Subscription plans are the new cash cows for many businesses. According to CNBC, an average American customer spends about $100 to $199 monthly on subscription services. And why not? Who doesn’t like the idea of having access to all their favorite services for a single payment? More surprisingly, about 42% of people don’t even remember they’re paying for a plan they no longer use.
Feeling optimistic that your business will score big through subscription plans? Great! But as a business, you’re also exposed to the risks of failed payments. These payment failures can be due to various reasons. But the result is the same – churn and dissatisfied customers ready to walk away. What should you do? Let’s take a look.
What Causes Payment Failures?
In the world of subscription services, customers pay for the services they use periodically, whether every month, quarter or year. To make the experience as hassle-free as possible, billing platforms allow customers to store their payment details on the platform for auto-renewal.
But it’s not as straightforward as that. There are multiple intermediaries involved before the payment is processed. It includes banks, credit card companies, and other payment processors. Any glitch in any of these intermediaries can lead to payment failure.
Since there are multiple moving parts, there can be many reasons behind a declined payment. But some of the most common ones include:
- Expired credit card
- Insufficient funds in the account
- Currency conversion issues
- Fraudulent activity
- Technical glitches at the payment processor’s end
Handling Payment Failures
As a SaaS business, you might wonder, “Are these payment failures inevitable?” The good news is no, they’re not. You can prevent them in multiple ways.
Use a Billing Software
Did you know that subscription billing software can help you automate the renewal process? It keeps track of customers’ subscription plans and stores their payment details securely. Besides, it will alert customers when their credit card is about to expire and send them email reminders.
Billing software also brings flexibility and agility to the table. You can quickly change customers’ billing plans and offer discounts without hassles. However, before you choose software, make sure it’s compliant with all payment regulations and security standards.
When a customer’s payment fails, the first notification they receive is usually a dunning email. But what’s the point of sending a dunning email after the payment has failed? Instead, you can try pre-dunning emails. It’ll make you appear proactive. Your customer will appreciate it, and you’ll get the chance to save them from churning.
In the email, you can highlight the potential risks of payment failure, such as the subscription being paused or canceled. You can also offer them options to update their payment details before their next renewal date. Remember, your CTA should be clear and easy to understand.
Add Payment Failover
You can add a payment failover feature in your subscription service that automatically switches to another payment method when the primary one fails. It doesn’t just bring convenience to customers but also reduces failure rates. For instance, the system can switch to PayPal if a customer’s credit card renewal fails. When choosing this method, ensure your payment processor supports it. Some payment processors don’t allow this. So, do all the necessary research before proceeding ahead.
Use Rewards & Discounts
The best way to handle an upset customer is to offer them something valuable. It could be a reward, discount, or free trial period for their existing subscription plan. It will not only make them happy but also show that you prioritize their experience. You can offer rewards as a one-time transaction or set up an automated system. Make sure you don’t overdo it; otherwise, it might backfire. At the end of the day, what’s most important to the customer is an excellent product and a delightful experience.
Technology has made it easier to build an emotional connection with customers. Instead of sending them generic emails, you can set up in-app notifications and send personalized messages directly to their accounts. In-app notifications are highly effective because they reach customers instantly. So, use them to remind your customer to add sufficient funds to their account and update their payment information. It’ll be quick, personal, and effective. You can also use in-app notifications to highlight the benefits of their subscription plan and mention features they’re missing out on.
Make Sure Your Merchant Category Code is Correct
The Merchant Category Code (MCC) helps you track the merchant’s location, tax information, and more. It is a four-digit code assigned to merchants by major credit card companies. If you enter the wrong MCC, your customers’ payments will fail because they won’t match up with the bank’s records. So, make sure you enter the right MCC when setting up your subscription service to avoid any payment issues. Check and double-check, especially if you’re doing it manually.
Unfortunately, no matter how many preventive measures you take, there’s a chance that your customer’s payment may still fail. To ensure uninterrupted service, you can set up payment retries. This feature allows the system to automatically retry failed payments at specific intervals. You can set up as many payment retries (with different frequencies) as you want. It’ll save you time, and your customer will get a seamless experience.
Hold on to Unpaid Subscriptions Until Payment is Cleared
If a customer’s payment fails, don’t instantly pause or cancel their subscription. Instead, wait until the payment is cleared before making any changes. It’ll show your customers that you are understanding and willing to continue with them.
Last but not the least, consider shifting to annual billing cycles for your SaaS business. It will reduce the chances of any payment failures.
Failed payments are more than just a financial loss. They also lead to customer dissatisfaction. Your business earns an undeserved bad reputation. And, worse, it robs your business of even the most loyal customers. Therefore, it’s absolutely essential to take all the necessary measures to prevent it. Remember, prevention is better than cure.
So, use the tips outlined above to reduce the chances of payment failures. But the best thing that you can do for your business is to engage in a two-way dialogue with your customers and build an emotional connection. If they understand why their payment failed, they’ll be more forgiving. Happy customers mean a successful business.