Involuntary churn occurs when a cancellation happens due to a failed payment, rather than an intentional cancellation. For example, the customer’s credit card may have expired.
Involuntary churn is also sometimes referred to as mechanical churn or delinquent churn.
In SaaS, you may also come across the related term ‘Dunning’, which relates to the handling of involuntary churn. For example, you might set up a ‘dunning email sequence’ to prompt users to correct failed payment issues.
Why does involuntary churn occur?
There’s a short list of possible reasons for involuntary churn, which makes it relatively easy to identify & tackle. At least compared to voluntary churn. Those are:
To calculate involuntary churn, you need to calculate your total churn, then find out what percentage of it is involuntary. Here’s the churn formula. Take the number of total cancellations that month, and divide it by the number of total customers you had at the beginning of that month.
Churn = Total Cancellations / Total Customers
Now, check how many of those cancellations were due to failed payments. A Profitwell study found that 20-40% of churn is involuntary, typically.
To investigate further, check if your payment processor offers insights on declined payments. For example, there may be error codes correlating to a reason for failure. That way, you can get insights on the most common reasons for involuntary churn in your specific case.
Most involuntary churn is avoidable. It’s unnecessary revenue loss, plus it hurts the customer experience when their team’s usage is disrupted. Fixing it can lead to an easy uplift in revenue & customer lifetime value. Here’s some quick ideas to implement.
You know when your customer’s cards will expire, and you can use that to set up prompts. It could be an in-app message, an email, or even a mention during a 1:1 call. It’s relatively easy to do, and adding in this step will already remove a bunch of involuntary churn cases.
Naturally, you still won’t catch every involuntary churn before it happens. In those cases, it’s important to follow up quickly with the required steps to resolve. The easiest way to do that is automation.
Send a polite email and explain what has happened. Provide steps to resolve (e.g. a link to the billing page), a deadline to do so, and a contact for help in case it’s needed.
Some failures (insufficient funds, maxed limits, or even fraud protection) might simply be resolved by trying again after a few days.
This is perfect for the customer, because it means they don’t have to take any actions. Some payment processors like Stripe have this functionality built-in.
You might encounter cases where a card payment is failing, but the customer offers to pay by invoice instead. It adds a little work for admin/finance & reporting, but it might be the difference between churn or no churn. Consider being open to as many payment methods as possible for your customers.
If all else fails, you can lock customers out of your software. This is a frustrating experience for the customer (especially team members who don’t have control of billing), but it instills urgency to resolve the matter. Don’t do this unless it’s necessary though (i.e. you’ve tried the methods above), as you risk damaging the relationship to some extent.
Voluntary churn is intentional. The customer has a problem, or no longer needs the product, and wishes to cancel. With involuntary churn, that isn’t the case. There’s simply an error with the payment method which prevents the subscription from continuing.
It varies from business to business, but on average, 20-40% of churn is involuntary.
Remind customers that their cards are expiring. Automatically retry failed payments. Set up in-app or email sequences alerting customers that action is required. If all else fails, lock customers out of the software until the issue is resolved.
