate is 5-6%, retaining as many existing customers as possible is ideal.
The average churn rate is made up of both voluntary and involuntary churn. According to a study by Recurly, after implementing measures to lower both voluntary and involuntary churn, 65% of SaaS B2B services saw a decrease in their overall churn rate as compared to the prior year.
It is worth mentioning that payment failures responsible for up to 50% of those subscription cancellations.
To help keep customer churn to a minimum, businesses need to fine-tune their processes and utilize the best tools on the market to ensure that the number of declined payments is as low as possible.
If the subscription billing software you currently use cannot adequately respond to potential customer churn through dunning communication systems, you have a big problem. Let us further explain how this automated payment recovery mechanism can bolster your business and make the difference between success and failure.
What Is Dunning Management and Why Is It Important?
Dunning management is one of the payment collection processes every SaaS business needs to ensure that their shoppers pay on time. Rather than manually sending customers notifications about failed payments, innovative companies invest in dunning-management systems that automate the process.
For enterprises with a subscription business model, failed payments can lead to account cancellation or even termination – sometimes at the extreme churn rate of between 15-20%. A dunning-management system can prevent this by allowing you to proactively contact clients before losing their business.
The system enables you to send payment reminders, alert customers to transaction errors, automatically retry failed payments and assist them in taking corrective action before they even have a minute to think about going to a competitor.
Beyond just preventing churn, effective dunning management directly impacts your bottom line, specifically your revenue retention. Industry benchmarks show that companies with optimized dunning processes recover between 70-80% of failed payments. This translates to substantial revenue protection.
Voluntary vs. Involuntary Churn
Voluntary churn occurs when customers actively decide to unsubscribe from your service. Their reasons could include a bad experience, your service or product no longer meets their needs, they don’t feel they are getting a good return on their investment, or they discover something better elsewhere.
Involuntary churn happens when a customer's subscription is canceled due to a failed payment. This could result from an expired credit card, insufficient funds, or some other payment issue they might not even be aware of.
To put this in perspective, according to the latest industry data, involuntary churn represents approximately 20-40% of all customer churn in subscription businesses. More importantly, keep in mind customers who experience involuntary churn will continue their subscription if the payment issue had been resolved smoothly. This represents a significant opportunity for businesses that implement effective SaaS dunning strategies.
Examples of Voluntary Churn
Customers who actively actively decide to unsubscribe from your product or decide not to have a subscription license renewal do so for several reasons. These include but are not limited to dissatisfaction due to unpleasant user experience, a lack of features they consider vital to their operations, poor customer support, product issues that aren't fixed in a timely manner, and increased pricing.
When it comes to voluntary churn, customers ultimately leave because they don't feel they're getting value for money.
9 Ways to Preventing Voluntary Churn
Preventing voluntary churn and building customer loyalty requires a proactive approach that starts with understanding customer behavior. You must constantly monitor usage patterns, favored features, and customer engagement to identify at-risk clients and adapt your churn strategy accordingly. On the plus side, even if they unsubscribe, the good news is there are several steps you can take to get them back.
1. Dunning Emails
If you still have the option of communicating with customers once they've indicated they'd like to unsubscribe, reach out to reiterate the value of your product or service and the many benefits they deliver and see if you can gain any information as to why they have churned out.
Focus on your product's most popular features and how it may have worked for them in the past, and highlight new, innovative features that might push your brand ahead of your competitors. Offering promotional discounts on renewal may also help – don't forget to provide a direct subscription license renewal link. Most importantly, see if you can address their concerns and find the solution to the problem that caused them to leave.
2. Product Promotions and Incentives
To encourage customers to remain subscribed to your SaaS, try providing incentives. This could be promo codes and product discounts for longer-term subscriptions. Another option would be to offer a payment pause instead of immediate cancellation, buying more time to win the customer over.
But ultimately, you might have to accept that it makes more financial sense for your business to let price-sensitive customers go, as they could drain resources in the long term.
3. Personal Follow-Up
Remember, there are some instances when a direct client call may be more effective in preventing churn than an automated email. This approach is particularly relevant for some B2B platforms where client relationship management is essential. Not only will it help you retain clients, but you'll develop an approachable brand image, too.
4. Collect and Act on Feedback
If you’re not already collecting feedback from your users using a subscription lifecycle management tool, now is a good time to mention that it will help you continuously improve your product, helping you stay relevant and ahead of your competition.
Offboarding feedback can also help you understand why customers opt out of your service and how they feel about your brand before leaving. An in-app feedback tool will allow you to receive relevant, prompt inquiries and give you a chance to respond to them quickly.
Many companies are now leveraging AI and machine learning to predict which customers are at risk of churning based on usage patterns, engagement metrics, and feedback responses. These predictive analytics can help identify at-risk accounts before they cancel, allowing for proactive revenue retention strategies.
eCommerce Partner
Thrive with the industry's most innovative all-in-one SaaS & Digital Goods solution. From high-performing payment and analytics tools to complete tax management, as well as subscription & billing handling, PayPro Global is ready to scale your SaaS.
Sell your SaaS globally with PayPro Global!
5. Pre-Dunning
Sending emails to customers reminding them that their card is about to expire – pre-dunning – has essentially become obsolete, thanks to payment platforms that automatically update customers' payment information. However, if you don't use such a service, you must ensure clients can update their details promptly and as efficiently as possible through other means to ensure timely payments.
Pre-dunning emails can accomplish this, but they should be kept straightforward and professional, simply reminding the customer how useful your platform is and why high SaaS renewal rates are in their best interest.
6. Credit Card Auto-Updating
Working with a payment solutions platform that utilizes credit card auto-updating to keep customers' payment details current is a painless way of preventing failed payments and involuntary churn. Not to mention that according to Visa and Mastercard, it is mandatory to send auto-updating emails.
Because a customer's card details could change, or they may need to replace a lost card, the payment processor works directly with the credit card issuer to automatically update customers’ card details before expiration. This automated process can save you time and money.
PayPro Global's implementation of this technology shows particularly strong results in the software vertical compared to standard retry mechanisms.
7. Automatic Payment Card Retries
It is no surprise that modern payment solution platforms automatically retry failed credit card payments according to a preset schedule. This provides an efficient means to lower involuntary churn, thereby maintaining your expected revenue stream. A declined card may, for example, be retried three days after the initial failure, eliminating the need to take further measures if the transaction is approved.
It reduces the need for customer contact, providing a seamless, uninterrupted service that ultimately keeps your shoppers content. But be cautious about how many payment retries you attempt and how far apart they're spaced. Retries that are too frequent may trigger a fraud alert, and the card issuer may suspend activity on the account, resulting in a negative customer experience and even more difficulty getting that transaction processed.
As a matter of fact, recently, Visa and Mastercard have set clear requirements regarding payment retries, specifying how soon you can retry a payment and the number of accepted retries before receiving a fine. Keep in mind that these rules are constantly changing, so it is essential to use a system ready to adapt to new regulations.
Today's sophisticated retry logic goes far beyond simple scheduling. PayPro Global employs machine learning algorithms that analyze historical payment data to determine the optimal retry timing and sequencing for each specific customer and payment method.
8. Automated Messages and In-App Reminders
If credit card retries are unsuccessful, you'll want to contact customers to rectify the payment failure. But rather than contacting each customer directly, a dunning-management system allows you to send automated messages alerting them to the issue before the subscription is canceled.
Notifications are typically sent as dunning emails, text messages, or in-app reminders to inform them of the failed payment. But you may need to follow up multiple times before the client takes the necessary steps to correct the issue.
In-app or dashboard messages are beneficial as you can communicate with your customers. At the same time, they're engaged with your product or service, making them more likely to take immediate action.
Best practices for communication vary significantly by industry. For SaaS products, email remains the most effective channel, while gaming companies see better results with in-app notifications.
Additionally, A/B testing of dunning communications at PayPro Global has revealed that personalized messages that highlight the value of continued access increase payment update completion rates compared to generic payment failure notifications.
9. Personal Follow-Up
In some rare instances, when your automated system fails to get the desired results, you may need to reach out to customers directly. While this might seem aggressive, trying to prevent high-value clients from churning may be worth your while. When automated campaigns fail to produce an appropriate response, a personal email from someone notable in your company may prompt your customers to take the appropriate action.
We suggest having an account manager or someone from customer support if they are not being serviced directly by some type of relationship manager. For high-value B2B SaaS customers, personal follow-up can be particularly effective.
Impact of Churn Rate on Revenue Flow and Business Growth
Your churn rate, a metric you should keep a close eye on, is determined using the number of voluntary and involuntary customer cancellations over time. Regardless of the reasons for churn, it needs to be a key strategic focus as it can account for a substantial annual loss in your total recurring revenue.
Your SaaS company depends on retaining customers for its stability and long-term growth. Therefore, investing in an automated payment recovery process that controls churn is an essential business strategy to have in place.
A modern subscription billing system will not only help you prevent voluntary churn by facilitating enticing promotional campaigns but also help you get any failed payments back on track. A smart payment collections solution will reduce involuntary churn and save you time and money.
What happens when monthly payments fail and go unpaid for weeks?
- Resource-intensive collection efforts
- Customer service strain
- Accounting complications
- Cash flow disruptions that can impact your ability to meet your own financial obligations.
Benefits of Automated Dunning Management for Your Business
Increased Efficiency
Manually sending payment reminders to customers about failed transactions is time-consuming and prone to human error. This includes typos, contacting incorrect customers, or not sending reminders. These potential mistakes are costly to any SaaS business and can damage your reputation.
An automated dunning-management system will help you efficiently and accurately process the collection of payments. And you'll be able to customize the actions taken when payments fail and your email communication, which provides a professional solution for your shoppers.
Reduced user acquisition costs
Keeping your customer churn rate low protects your current recurring revenue stream and helps reduce the costs of acquiring new customers. Keeping your eye on the CAC Payback rate is also important. Dunning management reduces churn through efficient customer communication that maintains a positive, uninterrupted user experience, convenient for both your shoppers and your team.
With Customer Acquisition Costs (CAC) in the B2B SaaS industry averaging $205 per customer, reducing churn directly impacts profitability. Effective dunning management typically recovers 40-60% of failed payments, translating to substantial CAC savings.
Improved Customer Experience
A friendly reminder when a payment fails and seamless assistance in taking corrective action are becoming standard parts of maintaining good customer service. A jarring experience that could see them cut off from the service – temporarily or not – can only encourage churn and possibly be extremely disruptive to your customer. An automated dunning- management system allows you to effortlessly stay on top of payments while ensuring positive customer engagement.
For video game subscription management, maintaining uninterrupted access is particularly critical. Players who experience a service interruption due to payment issues will seek alternative games rather than resolving the payment problem.
PayPro Global's dunning approach for gaming clients includes grace periods designed to minimize disruption while payment issues are resolved.
Insights for Strategic Decision-Making
Dunning management will also help you gain insights into your customers' payment behavior and allow you to formulate a strategy for failed payment collections. It will help you determine when to send an initial reminder, how often to send follow-ups, and at what point you should resort to alternative measures.
You also gain insight into how customers prefer to communicate and the best tools to engage positively with them.
Advanced dunning platforms provide detailed analytics on failure reasons, resolution rates, and customer behavior patterns.
Ultimately, a good dunning-management strategy helps increase cash flow, lower churn, and improve customer relations. More than a means to communicate with clients whose payments have failed, it's a strategic opportunity to engage with them and increase the chances of them remaining subscribed.
Improved Revenue Recovery
While a subscription model with a predictable revenue stream allows you to plan, involuntary churn that isn't managed proactively can put a serious dent in your pocket.
An automated dunning-management system helps you stay on top of failed payments and improve revenue collections while securing your recurring revenue stream. It also ensures you are paid on time and doesn’t tax your support team with tasks that can be handled automatically.
eCommerce Partner
Thrive with the industry's most innovative all-in-one SaaS & Digital Goods solution. From high-performing payment and analytics tools to complete tax management, as well as subscription & billing handling, PayPro Global is ready to scale your SaaS.
Sell your SaaS globally with PayPro Global!
What to Consider When Configuring Your Dunning Management Settings
A smart dunning-management system helps you create multiple campaigns to target customer categories accordingly.
Top-tier clients, for example, may require a more hands-on approach if initial emails don't show results.
In contrast, you may send a series of emails to customers on your most basic package before ultimately suspending their access.
You would need to reach customers on a monthly plan within a short period of a failed payment.
On the other hand, customers on an annual subscription should be approached with a more extended SaaS dunning management campaign while encouraging them to act as quickly as possible.
Also, you should consider grouping and targeting customers by region if your business extends globally.
And speaking of global expansion, when configuring the system settings, you need to take into account existing dunning email requirements, as these might differ from country to country.
In particular, compliance with evolving payment regulations presents significant challenges for global businesses. PCI compliance,the European Union's Payment Services Directive 2 (PSD2) and Strong Customer Authentication (SCA) requirements have dramatically changed how payments are processed and how failed transactions must be handled.
PayPro Global's SaaS dunning management system is fully compliant with these regulations, automatically detecting when transactions fall under SCA requirements and initiating appropriate authentication flows that maintain high conversion rates while meeting regulatory standards.
For businesses managing payments across multiple jurisdictions, our system automatically applies the appropriate dunning protocols based on local regulations.
Dunning Management and Your Communication Strategy
Dunning management requires a well-thought-out communications strategy. There is a delicate balance between being friendly and firm when sending out failed payment notifications. You'll need to consider your messaging, notifications frequency, and timing to avoid offending or irritating your shoppers.
Avoid sounding like a traditional collections agency whose messages may sound threatening. Friendly, polite messages are more likely to be received positively, and the customer experience remains pleasant. They'll also be more likely to update their card information and make payments sooner when they feel you are attempting to help them with this problem.
Communication strategies must be tailored to the specific expectations of your industry segment. For example:
- B2B SaaS customers respond best to professional, value-focused messaging that emphasizes business continuity
- Consumer software users prefer concise, solution-oriented communications with clear action steps
- Gaming audiences engage most effectively with communications that maintain the brand's voice and emphasize continued access to their gaming experience.
In-House Dunning vs. Merchant of Record: A Cost Comparison
Cost Considerations
It takes a substantial initial and continuing cost to build and maintain an internal dunning management system. In addition to the technical infrastructure, companies need to consider:
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- Payment processor integration costs and transaction fees
- Compliance monitoring for changing regulations
- Technical staff for maintenance
- Customer service for payment issues
- Analytics for performance tracking.
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With transaction-based pricing and no up-front development costs, dunning management is offered as part of a larger payment solution by working with a Merchant of Record such as PayPro Global. Compared to in-house development, this method is less expensive and has higher recovery rates.
Businesses that work with PayPro Global can speed up product development cycles by reallocating personnel from payment operations to key growth projects.
Multi-Payment Method Management
A variety of payment options are used by modern consumers. A successful dunning system has to manage:
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- Credit Cards
- PayPal and Digital Wallets
- Direct Debit/ACH
- Alternative and Local Payment Methods
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Although cross-border transactions are more complicated, PayPro Global's country-specific optimization improves recovery rates worldwide.
How Can PayPro Global Help?
Our unified, all-in-one Merchant of Record offers you extensive tools for hitting your global growth targets. From securing PCI compliance, providing extensive fraud prevention, allowing your SaaS to localize monetization techniques and ensuring a flexible pricing strategy to actively helping identify at-risk customers and reduce revenue losses, our technology allows you to build a strong growth engine.
PayPro Global's subscription billing software is as flexible as it is robust in dunning management. To help tackle voluntary churn, our system allows you to run multiple promotions to effectively keep customers subscribed.
We offer a self-service customer portal to update card details and an automated dunning notification system to minimize involuntary churn. Through our professional dunning process and automated payment retries, we ensure that your SaaS enjoys the lowest possible transaction failure rate. We help your business optimize revenue streams and significantly reduce the number of failed payments, bringing in a considerable profit.
eCommerce Partner
Thrive with the industry's most innovative all-in-one SaaS & Digital Goods solution. From high-performing payment and analytics tools to complete tax management, as well as subscription & billing handling, PayPro Global is ready to scale your SaaS.
Sell your SaaS globally with PayPro Global!
Conclusion
Automated dunning management will help your business recover and maintain recurring revenue so you can confidently plan and hit your financial targets. The right tools and processes will ensure collections are carried out seamlessly and efficiently. Beyond fixing payment issues, dunning management allows you to optimize your business operations and strengthen your relationships with your customers as they begin to understand just how many details you are managing for their convenience.
Are you spending a lot of time manually reviewing and contacting customers to address declined charges? Is your SaaS business well equipped to maintain a high payment collection rate, or is it doomed to continue losing customers to churn? The answer largely depends on your dunning strategy.
Visit PayPro Global or reach out for more information on our advanced subscription billing solution. We would love to chat with you about your business and how our capabilities align for a partnership that will be sure to accomplish many great successful ventures.
Frequently Asked Questions
Why is reducing failed payments such a big deal for my SaaS business?
Resolving failed payments is crucial since they immediately result in lost revenue and clients; over half of SaaS subscription cancellations are caused by unsuccessful transaction. Payment recovery allows you to retain current customers while avoiding the costly process of acquiring new ones. It all comes down to protecting your money.
What are the main advantages of using an automated dunning system?
By eliminating manual chasing and minimizing errors, automated SaaS dunning systems increase efficiency. By keeping churn low, they help you recover 40–60% of lost payments, which reduces the amount of money you spend on acquiring new clients. Additionally, they significantly increase your revenue retention(70–80% when done correctly) and improve customer experience by providing timely alerts.
How can I effectively recover failed subscription payments?
Establish an automated SaaS dunning management procedure to gain a firm grasp on recovering unsuccessful subscription payments. Retrying payments at strategic intervals, contacting clients beforehand (by email or in-app notifications), utilizing services that automatically update credit cards, and sending straightforward reminders to update payment information are all examples of this.
What should I consider when setting up my dunning management strategy?
Consider classifying clients for various types of messaging when organizing your dunning strategy. What works for a high-value client may not work for someone on a basic plan. If you sell globally, adapt your messaging to the local context and always strive for a tone that is clear but friendly. Additionally, ensure that your approach complies with payment regulations such as PSD2, SCA, and PCI.
Is it better to build an in-house dunning system or use a Merchant of Record?
The development, maintenance, and compliance costs of building your own dunning system might be high. It is frequently a more prudent financial decision to use a Merchant of Record (MoR), such as PayPro Global. They save your team the trouble by providing professional dunning, typically achieving higher recovery rates, and handling complex compliance issues and various payment options.
Can dunning management negatively affect customer experience?
The customer experience may suffer if dunning is done poorly, for as by sending out hostile or perplexing communications. However, when done correctly, dunning actually improves customer satisfaction by providing amiable, helpful reminders and a simple solution for payment issues. Proactive assistance prevents their service from being interrupted and increases client trust, both of which contribute to their retention.
How does credit card auto-updating help reduce failed payments?
When a customer's old card expires or they receive a new one, credit card auto-updating services immediately update their stored card information by collaborating with card networks such as Visa and Mastercard. This easy step reduces unintentional churn and the amount of dunning you have to undertake by preventing payments from failing due to outdated information.
Ioana Grigorescu
Ioana Grigorescu is PayPro Global's Content Manager, focused on creating strategic writing pieces for SaaS, B2B, and technology companies. With a background that combines Languages and Translation Studies with Political Sciences, she's skilled in analyzing, creating, and communicating impactful content. She excels at developing content strategies, producing diverse marketing materials, and ensuring content effectiveness. Beyond her work, she enjoys exploring design with Figma.
