How to recover revenue on outstanding subscription payments

How much revenue do you think the subscription industry loses due to outstanding payments over a 12 month period? Would you believe us if we said $278M?

You read that right. On average, your subscription business loses almost 10% of revenue each year as a result of outstanding or missed payments. The good news? With our outstanding payments strategy, you can start reducing the impact on your bottom line and begin extending your customer lifetime value. Let’s get into it.

Start by tracking the metrics that matter

Customer lifetime value

If you’re part of the 91.5% of subscription businesses that don’t measure customer lifetime value, it might be time to start. Customer lifetime value (CLV) is the total amount someone spends with your business, throughout their lifetime as a customer. When it comes to subscriptions, it’s a critical metric that can be used to inform your acquisition spend, retention goals and overall strategy.

Here’s how you can calculate your CLV*:

(Avg rev per customer / lifetime) / (Retention rate / CAC) = CLV

*this formula can vary depending on your product.

Failed payments

Another essential one to look out for is failed payments. This might seem obvious, but on average only 16.5% of subscription businesses track this metric. It’s an essential number to know, especially if you want to understand its current impact on your revenue. This can also unlock more insights, such as the reasons why payments are failing. Are transactions not going through because you need to optimize your payments processor, or is there a lag between customers cancelling their subscription after it’s been dispatched? Understanding these causes can unearth quick wins and opportunities for recovery.

Connecting the dots

Tracking metrics is one thing, but it’s important to ask yourself - how are they connected? Outstanding payments and CLV are intrinsically linked. Let’s say a customer’s payment fails because of insufficient funds, and there’s no follow-up to recover their overdue balance. This would mean their lifetime value has been cut short. However, with the right recovery efforts you can:

1. Recover the original balance on their unpaid account
2. Maintain a positive relationship with them by providing a great collections experience
3. Rehabilitate them as a customer once they’re back on their feet, therefore extending their lifetime value and increasing retention

Research has shown that top subscription businesses are 8 times more likely to track CLV and 6 times more likely to track outstanding payments. What’s more is that those who measure CLV recover 12% more of their outstanding payments than those who don’t keep an eye on the metric.

Building simple tactics into your internal workflow

So now you know what to track, what can you do for customers with an open balance? There’s a number of tactics that you can build into your workflow:

• Review your payment processing software: Issues with payment processing software cause 37% of failed payments. To reduce this proportion, regularly evaluate your payment software and strategy to see where the issues are and mitigate proactively.
• Automatic reminders: To help customers stay on top of their subscription schedule, make sure you’re sending them prompt reminders and notifications. Give them a heads up before payments are due, and ensure they’re notified as soon as a payment fails.
• Easy ways to update payment methods: A top reason for payments not going through is because of outdated bank details. Make it easy for customers to update their information with a user-friendly online portal. To go even further you could even build-in automations that notify a customer when their card is about to expire, reducing the likelihood of future transactions failing.
• Grace periods: Giving customers room to breathe is essential to maintaining a great reputation. A grace period is exactly that, a specific amount of time for customers to resolve their payment issues without fear of penalties or subscription disruptions. These are common practice for top providers, and go a long way to maintaining a positive customer experience.

Even if you employ all the above and more, outstanding payments can still persist. This is where a recoveries partner comes in.

Engaging a recoveries partner that puts the customer experience first

Especially as your subscription base grows, managing recovery efforts internally can quickly become a challenge. We know what you’re thinking - external recovery partners don’t really prioritise customers, right? It’s a common misconception (and one that we’re proud to fiercely challenge).

The truth is that the right recoveries partner for your business will go the extra mile in preserving your customer relationships, and your brand. This means that they’ll prioritise communicating with your customers in the ways they prefer, provide a similar payment experience to your own and most importantly, mirror your brand values. At InDebted, we do this with our intelligent product Collect, which gives customers complete autonomy to get back on track, their way.

When it comes to finding the right recoveries partner for uncollected subscription payments, look for one who provides digital self-serve and flexible payment options. Our data shows that 1 in 3 subscription customers prefer to set up a customisable payment plan, tailoring repayments to their personal situation. We also find that 82% of these customers self-serve their overdue accounts - which means they resolve their balance independently using our online portal, without reaching out to our Customer Experience team.

On average, top subscription companies recover 61% of all outstanding payments, and almost 1 in 2 use third-party providers to support their recoveries. When compared to middle subscription companies, who recover less than 50% of all outstanding payments and only 25.8% engage third-party recovery partners - it’s clear that partnering with experts can be a differentiating factor.

Tackle outstanding payments with a complete strategy

When it comes down to it, getting a handle on outstanding payments requires a complete strategy. Between your payments processing provider, your internal teams and a third-party recoveries partner, safeguarding your revenue and customer relationships is a group effort. Internal strategies and measuring are an absolute must, but external partners hold the key to making a meaningful and ongoing impact to your bottom line.