Voluntary vs. Involuntary Churn: Tips for Fighting Both and Increasing Retention
Selina MarshallApril 1, 2020
Customer retention is on everyone’s minds these days. The need for long-term, sustainable growth is more important than ever, and no revenue channel is more reliable than your existing customers.
Companies like Blue Apron have shown us the danger of relying on acquisition to drive growth. In a time where people and companies alike are tightening their budgets, subscription businesses need to do everything they can to fight their arch-nemesis: Churn.
Some amount of churn is inevitable—and even healthy—but subscription businesses need to be hyper-aware of any changes to their retention rates right now. The challenge is that churn takes multiple forms: Voluntary and involuntary churn. Both eat away at your bottom line, but the battle against them looks very different.
In this article, we’ll share the difference between voluntary and involuntary churn and give you a roadmap for defeating each.
Voluntary Churn vs. Involuntary Churn: What’s the Difference?
When most of us think about churn, we imagine a customer who decides to cancel their subscription. No matter the reason for their cancellation, this is an example of voluntary churn.
On the other hand, subscription businesses regularly deal with another kind of churn—one caused by expiring credit cards or other payment issues like insufficient funds. This is called involuntary churn.
The two scenarios are very different, but what stays the same is the fact that measuring churn requires more than a single metric. If you only track churn at the macro-level, you’ll miss out on nuanced insights that could help you improve retention over time.
“For high-quality insights, churn dates should at least be matched to sign up dates,” said Ken Johnson, Co-founder and CEO of Churn Buster.
Matching churn dates to sign up dates helps you track customer lifetime value (LTV)—a critical indicator of your business’s profitability.
“Cohorts should also be segmented to account for variables like active promotions, and which plan the customer is on,” said Johnson. “This will control for some of the many factors that have a natural effect on churn.”
Another important segment is voluntary churn vs. involuntary churn. If you combine the two types of churn into a single metric, you’ll lose any opportunity to make meaningful improvements.
Reducing Involuntary Churn
In the battle against churn, businesses should first look to attack involuntary churn (also called passive churn). Involuntary churn is handled through dunning, which is the process of recovering failed payments. According to Rebilly, 20-40% of all churn is involuntary.
Today, dunning is much more streamlined thanks to online payment platforms like Stripe and Braintree. By working with the credit card companies, these platforms automatically update payment info for up to 70% of credit cards. That means 7 times out of 10, payment failure is averted.
For the other 30% of payments, businesses need a dunning strategy that successfully recovers failed payments without being too aggressive or annoying.
Churn Buster has a created an excellent resource to help with this: Dunning Best Practices: 10 Steps to Ending Passive Churn
Here are a few highlights:
Don’t be trigger happy
According to Churn Buster, “40% of payment issues can be resolved within the first few days—21% on average—simply by allowing for card retries *before* sending emails.”
Cut down on the stress-inducing emails to customers by decoupling transactional emails from failed payments. Retry the card a couple of times before informing the customer of an issue.
Create a great customer experience—even during the dunning process
Customer experience best practices—like seamless user interfaces and personalization—apply even while trying to recover failed payments. Not only do customers appreciate friendly service, but personalization is key to building trust.
“When we’re talking about dunning, trust is key,” says Churn Buster, “Consumers are more aware than ever of phishing schemes and credit card scams. This makes people wary about clicking on links that are requesting credit card information.”
For a great user experience, pair personalized emails with a seamless card-updating process. Let customers bypass the login and make sure the page is mobile responsive. “The less friction you add into the process, the more likely your customer is to input [updated payment] information,” says Churn Buster.
Automate the Process
“Fighting churn will always involve your team, but automation does the heavy lifting at a fraction of the cost,” said Johnson. “Few companies have the resources or expertise in-house to plug all the churn leaks. Fortunately, there are affordable tools available that keep getting better and better.”
Reducing churn is one of the few ways you can actually automate revenue generation. The best subscription businesses take full advantage of the automation tools available, giving them bandwidth to focus on higher-level tasks like customer success and sales.
To see all the dunning best practices, read the rest of Churn Buster’s excellent resource.
Reducing Voluntary Churn
Voluntary churn is a completely different beast. You can also think of it as active churn because customers are choosing to cancel their subscription.
Before we get into the best practices for reducing voluntary churn, it’s important to point out two common, but misguided tactics: Hostage-holding and surrendering.
In summary: Don’t hold your customers hostage, but don’t surrender right away, either.
Hostage-holding is one of the most reviled practices in the subscription world. It makes guilty businesses look greedy, while thoroughly infuriating customers.
Most of us have been a “hostage” when trying to cancel a subscription. You sign up for a product or service online (which is always easy to do), but when you try to cancel, they give you a 1-800 number to call. Then you have to talk to a pushy customer service rep, who tries everything they can to keep your business. Sometimes, they just hang up on you.
However, the other end of the spectrum is nearly as bad. Surrendering customers—without asking why they are cancelling or attempting to save them—is damaging to your bottom line and your customer relationship. According to an Accenture study, 81% of cancelling customers said there was something the company could have done to retain them.
In other words, most customers want to be saved, but they don’t want to be hassled, either.
How to reduce voluntary churn — the right way
Here at Bellwethr, we think about reducing voluntary churn all day long. With our RetentionEngine, we think we’ve found to be the perfect recipe:
1. Build a Cancel Flow
Offering online cancellation is important—and in California, it’s the law (if you also allow online sign-ups). However, letting customers cancel, without attempting to save them, is bad for both parties.
Cancel flows are a short, automated process designed to save customers who want to keep their subscription. It looks like this:
- Ask customer WHY they are cancelling
- Offer cancellation alternative such as special gift or discount
- Offer to pause subscription
- Remind customer what they are missing by cancelling
- If you can’t retain them, add them to a win-back program
To learn more, here’s check out our RetentionEngine
2. Make Your Cancel Flow Seamless
Using a cancel flow will blow up in your face if it isn’t easy to use. Make sure you offer a seamless cancellation process— one that doesn’t irritate customers on the way out the door.
Remember: Just because a customer cancels doesn’t mean they won’t be back. It’s crucial to end the relationship on a high note.
3. Automate and Optimize the Process
Automation is just as valuable for combatting voluntary churn as involuntary churn. Using software to automate your cancel flow has several benefits:
- It’s fast, easy, and seamless for the customer
- You can track your success and retention rates over time
- You can optimize and improve the process over time
Tools like RetentionEngine use artificial intelligence (AI) to learn which incentives work on different types of customers. RetentionEngine’s cancel flow automatically improves over time to save more cancelling customers.
Fighting Churn on Both Fronts
Customer retention is more critical than ever. As customer acquisition becomes more challenging, subscription businesses will need to seek profit through other channels. The most underrated, yet lucrative channel for any business is their existing customer base.
Subscription companies need to tackle churn on both fronts: Involuntary (passive) churn and voluntary (active) churn. Involuntary churn requires the use of dunning best practices to collect failed payments. Automating this process with a tool like Churn Buster can make a significant difference to your bottom line.
Voluntary churn, on the other hand, requires a different process: The cancel flow. When customers want to cancel their subscription, it’s important to avoid hostage-holding and surrendering tactics. Instead, use a cancel flow to learn WHY the customer is cancelling, and see if you can make it right.
Churn is inevitable, but it’s not out of your control. Start fighting back with automation and watch your retention numbers soar.