As the subscription economy continues to expand across industries, one of the biggest challenges businesses face is churn—specifically, passive churn. Unlike active churn, where a customer consciously cancels their subscription, passive churn occurs when subscriptions are involuntarily terminated due to issues like expired credit cards, failed payments, or other technical problems. Passive churn can significantly impact a company’s bottom line, often leading to lost revenue despite customers still valuing the service or product.
To tackle this issue, companies must implement a combination of frictionless payment processes, predictive machine learning tools, and flexible subscription plans that cater to evolving customer needs. This article explores best practices and technology solutions to minimize passive churn and increase customer retention.
Understanding Passive Churn and Its Impact
Passive churn accounts for a significant portion of overall churn for many subscription businesses. Studies show that as much as 20-40% of customer churn can be attributed to failed payments alone. Whether it’s an expired credit card, insufficient funds, or a change in payment details, passive churn is a recurring issue that businesses must address proactively.
Unlike active churn, where the customer actively chooses to cancel, passive churn often happens without the customer’s immediate awareness. Many subscribers intend to keep using the service but are disconnected due to payment issues. As a result, reducing passive churn not only recovers revenue but also preserves valuable customer relationships.
Best Practices for Reducing Passive Churn in 2024
1. Implement Frictionless Payment Options
At the heart of passive churn is payment failure. To combat this, businesses need to streamline the payment process and remove unnecessary friction. Here are some strategies to consider:
- Card Updater Services: One of the most effective ways to prevent passive churn is by leveraging card updater services. These tools automatically update expired or reissued credit card details, reducing the chances of failed transactions. By partnering with card networks or payment processors that offer these services, companies can ensure continuous billing even if a customer’s payment information changes. Darwin CX not only has its own AI dunning service, but we also partner with companies like Vindicia to help you recover revenue from passive churn.
- Multiple Payment Methods: Offering a variety of payment options can help reduce the chances of passive churn. By allowing customers to use credit cards, direct debit, digital wallets (like Apple Pay, Google Pay, PayPal), and even cryptocurrency, businesses can accommodate different payment preferences and avoid disruptions caused by specific payment failures.
- Smart Dunning Process: A well-designed dunning process—automated notifications to customers about failed payments—can help recover missed payments before a subscription is canceled. Instead of sending a single email, businesses should adopt multi-channel dunning strategies (email, SMS, in-app notifications) with personalized, clear communication about the payment issue and steps to resolve it.
2. Leverage Machine Learning for Churn Prediction
In 2024, predictive technology is playing a critical role in minimizing passive churn. Machine learning (ML) algorithms analyze historical payment data and customer behavior to predict potential churn before it happens, allowing businesses to take preemptive action.
- Churn Prediction Models: Using ML-based churn prediction models, businesses can identify patterns in payment behavior, such as customers with a high likelihood of missed payments or subscription cancellations. These models assess factors like transaction history, account activity, payment method stability, and engagement levels to forecast which customers are at risk of passive churn.
- Proactive Engagement: Once at-risk customers are identified, businesses can engage them proactively. For instance, if a customer’s credit card is about to expire or payment attempts have been declined, the system can automatically send reminders to update their payment information before the subscription lapses. Proactive outreach increases the chances of retaining customers and avoiding unintentional cancellations.
- Real-Time Fraud Detection: Machine learning can also enhance fraud detection, reducing false positives that may trigger failed payments. By minimizing fraud-related declines, businesses can improve transaction success rates and reduce passive churn.
3. Offer Flexible Subscription Plans
Flexibility is key to maintaining a loyal subscriber base. Offering flexible subscription plans can help businesses adapt to changing customer preferences, reducing both passive and active churn.
- Flexible Billing Cycles: Not all customers prefer the same billing cycle. By offering multiple billing options (monthly, quarterly, or annual), companies can accommodate different customer preferences and reduce the likelihood of passive churn due to payment fatigue or mismatched billing schedules. Additionally, companies can give customers the option to pause or delay their subscriptions, providing a cushion during times of financial difficulty without losing them as subscribers entirely.
- Partial Payment Plans: Offering partial or installment payment options can help reduce payment failures, especially for high-ticket or premium subscription plans. By breaking down larger payments into manageable installments, companies can lessen the financial burden on customers and reduce the likelihood of failed transactions.
- Customizable Plans: Allowing customers to customize their subscriptions based on usage, content preferences, or add-ons can make the service feel more tailored and essential. When customers perceive value in their subscriptions, they are more likely to update their payment details promptly to avoid disruptions.
4. Automated Retention Campaigns
Automated retention campaigns that trigger based on specific events, such as failed payments or account inactivity, can help re-engage subscribers at risk of passive churn.
- Personalized Recovery Campaigns: When a payment fails, instead of a generic reminder, personalized recovery campaigns can make a difference. Emails or notifications that highlight the value the subscriber is getting from the service (e.g., usage stats, recent content accessed) can encourage them to resolve payment issues faster.
- Incentives for Retention: For high-value customers, offering incentives like discounts, extended trials, or premium content in exchange for updating their payment information can improve recovery rates and reduce passive churn. These strategies are particularly effective when paired with predictive ML tools that identify at-risk subscribers.
Technology Solutions to Reduce Passive Churn
To effectively combat passive churn in 2024, companies should invest in technology solutions that automate, predict, and resolve payment issues. Below are some essential technologies that can help:
- Subscription Management Platforms: Platforms like Darwin CX provide comprehensive subscription management tools that streamline billing, automate payment recovery, and integrate card updater services, reducing the likelihood of passive churn.
- Payment Gateways with Fraud Detection: Payment processors with integrated fraud detection and smart retry mechanisms can improve transaction success rates and prevent unnecessary subscription cancellations due to fraud-related declines.
- AI and Machine Learning Tools: Implementing AI-powered tools to predict churn, analyze payment patterns, and proactively engage customers can dramatically reduce passive churn. These tools can integrate with customer relationship management (CRM) systems to provide personalized outreach at the right moment.
- Real-Time Analytics Dashboards: Subscription businesses should use real-time analytics dashboards to monitor payment success rates, churn patterns, and the effectiveness of their retention strategies. Insights derived from this data enable businesses to fine-tune their approaches and continuously improve their churn prevention efforts.
In 2024 and beyond, combating passive churn requires a blend of technology and strategy. Subscription businesses must adopt frictionless payment processes, predictive machine learning tools, and flexible subscription plans to keep customers engaged and ensure uninterrupted service. By taking proactive steps to reduce passive churn, companies can preserve revenue streams, enhance customer loyalty, and drive long-term business growth.
