How to boost customer retention and revenue by slashing ...

An Amdocs Company

How to boost customer retention and revenue by slashing passive churn

Monster Revenue

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Table of contents03 Cutpassivechurnandseeretention andrevenuesurge

04 Smallretentiongainsturnintolarge revenueincreases

05 Whatcausespassivechurn?

06 Aimandmiss:Semi-effectivesteps topreventchurn

07 Howtooptimizetherecoveryof failedpayments

07 TheDIYpathtorecoveringfailed transactions

08 ChallengesoftheDIYapproach

09 TheVindiciaRetainpathto recoveringfailedtransactions

10 Realizehigherrevenuequicklywith VindiciaRetain

11 ForresterTEIstudy

12 Vindiciaknowsretentionand payments

13 What’snext?

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Business-to-consumer (B2C) subscription companies focus on two key areas as growth drivers: acquisition and retention. You win customers with advertising, promotions, free trials, etc. But your growth and profit come from retention. Even small monthly increases in retention lead to huge gains in subscribers and revenue over time. Churn is the enemy, and “passive churn” is an often misunderstood space that is frequently neglected, resulting in unnecessary loss of customers and revenue. Read on to understand how you can dramatically increase retention and revenue by fully addressing passive churn.

Since the cost of acquiring new customers is so much higher than the cost of retaining a customer (between two and 13 times higher, depending on which research your read), it is critical to minimize churn in order to extend ACLV and boost profits.

Cut passive churn and see retention and revenue surge

Understanding active churn, passive churn, and average customer lifetime value

Threemetricsthatpaintthepictureofretentionsuccess–orfailure:

ACTIVE CHURNActive churn is when subscribers cancel your service because they no longer want it.

PASSIVE CHURNPassive churn occurs when a customer who has no intention of leaving your service, is disconnected from it, often due to nothing more than a technical glitch, most famously, failed payment transactions.

AVERAGE CUSTOMER LIFETIME VALUE (ACLV)This is the average revenue generated per customer throughout the period they are subscribed to your service. Profitability depends on maximizing the gap between the average cost of acquiring a customer and the ACLV.

In this eBook we explore what you and your team can do to trim passive churn. As you will see, you can significantly reduce passive churn without the increases in marketing spending that accompany active churn reduction programs—or without incurring the expenses associated with customer outreach and promotions designed to lure back former subscribers. You’ll also learn how working with Vindicia can drive even more-dramatic success.

Areyoupayingattentiontopassivechurn?

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Retention matters

Small retention gains turn into large revenue increases

Measure your revenue winsUse the VindiciaROICalculatorto see your potential revenue uplift from tackling passive churn.

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A 5% retention increase leads to a 42% subscriber increase over 24 months.

New subscribers (400–600 per month)

Renewals (monthly retention rate of 88%)Renewals (monthly retention rate of 93%)

Calculate your uplift

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What causes passive churn?Billing problems are by far the leading cause of passive churnThe recurring transaction fails. Inside the payment card networks and ecosystem, a multitude of issues can trigger a payment failure, such as expired cards, exceeded limits, temporarily blocked cards, and many more issues.

When a transaction fails, the payment processor returns an error code. Sometimes the code indicates the reason for the failure. Other times, it is a DNH (Do Not Honor) or other code that gives no or very little indication of the failure reason.

You received a payment failure. What do you do next?

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Aim and miss: Semi-effective steps to prevent churn

Many merchants take a few steps to reduce the outward flow of customers who could be lost by passive churn. Many of these same merchants are unaware of how much more successful their efforts could be.

Rudimentary steps that merchants may be taking:

ROBOTIC RETRY LOGIC

When a transaction fails, merchants simply resubmit the transaction some number of days later. Most billing platforms employ some sort of retry logic for failed transactions, but there’s rarely much insight informing the logic. One billing platform might retry every day until the end of the month, even though card issuer guidelines call for no more than four attempts. Another platform might retry four times at weekly intervals. Typically, the retry strategy is “blind” to the cause of the failure, the timing, and the players involved in the transactions. The smarter approach is to optimize retry logic to get the best results.

BASIC ACCOUNT UPDATING

Account updater services provide information that can be applied to a transaction to increase its chance of success, such as data on expired cards. Many merchants don’t know when and how often to query the services for updates. It’s a science, and not the merchants’ area of expertise. For example, merchants may not know that updates can take more than a week to arrive. Merchants that fail to take this into account will end up canceling the customer’s service too soon and losing customers unnecessarily.

BUILDING A “SAVES” TEAM

Merchants often set up a dedicated team to reach out to customers in the hope of manually resolving payment issues. This can only be cost-effective for high-ticket subscriptions as costs are prohibitive. Saves teams also hit the issue of the customer experience. Informing your customer of a credit card issue is unpleasant, and not conducive to building a long-term relationship.

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How to optimize the recovery of failed paymentsMerchants can follow two paths to manage declined payment transactions: the “do-it-yourself” path or work with a payments expert like Vindicia.

The DIY path to recovering failed transactionsKnowing how to recover a failed transaction is a science and requires a learning process, experimentation, and expertise. Start with these steps:

Study retry patterns. Instead of relying on robotic retry logic, study your retry successes and failures. What works and what doesn’t work? Analyze the credit card issuer error response codes. Experiment. Look for patterns. Repeat the analysis every month to isolate uncharacteristic and exceptional results. This activity will help you get the most from the four retries that credit card issuers prefer you not exceed.

Experiment with retry patterns. Look for the best days of the week and the best date in the month to retry cards. Hint: it’s not Thursdays in countries where payday is usually Friday or the 31st of the month when payday is usually the 1st. Instead, explore over time to find a pattern that delivers better results for your customer base. Remember, as every business is different, what works best for others may not necessarily work best for you.

Know when to try harder. Some merchants routinely retry cards more times than card issuers recommend, which may raise issues with payment processors. But it can be smart to retry more than four times for some cards, as long as you keep your eyes on the cost and the success rates. As you learn more about response codes, you may gain the insight needed to know when it makes sense to retry a transaction more than the recommended four times.

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Six drawbacks to the do-it-yourself approach:

Challenges of the DIY approach

IT AVAILABILITY

You will need IT resources to build and staff your payment transaction recovery lab. IT resources will be needed to decipher, code and operate your own retry experiments. These resources are expensive and IT staff may be busy with higher priority issues.

RETURN ON INVESTMENT (ROI)

It will take time to generate revenue uplift from your retry efforts, as at first the experimentation will be hit and miss. Success requires not just smarts, but also a sufficiently large data set on which to base your insights. If your results are marginally successful, your ROI will be a challenge.

LIMITED DATA With retries, as with other big data challenges, the ability to extract insights depends on the size and quality of your data set. If you are crunching data from millions of transactions, ideally from across multiple service providers, then your analysis can give a deeper perspective into the most effective retry patterns. The best patterns might vary regionally, or certain response codes might warrant longer wait times between retries. However, if the only data you can access is your own, and the volumes are smaller, it limits achievable insights.

BILLING PLATFORM FLEXIBILITY

How flexible is your subscription billing platform? If it cannot be modified quickly, then you will be limited in the speed and agility with which you can conduct your retry experiments.

RETRY FREQUENCY LIMITS

Card issuer guidelines indicating a limit of four retries will slow your journey towards insight into what retention efforts will work best for your business.

PROCESSING COSTSEach retry has an associated cost—which is quite small per transaction—but the costs add up when you lack the knowledge needed to exclude “hopeless” failures from the mix, or conduct experimental retries without rhyme or reason.

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The Vindicia Retain path to recovering failed transactions Vindicia Retain works with your existing billing system to resolve failed payment transactions Vindicia Retain (formerly Vindicia Select) is a mature, proven solution to optimize the capture of failed payment transactions. It reduces churn, increases revenue and keeps happy customers connected to their services. In a single year, Retain recovered over 1,200,000 terminally failed transactions that our clients could not recover, generating over $65 million added revenue.

How does Retain work? Over the last 15 years, Vindicia has accumulated a massive set of payment and subscription-related data based on $38 billion processed during 940 million transactions involving 351 million digital accounts and 273 million payment accounts. By combining our big data analytics and subscription intelligence with expertise in the banking and payment card industry, Vindicia has developed patented strategies that can automatically recover up to 15 to 30% of terminally failed payment transactions (that is, transactions that merchants have not been able to recover after exhausting their retry schemes).

Retain applies the techniques explored in this eBook in a sophisticated manner. It analyzes why each individual payment transaction failed, and then resolves the issue that led to the failure in the first place. That includes making the most of the information in response codes, optimized retries, and intelligent account updating, as well as other more advanced techniques. Retain also makes use of partial authorizations to gain an understanding of the best potential route to full transaction success.

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Reduce passive churn quickly without an increase in IT spending

Vindicia Retain is noninvasive to your current solution. Retain requires only minimal modifications to current workflows. Data related to failed transactions flows between PCI-compliant environments, keeping your customer data secure.

Retain does not replace your billing platform. It works alongside your current solution.

Retain is fast and inexpensive to deploy. Retain is a pure SaaS solution and can be deployed in a matter of days.

Retain delivers an immediate uplift in revenue. From the first month you will see less churn and increased customer lifetime value.

With Retain you can:• Capture up to 15 to 30% of terminally failed

payment transactions• Reduce passive churn by up to 25%• Increase overall retention by up to 5%• Boost revenue by up to 5% immediately,

with even higher gains since many retained customers continue to subscribe over the long term

• Improve ACLV without increasing customer service spending

• Reduce dunning, collections and write-off costs• Enhance customer satisfaction by keeping

customers connected to the services they love

Realize higher revenue quickly with Vindicia Retain

Learn more about Vindicia Retain

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Forrester TEI study VindiciacommissionedForresterConsultingtoconductastudyentitledThe Total Economic Impact™ (TEI) of Vindicia Select thatexaminedthepotentialreturnoninvestmentthatenterprisesmayrealizebydeployingVindiciaRetain(formerlycalledVindiciaSelect).ThepurposeofthestudywastoprovidereaderswithaframeworktoevaluatethepotentialfinancialimpactontheirorganizationsofusingVindiciaRetain.ForresterinterviewedpaymentsexecutivesatfivecompaniesthatuseVindiciaRetaintomanagetheirinvoluntarychurn.Theinterviewedcompaniesspannedmultipleindustries,includingservices,media,andphysicalgoods.TheForresterstudythenanalyzedacomposite$1billionorganization.Forresterdeterminedthatoverathree-yearperiod,thecompositecompanywouldexperiencethefollowingresults:

•Retainrecovers687,000transaction(18%ofterminallyfailedtransactions)•Revenuefromrecoveredpaymenttransactionstotals$6,249,477•Retainadds6.2 monthstotheaveragecustomerlifetimevalue(ACLV),generating$70,412,965additionalrevenue

•Totalbenefitsare$76,662,442overthreeyears

“ We’re collecting $400K to $500K a month that we wouldn’t otherwise collect. The way our process works, we have tried all our tricks by the time transactions are sent to Vindicia.” — Director of Global Payments B2C and light commercial software solutions company

Read the Forrester study

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Vindicia knows retention and paymentsAt Vindicia, our payments experts are always increasing their payments knowledgeOur dedicated experts study ways to retain customers and their revenue longer

Our experts constantly work at resolving various kinks in the payment ecosystem and address the root causes of failed transactions.

While commonly used, unsophisticated techniques can make a difference with failed transactions, taking a more data-driven approach leads to even higher retention. That’s true of every aspect of the subscription payment process. From promotions to customer service to retention, we use analysis to find all the ways that payment-related choices can lead to higher revenue across B2C sectors. We then share our insights and benchmarking data with clients during Vindicia Client Business Reviews.

You’ll find insight built into all of our solutions

In addition to Vindicia Retain, we also offer Vindicia Subscribe, our complete subscription billing and payment platform. Both Retain and Subscribe measurably increase retention and revenue. Learn more about Vindicia Subscribe.

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What’s next?YoucouldtrytoaddresspassivechurnbyfollowingthestepsoutlinedinthiseBook.Evenifyouachieveonlysmallimprovements,youwillrealizehigherrevenue.Butwhythinksmall?AttainthebestresultsbytakingadvantageofVindicia’sdedicationtounderstandinghowtoresolvefailedtransactions.

Learn more about Vindicia Retain.

Copyright © 2020 Vindicia, Inc. All rights reserved. Vindicia, the Vindicia logo, Vindicia Subscribe, Vindicia Retain, and the designated trademarks herein are trademarks of Vindicia, Inc. in the U.S. and/or other countries. All other brands or product names are the trademarks or registered trademarks of their respective holders. 0120