The revenue impact of failed subscription payments — and how to recover it

What happens when your subscriber misses a payment?

More specifically: what happens to your revenue?

In our previous post, Stop losing subscribers: the proven revenue recovery strategy that turns churn into retention, we covered:

• Statistically, you’re losing almost 6 out of 10 subscribers due to involuntary churn
• Why it’s damaging to your business to cancel subscriptions after a payment fails
• The alternative strategy that market-leading subscription businesses are using instead — that most competitors (including you) probably haven’t discovered yet

Now, let’s look into how much involuntary churn is affecting your subscriptions revenue. Are you leaving more money on the table than you realise? Without a recovery strategy to reduce churn and re-engage subscribers, how much are unpaid subscriptions actually costing you?

Read on to measure the impact and find out how top-performing subscription businesses are turning involuntary churn into revenue gains with a collections partner.

4 metrics to track the revenue impact of involuntary churn

When you cancel a subscription because of a missed payment, you might be saving the cost of the product or service provided in the short-term. But in the long run, you’re potentially losing a lot more.

Want to find out how much it’s really costing you? The answers lie in your data.

Most subscription businesses (58%) currently track the impact of subscriber churn or retention. These metrics are super important — but they only tell part of the story. Analyse these four factors together to uncover the full picture and the potential revenue you’re missing out on.

Subscriber lifetime value (LTV)

Subscribers come and go — that’s normal. You may be tracking the number of subscribers or growth rate, but do you know the real value each subscriber brings to your business?

Subscriber LTV measures how much money a subscriber spends with your business over the duration of their subscription. Over a third of the top-performing subscription companies now track LTV to optimise their customer experience and nurture long-term relationships. It’s the new benchmark to measure success as Ashley Hard, our Growth Manager, explains:

Consider this: your subscriber is 27% more likely to cancel a subscription if they experience service interruptions due to failed payments. On average, this could be costing you 9% of annual sales.

Rather than replacing your lost subscriber — and cutting their lifetime value short — focus on retaining them. Tracking LTV helps you to measure the ROI of retaining your customer. This shift in focus has seen top-performing subscription businesses recover 60% of failed payments and keep their revenue flowing.

Bottom line: The key to extending subscriber LTV is a collections strategy that will get your subscribers back on track and re-engaged with your business. Every subscriber retained is another asset that helps you generate long-term growth.

Causes of involuntary churn

Keeping track of your churn rate is essential to stay on top of your revenue and future scalability. But do you know why your customers churn?

In our previous post, we unpacked the biggest challenge facing subscription businesses today: involuntary churn due to failed payments. Unpaid subscriptions cause over 53% of churn, amounting to $278 million in lost annual revenue industry-wide.

More shocking still is this: most subscription businesses — 85% in fact — write off cancellations as the ‘cost of doing business’. If you’re one of them, that means you’re leaving money on the table and assuming that you can’t do anything to stop it from happening. But often, you actually can.

Here’s a breakdown of some of the top reasons why subscribers churn:

(Source: The State of Subscription Business, PYMNTS)

Getting to the root of the problem is the only way to stop losing subscribers and profits. For instance, the chart above shows that the top reason why subscribers churn is due to declined card payments — maybe because their card expired, or was reported stolen.

Subscription businesses that track involuntary churn alongside subscriber LTV are twice as likely to be top performers because they have the data to take decisive action and improve. By going a step further to investigate the causes behind involuntary churn, you’ll be able to pinpoint opportunities for optimising your operational strategy and subscriber experience. Ultimately, you’ll be able to calculate the potential revenue you could have gained from easy fixes.

Bottom line: A recovery strategy is essential to re-engaging subscribers who didn’t want to stop paying you. With the right collections partner, unpaid subscriptions due to an expired card or poor customer service can be turned around so you can retain happy subscribers for longer.

Customer acquisition costs (CAC)

When an unpaid subscription leads to a cancellation, you’re back to square one. Working to replace lost subscribers — rather than growing your total subscriber count— drives up marketing and sales spend. This leads to an increase in your customer acquisition costs (CAC).

On average, acquiring a new subscriber costs five times more than retaining one. Consider this against your churn rate. The higher the churn due to missed payments, the more funds you’d have to pour into acquisition in order to keep your revenue stable. This downward spiral could be costing you the capacity to innovate and scale.

On the flip side, by taking action to reduce churn and extend LTV, you’re actively saving costs. This allows you to redirect more money into acquisition to grow your revenue.

Bottom line: A payment recovery strategy works in your favour to retain subscribers, maximise LTV and the impact of your CAC.

Brand reputation

Customer experience (CX) and sustainable business growth go hand-in-hand. Any friction within CX, such as a subscription cancellation due to failed payments, is a roadblock that can impact subscriber satisfaction, brand reputation, and by extension, LTV.

When a customer discovers that their subscription has been cancelled without their knowledge, it can be highly frustrating. After all, the whole point of a subscription service is to “set it and forget it”. When they’re expecting — or even depending on — their order to be fulfilled as usual, and then find out that their subscription has been cancelled due to a factor they weren’t even aware of… well, the inconvenience will certainly damage their trust in your company. They may not choose to resubscribe and, at worst, may leave negative reviews and complaints.

Your brand reputation is an accumulation of all your customer experiences – whether positive or negative. When subscribers trust online reviews as much as personal recommendations from friends and family, investing in a strategy to maintain your brand reputation will pay its way and then some.

Bottom line: Working with collections enhances CX by helping subscribers get back on track in a way that works for them. This positive experience builds trust in your business, helping to retain subscribers and boost your brand reputation.

Recover unpaid subscription payments today with a debt collection partner

Payment recovery without an internal collections team can be a headache, but it doesn’t need to be. Working with a debt collection partner that’s experienced in recovering subscriptions payments can help you regain lost revenue while building better customer relationships.

A PYMNTS study showed that top subscription businesses are 12 times more likely to use third-party payment recovery solutions than the rest of the industry. Why? Because they’re worth their weight in gold.

Every time you cancel a subscription, your customer’s LTV is cut short. With a recovery partner, your subscriber has the support to resolve their unpaid subscription in a way that works for them. This has many benefits:

• Recovering your unpaid subscription balance
• Maintaining a positive customer experience
• Re-engaging your subscriber once they’re back on track

Turning your lost subscriber back into an active customer means you lower your CAC while extending your subscriber LTV. After all, this is a customer who was already convinced to sign up for your service; it would take a lot more investment to reach out to someone new and persuade them to give you a try. A loyal subscriber also has a lower churn probability, thereby decreasing your overall churn rate and minimising future losses.

A collections partner ensures that every dollar spent on CAC goes further. A healthier subscriber base and more recovered revenue will put your subscription business on the path to generating long-term growth.

Take one of our clients for example, a publicly-listed household name in subscriptions. Before partnering with InDebted, their write-off portfolio was substantial. Once we helped their subscribers get back on track with our market-leading solution, Collect, this turned around.

Since November 2023, we’ve helped them recover over US$1.2M (A$1.8M). The partnership works because our solution matches their subscriber experience. Over 85% of their subscribers now resolve their accounts independently with our self-serve capability. Managing debt their way means subscribers repay overdue accounts on their terms, with the potential to be re-engaged as active subscribers again.

Weighing up the pros and cons of collections

Now that you’re equipped with the tools to track and recover failed payments, you might be wondering: what’s the catch? In the next post in this series — Is debt collection right for your subscription business? — we’ll answer your most commonly asked questions about working with a debt collections partner.