Tips and Tricks For Effective Dunning Management to Reduce Churn Rates

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Churn is one of the biggest concerns for any business using the recurring revenue model. The number of customers lost is a huge pothole in the road to healthy growth. There are a number of reasons that customers may churn out, or decide to terminate their relationship with your business, but one of the most prevalent issues can take place without the customer’s awareness.

Passive, or involuntary, churn—when a customer unintentionally leaves the customer relationship—can account for as much as 10 to 20 percent of transactions. How does a customer ‘accidentally’ churn out? It often happens when a payment fails through a declined credit card, a fraud alert kicking in, if there are insufficient funds or when the card expires.

With credit cards expiring every few years, it’s completely understandable why payments might fail. The challenge is to counterbalance these failed payment attempts.

Dunning away at churn rates

When a payment fails, a business essentially has two choices.

  • They can let go of that customer relationship without taking any action, or
  • They can actively try to retain that customer’s business.

One of the most effective ways of keeping that customer is through dunning emails, a series of communications set up to notify customers when a payment fails. The term was coined from the word “dun”, which means to “make persistent demands for payment.”

Nobody likes to be nagged about a payment due, but there are some effective ways to gently ask for payment without putting off the customer, and a series of well-constructed dunning management emails are often the trick.

These emails can be fully customized for businesses with their own branding, reaching out to the customer with alerts before their credit card is even tried.

Emails can enhance communication beyond the payment gateway in three major ways:

  1. To let customers know that their credit card information is about to expire
  2. To provide notifications of successful or failed transactions or payments
  3. To alert customers that their subscription is about to expire

These dunning emails are created ahead of time and can be  automated to continue until a payment is successfully made or the subscription is terminated.

Top 4 quick tips for dunning management emails

What is the best strategy when creating dunning management emails? After all, there is a fine line between informing the customer and being a downright nag about it.

  1. Don’t browbeat the customer.
    In the example of a Spotify email message, customers are notified that their payment failed. But it’s not a slap on the wrist from your grandmother. It doesn’t chastise customers for having a payment failure. The notification simply says in essence, “Whoops. Your payment failed, but don’t stress over it. We’ll just try it again in a week.”

    The email is simple, but concise, letting customers know that when their card will be tried again. You can almost hear Bobby McFerrin telling you, “Don’t worry. Be happy.”

 Spotify-Dunning-EmailImage from customer.io

  1. Make the call to action brief and clear cut.
    In the example, it’s almost impossible to miss the green box front-and-center that drives customers to update their information. With simple instructions, and practically a personal escort to the location where customers can update their details, this information is hard to miss.
  2. Keep branding consistent.
    Pick a subscription management and recurring billing platform that allows customers to add their own logos or other branding. This not only gives the business more credibility with the consistency of their branding but it also makes it easy for the customer to identify who is reaching out to them.
  3. Make contact information readily available.
    While the ‘contact us’ areas on the Spotify dunning email are not quite as in your face as the call to action, there are two areas where customers can opt to contact the business for help or for more information.

Additionally, there are other rules in place that make a dunning email catch customers’ attention.

  • Don’t overwhelm a customer with wordiness in your email.
  • Tell customers the amount due.
  • Remind them of the payment due date.
  • Advise them when the next card retry will take place.
  • Remind them what they will miss if they don’t renew.
  • Be kind and empathetic. When handled properly, a business can still come out sounding like the good guy while trying to collect a payment.
  • Don’t give up after one time. Customers are bombarded by multiple emails and with their attention divided between different tasks, they may need reminders with subsequent emails.
  • Along the same lines as the previous point, ensure that your subscription management software allows you to set up a sequence of emails that are sent, until the customer takes the required action.
  • Watch your language. There is a significant difference between “Your credit card was declined” and “Oops. We tried to charge your credit card, but it failed.”
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The relationship between dunning management and churn rates

Is it really worth it to take the time to generate multiple emails? Absolutely. It takes more time and overhead to attract new business, versus keeping a customer.

Also, estimates suggest that a good 75% of failed credit cards will succeed if they are tried again.

Whether it's an automatic retry or through a series of dunning emails, this is a number that a healthy business cannot ignore. In fact, at Fusebill we routinely save businesses a huge amount of revenues by automating the process. In the below example, we saved a customer $364,813.41 out of a total of $7,278,277.49 in payments over 11 months, just with automated dunning management.

DunningRecoveredPayments

 

And this is not including the future lifetime value of the business’s customers who were saved from churning out, were it not for the automated process. Plus, keep in mind that this figure is a cross-section of the cost- and time-saving benefits of a comprehensive subscription management software platform. Imagine the savings a subscription management software generates for a business, across the board.

Dunning management emails can even help maintain a business-customer relationship. Nobody likes to be told that they owe money to someone and for both the business and their customer, it can get downright uncomfortable. However, by having a well planned dunning email sequence, these professionally-looking emails can go a long way to enhance the credibility of a business.

The next steps to reducing churn rates

Customer support is essential to back up the well-timed and well-constructed dunning management emails. If a customer has any questions, it is essential that they are able to connect with your business’s customer service representatives.

Sometimes, it’s a very simple solution that the customer isn’t seeing, but one that may take a little longer to dive into a solution. Regardless, if they can’t easily reach the support team, a business runs the risk of having a customer that was involuntarily churning out turn into one that is actively seeking to terminate the relationship.

Machine learning can also help to reduce churn rates and enhance the dunning management system by learning the difference between credit cards and the banks associated with those cards. Because every decline is different, machine learning can help navigate through those failures and help create more robust communications with customers.

Effective, automated dunning management is just one benefit of working with a strong subscription management platform. With a solid way to manage your email communications with customers, you can mitigate churn rates and keep your revenue streams strong.

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Tags: subscription management Subscription Billing

Greg Burwell

As Fusebill's Chief Technology Officer and co-founder, Greg has a demonstrated history of being highly effective in the information technology and services industry. Greg is skilled in Enterprise Software, Recurring Billing, Customer Relationship Management (CRM), Data Center, and Software Development Life Cycle (SDLC).

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