Customer churn is a common term that every business dreads. By definition, it is the rate at which customers leave a brand for another one or stop using a product or service. Churn is inevitable in the world of business, and every company faces this threat, regardless of its success.
Involuntary Churn, on the other hand, is when customers churn without the intention to stop using the service or product. Also known as passive churn, it happens when a customer unintentionally stops using the service when the customer’s payment fails, and the issue is not resolved. When a subscription is not paid on time, it results in churn as it won't renew.
Voluntary Customer Churn Vs. Involuntary Customer Churn
One of the biggest differences between voluntary and involuntary churn is that with involuntary churn, the customers may or may not notice or bother to correct the issue despite not being dissatisfied with the product.
On the other hand, in voluntary churn, customers make a proactive decision to stop using the service or product. Involuntary churn occurs when a customer churns for an unavoidable reason, such as outdated payment information, server errors, or insufficient funds, resulting in payment failure.
The common aspect of both churns is that businesses lose their customers and a part of their MRR.
What Causes Involuntary Churn?
Businesses blame involuntary churn on reasons such as:
- Payment failure due to expired credit cards, especially when the subscription period extends beyond the credit card expiration.
- Insufficient funds, particularly for debit card customers, eventually lead to failed transactions.
- Incorrect billing information when the customers fail to update their accurate address and other details with their credit card issuer.
- Lost or stolen credit cards. Until the new card is issued and billing information is updated, the customer payments will fail without notice.
Customers who exceed their credit card limit fail to complete online transactions. Depending on the situation, failure payments can be classified as hard or soft declines.
A soft decline is when banks approve the transaction but encounter an issue. However, A hard decline is more severe because banks hesitate to process the transaction, suspecting fraudulence.
5 Ways to Prevent Involuntary Churn
Involuntary churn can occur at various payment touchpoints, from gateways and processors to card networks. Here are some strategies we can look into implementing to avoid involuntary churn.
1. Use dunning messages to alert customers.
Use in-app pre-dunning messages to remind customers about credit card expiry dates and updating of new credit card information. Few credit card companies are proactive in providing this service for their customers. So it's important to take the initiative and provide it yourself. This provides your customers with a valuable service and reduces failure rates.
2. Communicate through dunning emails.
Staying in touch with customers through emails helps prevent payment failures before they happen. You can send alerts and provide direct links for them to update their new information.
3. Reattempt to process the payments.
Payment providers can retry declining recurring payments to prevent involuntary churn from soft declines. This gives customers a chance to update their payment information.
4. Provide a grace period for payments.
Providing a grace period for customers to repay pending payments gives them much-needed time and lets them know that you understand their temporary financial difficulties. Customers appreciate this understanding and flexibility and tend to remain loyal to your company.
5. Track customer behavior.
Continuous tracking of customer behavior and transactional patterns, such as delayed or declined payments, can greatly help in preventing churn-related issues. You can contact customers directly and sort it out before it leads to involuntary churn or service disruption.
Whether voluntary or involuntary, churn is a serious threat to subscription businesses. Unless you are vigilant, it is easy to miss involuntary churn until the threat snowballs.
Also, explore more insights with our article titled “9 Ways to Master Churn Management & Minimize Customer Churn”.
