2021 Ultimate Customer Churn Rate Prediction and Involuntary Churn Guide

Avoidable customer churn is costing U.S. businesses $136 billion a year. 

That’s why predicting customer churn and implementing customer retention strategies are vital to experiencing long-term success in your subscription business.

To help you recover lost revenue and achieve stability in your subscription company, we’ve put together the ultimate guide to reducing subscription business involuntary churn (and voluntary churn). We’ll also deep dive into how to better predict customer turnover before it happens.

By following these guidelines and implementing top-tier customer retention strategies, you can take your business from striving to thriving.

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What Is a Customer Churn Rate?

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The term ‘customer churn’ refers to the customers that stop doing business with your company, either by choice or as a result of billing error. 

Then, what is a churn rate? Your customer churn rate is the percentage of lost customers over a specific period of time. You can easily calculate this percentage with a basic formula.

Calculating Customer Churn Prediction

To calculate your customer churn rate, take the number of customers who’ve cancelled their subscription during a specific time period divided by the number of customers at the start of the time period. Once you have that number, multiply it by 100. 

That’s your churn rate, or customer churn percentage.

As an example, let’s say you had 2,000 customers at the beginning of the quarter. By the end, you’d lost 40 customers. Your customer churn rate is 2%.

Because customer churn affects the bottom line by reducing revenue, you may want to predict customer churn.

While you can spot indicators that signal a customer is at high-risk of churning, there isn’t a clean and simple formula to calculate a prediction percentage.

However, to gain more insights into potential churn and accurately predict customer turnover, look for:

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Inactivity

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If a customer hasn’t logged into their account to use your service, this is a key indicator they may churn. In most cases, a customer won’t want to continue paying for a service they’re not using. It’s only a matter of time before they leave… but with enough warning, you can still win these customers over! 

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Reduced Engagement

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Maybe a customer is still logging into their account, but they’re not spending as much time on the platform. This is another predictor of churn. They’re engaging less and less with your service. The sooner you can catch this, the better. Luckily, if you’ve noticed reduced engagement before complete inactivity, that’s a win!

Reduced engagement on email could be another example of a possible churn predictor.

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Poor Feedback

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If a customer has recently contacted customer service with a complaint or left a low customer service rating, this shows there is a problem with your customer and their subscription. 

If the feedback hasn’t been addressed and resolved, they’re at a much higher risk of churning. That’s why we’ll discuss later just how important it is to provide excellent customer service. Responding to customer complaints and improving your business based on customer feedback can make or break a company.

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Retention Team Fixes for Voluntary Churn vs. Involuntary Churn?

Fixing voluntary vs. involuntary churn requires two different approaches. That’s because customers that voluntarily churn have decided your product or service doesn’t benefit them any longer, is too difficult to use, or isn’t worth the money. In the case of involuntary churn, the customer likely wasn’t dissatisfied with the product or service. This type of churn is a matter of billing issues.

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Reducing Voluntary Churn

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While almost an endless number of possible reasons exist for a customer to voluntarily churn, at the heart of voluntary churn reduction tactics is pleasing and benefiting the customer. To reduce voluntary churn:

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Increase Actual or Perceived Value

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If your customer feels like they’re paying more for your subscription than what they’re getting out of it, they’re likely to cancel.

Sometimes this means you need to increase the value of your product or service. However, other times this can mean you need to increase the perceived value of your subscription. Make accessing the really cool features of your service easy! 

Provide demos to make sure customers know how to use your product. 

One of the best ways to set your customers up for success with your subscription is to send a post-purchase email with all of the details they need to maximize their purchase.

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Ask for Feedback and Respond to Complaints

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Because poor feedback is a predictor of voluntary churn, sending feedback requests can be an effective method to reduce customer turnover. However, this method only works if you listen to the complaints and implement tactics to improve.

Ask for feedback from all customers, but give an in-depth survey to your VIP customers, the ones who have spent the most or been subscribed the longest. They’ll have helpful insights into what’s working… and they’ve been around long enough to know truly what isn’t.

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Provide Top-of-the-Line Customer Service and Onboarding

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Keeping customers happy requires excellent communication, problem-solving, and clear expectations from the onset.

That’s why making your team easily accessible and ready to help your customers during onboarding and all throughout their customer lifecycle reduces voluntary churn.

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Attract Your Ideal Customer

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At the end of the day, if you’re not attracting your ideal customer, you’re going to have a higher voluntary churn rate. That’s simply because your product or service wasn’t designed to meet their specific needs. That’s why reducing voluntary churn starts from the beginning of the marketing funnel.

Reducing Involuntary Churn

Minimizing your involuntary churn rate requires addressing any potential causes of billing issues. Examples of possible reasons for involuntary churn include expired credit card information, a card being reported lost or stolen, a transaction being flagged as fraudulent, insufficient funds in the bank account, and incorrect billing information entered.

Luckily, your retention team can implement tactics to solve any of these possible root causes of involuntary customer turnover.

How Is Involuntary Churn Fixed by a Retention Team?

Having an internal or an outsourced retention team focused on recovering lost revenue from failed payments will improve your business’s stability and success. 

A trained team of retention professionals can win back lost customers due to failed payments through:

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Personalized Follow-Up

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Alerting your customer via email that there has been a billing issue with their account is an effective way to win back payments. However, your chances of retrieving payment increases when you use personalized and specific communication.

Provide as much detail about how and why the customer’s payment has failed. Assume the customer hasn’t even realized their payment didn’t go through, because they probably haven’t! It’s easy to forget or miss transactions when they’re automatically withdrawn.  

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Human Interaction

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While it’s tempting to rely on robots to retrieve failed payments, we suggest avoiding automation as your primary means of collecting payments. It can be a useful tool for some aspects of failed payment recovery; however, hiring retention specialists to communicate with customers via email and over the phone helps put a voice to your brand.

When the customer can feel that a human from your company cares about them and the tough billing situation they may be in, you’ll earn major brownie points for the company. Good customer service increases customer loyalty.

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Problem Solving

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One thing humans do so much better than robots is problem solving. Automation can send your customers emails, but when the subscriber replies back to say that they’d love to continue using your service but it’s been a tough month financially, your robot doesn’t offer a free month of membership — or 50% off.

When a subscriber has been trying to figure out how to update their billing information, but can’t seem to find the right page to do that on, automation doesn’t help.

Trained retention specialists are expert problem solvers. It’s their job!

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Empathy

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In the same way, robots lack empathy. They always will. They don’t know the right time to say “I’m sorry to hear that” or “we support you”.

Your retention team can save a much greater number of subscribers by making customers feel seen, heard, and understood. Offering customers empathy and seeing their gratitude toward your brand is one of the greatest gifts of customer service.

And like we mentioned earlier, studies actually show that excellent customer service improves customer loyalty.

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What Is Dunning, and How Can It Help Involuntary Churn?

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If you’ve looked into solutions to help manage failed payments before, you’ve likely heard of dunning.

What is the dunning process? 

Dunning is the process of communicating with customers to collect lapsed funds. The root word of dunning is ‘dun.’ According to the Merriam-Webster dictionary, ‘dun’ means “to make persistent demands for payments or to plague or pester.” 

Needless to say, the idea of dunning doesn’t sound very appealing.

Traditional dunning software uses automation to email customers and continuously ask for the money. If a customer fails to respond right away, the messages become increasingly more aggressive. 

“Hey there, we’d like to notify you of a failed payment. To continue your subscription, please click the button below to update your billing information today.” turns into “Hello? Are you there? Give us the money now, or else.”

The traditional dunning process lacks empathy, and because of that, it’s ineffective. On average, dunning software only recovers 15% of failed payment… 85% of customers fail to respond to standard dunning emails. 

That means you’re still losing out on a lot of revenue, and that’s why we decided failed payment recovery needs an upgrade.

Behind every failed payment is a human. At Gravy we use human-to-human communication to recover failed payments for your subscription business.

We’ve thrown out the traditional idea of dunning and have given the failed payment collection process heart. With the added empathy, Gravy is able to recover up to 80% of failed payments. There’s no pestering. No demands. Just honest communication.

We know the value of customer relationships and the reputation of your business. So, our team of dedicated retention specialists adopt your brand voice to build trust, improve loyalty, and secure payments for your company. 

Amy Porterfield, online marketing expert, said, “Imagine having a 24/7 engagement team that contacts customers within hours of a failed payment, updates billing information and saves clients you worked hard to win. Gravy took my recovery rate from 33% to 79%”

If you’re ready to kick lost revenue to the curb and start recovering more revenue for your business — with little to no effort — reach out to us here. Our team is ready to help.