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Today, involuntary churn looms over businesses in the subscription industry. Dunning management refers to the process of processing declined payments and recovering missed revenues. A proper system for dunning management offers high recovery rates but goes along with better customer relation practices as well.
An effective dunning strategy is necessary for businesses that depend on recurring payments. This blog will explain the best dunning management practices that help reduce churn, optimize revenue recovery, and improve customer retention.
Proactive communication with customers before the occurrence of a payment failure is perhaps one of the simplest yet most effective dunning practices. Many payment issues can be prevented through preventive communication before turning into subscription cancellations.
Key Actions:
Advance Notifications: Inform customers about upcoming charges, especially if their payment method is about to expire. For example, send a friendly reminder email or text when a card is set to expire in 30 days.
Concise Messaging: Ensure that payment notifications are clear, professional, and action-oriented. Include specific instructions on how customers can update their payment details or resolve issues.
Pro Tip: Use an omnichannel approach to notify customers via email, SMS, or app notifications. This ensures they are more likely to see the message and act accordingly.
When customers miss payments, they may feel embarrassed, confused, or unaware of the issue. The tone of your message matters.
Why It Works: Personalization increases customer trust and makes them more likely to take action. Generic, cold, or threatening dunning messages can damage relationships and lead to permanent churn.
Best Practices:
Use the Customer's Name: A simple personalization touch (like "Hi [Name]") can make a big difference.
Empathetic Messaging: Instead of saying, "Your payment failed," try, "We noticed an issue with your payment. Let's get it sorted together."
Focus on the customer experience: Avoid using threatening or menacing language. Let customers know that you are there to help them solve the problem.
Example message:
"Hi Sarah, we noticed your last payment did not go through. Don't worry this can happen sometimes. Update your payment details here [link] to continue enjoying your subscription."
Instead of retrying a payment randomly, use smart retry logic. This approach uses machine learning or payment analytics to come up with the best possible times to try to go through with a payment.
Why It Matters: Most failed payments are not simply due to expired cards, but sometimes customers have temporary challenges such as insufficient funds and technical issues. The right time to try again will increase the chances of success.
Best Practices:
Retry at Best Time: Don't retry payments throughout the day. Instead, wait 2-3 days before making a second retry. According to the payment providers, weekends and early mornings are bad times for retries.
Pro Tip: Loop Subscriptions have "smart retries," which auto-retry at the most likely successful time, reducing manual intervention.
If you want to make it as easy as possible for customers to resolve failed payments, you must offer diverse payment methods and flexible payment options.
Why It Works: Customers have different preferences for how they pay — credit cards, digital wallets, or bank transfers. If you limit them to a single method (like credit cards), you risk losing customers who would have preferred another option.
Best Practices:
Accept Multiple Payment Methods: Allow debit/credit card, PayPal, Apple Pay, Google Pay, and direct bank payments (ACH).
Self-Service Portals: Allow customers to update their payment information through a secure, user-friendly payment portal.
Offer Installment Plans: For high-value products, offer customers the option to make payments in instalments rather than losing them as subscribers.
Example: If someone can't pay the $500 annual subscription in one payment, instead provide the option to pay $125 a month for 4 months. This flexibility does decrease churn and means you still collect revenue.
When you are going to do dunning at a high scale, automation comes in. Manual follow-ups are slow, prone to error, and take up valuable human resources.
Why It Works: Automated dunning systems ensure every customer gets follow-up notifications on time. This consistency increases the chances of recovering payments while saving your team's time.
Best Practices:
Use Automated Dunning Software: Loop offers ready-made dunning automation workflows.
Set a Clear Schedule: Send a series of follow-up emails (e.g., 1 day, 3 days, and 7 days after the payment failure).
Consistent Follow-Ups: Automation ensures that no customer "falls through the cracks" due to human oversight.
Pro Tip: Seek customizable or integration-friendly software so you may modify email templates, retry schedules, and payment portals according to your brand's specifics.
You can't improve what you don't measure. Schedule a constant review of your dunning strategy to know what works and what does not.
Key Metrics to Track:
Recovery Rate: The percentage of declined payments recovered.
Churn Rate: The percentage of customers who cancel after the decline.
Communication Metrics: Open rates, click-through rates, and conversion rates of dunning-related messages
Best Practices:
A/B Testing: Run tests on different email messages, retry schedules, and segmentation of customers.
Analyse recovery rate: determine the number of customers who have made a payment after one, two or three follow-up attempts. When most recoveries are realized on the first follow-up, scale down reminders
Avoid requiring customers to jump hoops over recovering from an unsuccessful payment. End.
Why It Works: If updating a card is too complicated or time-consuming, customers will sometimes cancel the subscription altogether. A smooth experience is going to drive payment resolution more likely.
Best Practices
One Click Payment Updates- Facilitate allowing customers to update the payment information in one click and do not require them to sign in. This can easily be done with Loop.
Direct Links to Payment Gateways: Include payment update links in dunning emails and texts, thereby reducing the friction of the customer experience.
Pro Tip: Have link expiration timers (e.g., 24-hour active links) to have the customer pay faster.
Sometimes, automated reminders and retry attempts are not enough. Having human support agents ready to assist can make a big difference in customer retention.
Key Strategies:
Live Chat Support for Payment Issues: Offer live chat support where customers can ask their questions about failed payments.
Support Tickets: If payment cannot be resolved automatically, then escalate it to the support team for personalized follow-up.
Offer One-Time Exceptions: If a customer is at risk of churning due to payment issues then offer a grace period or temporary access
Effective dunning management is essential for subscription-based businesses aiming to reduce involuntary churn and boost revenue recovery. By following these best practices, you’ll improve customer retention, maintain healthy cash flow, and minimize revenue loss.
Key Takeaways:
Implementing a strong dunning management process requires ongoing effort, but with the right tools, tactics, and insights, you can significantly increase your payment recovery rates and protect your revenue.
Emma Johnson is celebrated for her strategic brilliance and innovative flair. By seamlessly blending creativity with data-driven insights, she has propelled Loop’s brand to new heights, establishing it as a formidable force in the Shopify Subscriptions space.
