The Subscription People

Unlock Revenue and Faster Growth

Hidden Keys to Higher Customer Retention

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Table of Contents03 Cut Passive Churn to See Revenue Surge04 Vindicia Knows Retention and Payments05 Win and Keep Customers06 Small Retention Gains Turn into Large Revenue Increases07 Roots and Costs of Passive Churn08 Aim and Miss: Semi-Effective Steps to Prevent Churn09 The DIY Path to Lower Passive Churn10 Building a Retention Lab11 Vindicia Select: Higher Retention— Virtually Overnight13 Realize Higher Revenue Quickly 14 See for Yourself How Select Delivers

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Consumers and businesses can subscribe to a virtually infinite array of products and services. From meal delivery and financial advice to legal services and weight-loss coaching, people try to keep using services that fit their needs. The subscription business model is having an equally dramatic impact on businesses like yours. Instead of investing in customer acquisition in hopes that customers will simply make a one-time purchase, you entice people into making a recurring commitment to your offering. For digital business-to-consumer (B2C) subscription services, successful companies focus on two key areas as growth drivers: acquisition and retention. You win customers with advertising, promotions, free trials, and more. The longer you retain those customers, the better. Even small monthly increases in retention lead to huge gains in subscribers and revenues over time.

The math is simple: Low churn leads to higher ACLV and a larger subscriber base. Higher ACLV enables more investments in acquisition, further accelerating growth. You probably devote significant effort and expense to preventing active churn and winning back customers who choose to leave. But what about passive churn? Many companies do very little about it—but you can dramatically reduce passive churn.

Cut Passive Churn to See Revenue Surge

Subscriptions are changing the way people live.

Three key metrics signal retention success—or failure:

Active churnWhen subscribers cancel your service because they no longer want it, that’s active churn.

PAssive churnWhen a subscriber wants to stay with your service but can’t, churn is passive. Failed payment transactions are the leading cause of passive churn, which is also called involuntary churn.

AverAge customer Lifetime vALue (AcLv)This is the average revenue generated per customer acquired. Spend more on acquisition than you do on your ACLV, and you can’t be profitable. But the higher your ACLV, the more you can invest in acquisition.

The Subscription People

This eBook explores how you can address passive churn to realize surprisingly large revenue increases over time. Read on to explore what you and your team can do to trim passive churn. You’ll also learn how working with Vindicia can drive even more‑dramatic success.

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Vindicia Knows Retention and PaymentsAt Vindicia, our payments experts are always increasing their payments knowledge.This includes studying ways to retain customers and their revenue longer. After more than 15 years of handling subscription payments, we’ve learned that businesses can address passive churn by resolving the causes of failed transactions.

Commonly used, unsophisticated techniques can make a difference with failed transactions. However, taking a more data-driven approach leads to 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 our solutions. Vindicia® CashBox® is our complete subscription billing and payment platform. Vindicia Select™ works with your existing billing system to resolve failed payment transactions. Both measurably increase retention and revenue. Find out how working with Vindicia is making a difference for businesses like yours.

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Subscription makes it easy to try a product or service—it’s not a major purchasing decision.

Win and Keep Customers

You can prevent 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. Taking a smarter approach to passive churn could increase retention by as much as 5%. And that modest increase in retention can lead to huge revenue growth over time—as the chart on page 6 clearly shows.

Many of your best people probably devote much of their time to coming up with new ways to build strong subscriber relationships and prevent active churn. That could take the form of incentive-based loyalty programs or an email campaign that educates subscribers about how to get more from your offering. But what are you doing about passive churn? Keeping customers who actually want to stay may be the most cost-effective way to sustain growth.

A great offer at the right time is all it takes to bring a likely customer into the fold. But it’s just as easy for that customer to stop using a service. This makes it expensive to both win and keep a customer. For many offerings, the cost of acquiring a subscriber far exceeds the first few months of subscription fees. The true revenue rewards of a new subscriber are months away, so you invest in keeping them happy with your service.

   Measure your revenue winsUse the Vindicia ROI Calculator to see your potential revenue uplift from tackling passive churn. Calculate your uplift

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Retention matters.

Small Retention Gains Turn into Large Revenue Increases

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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%)

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Roots and Costs of Passive ChurnBilling problems are by far the leading cause of passive churn.The recurring transaction fails. Problems can include expired cards, exceeded limits, temporarily blocked cards, and more. When a transaction fails, the payment processor usually returns a code indicating the reason. There are more than 100 response codes that can accompany a failed transaction.

Few companies that provide subscription services have methods of taking response codes into account. Thus, they have no means of understanding and formulating appropriate resolutions when transactions fail. Instead, they turn to a few automated and often ineffective ways of addressing issues. When those methods don’t work, they cut off the subscribers’ services. Then, it’s up to the subscribers to resolve the issues with their payment methods the next time they use the services.

So what happens next? Your subscribers turn to your service when they need it. And it’s not there—until they update their payment information. Force subscribers to update payment information and you’re inviting them to revisit their initial purchasing decisions. They might decide to skip it or try competitors who are offering free trials. It may also be difficult for customers to update payment information themselves, as is the case with services that are used by children but paid for by adults. In such a scenario, getting an updated form of payment could be subject to the whims of the adult.

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Aim and Miss: Semi-effective Steps to Prevent Churn

While merchants typically do very little to prevent passive churn, most take a few steps to reduce the outward flow of customers who could be lost. But many of these same merchants think that they’re already doing all they can to address failed transactions, no matter how ineffective their techniques.

Rudimentary steps include:

robotic retry LogicWhen a transaction fails, merchants simply try again 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. It’s the same retry strategy no matter the cause of the failed transaction—with the hope of a different result. The smarter approach is to optimize retry logic to get the best results.

bAsic Account uPdAtingMany merchants use account updater services. That’s smart. But they don’t really pay much attention to when and how often to query the services for updates. Not so smart. Updates can take more than a week to reach an updater service. Some merchants fail to take this into account, leading them to cancel service to customers too soon.

buiLding A “sAves” teAmNo one wants to lose a customer, so many merchants have a dedicated team reaching out to customers in hopes of manually resolving payment issues by contacting the customers. This will save some customer relationships, but at what cost? Returns on investments in saves teams can be quite low. This is especially true for B2C subscription services, where the prices of services are relatively low.

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The DIY Path to Lower Passive ChurnStart by mapping a route to smarter retry logic.Instead of relying on robotic retry logic and other approaches that deliver limited success, you could make a study of the best ways to resolve failed transactions. You can:

Study retry patterns. Experiment with retry patterns to find the most effective patterns based on credit card issuer response codes. This will help you to get the most from the four retries that credit card issuers prefer you not exceed.

Experiment. Look for the best days of the week to retry cards. Hint: it’s not Thursdays in countries where payday is usually Friday. Instead, explore multiple days of the week over time to find a pattern that delivers better results for your customer base.

Know when to try harder. Some merchants routinely retry more times than card issuers recommend for every card, which may raise issues with payment processors. But it can be smart to retry more than four times for some cards. 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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Addressing passive churn can reduce your transaction failure rates by as much as 30% and increase overall retention and revenue by as much as 5%—virtually overnight.

Building a Retention Lab

The long-term benefits are even better, with many retained subscribers remaining in your customer base into the future for greater ACLV. You have so much to gain from reducing passive churn that it makes sense to start tackling the problem. But as you start with experimentation and analysis of your transaction and retry data, you may encounter some obstacles, such as:

it costIT resources needed to code and operate your own retry experiments are busy and expensive.

timeMany subscription billing platforms can’t be modified quickly, limiting the speed and agility with which you can conduct retry experiments.

retry frequency LimitsCard issuer guidelines indicating a limit of four retries will slow your journey towards insight into what works.

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.

All of these hurdles could be overcome easily by optimizing the use of analysis throughout. You just need to crunch data from millions of transactions, ideally pulled from across multiple subscription service providers. This analysis will give you a deeper perspective into the most effective retry patterns. You might find that the best retry patterns vary regionally, or that certain response codes warrant longer wait times between retries. In short, access to a wealth of transaction data from multiple subscription service providers would help you to make retention improvement into a science.

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Vindicia Select: Higher Retention—

Virtually OvernightYou can overcome all the obstacles between you and lower passive churn quickly and without an increase in IT spending.Vindicia Select resolves failed transactions. Select uses innovative retention technology to analyze why a payment transaction failed, and then it resolves the issue that led to the failure. Each failure that becomes a success increases revenue. And more than one-third of resolved transactions remain resolved over the long term.

The Network Effect. The unique analysis that Select applies to failed transactions is derived from what we call the Vindicia “Network Effect.” Over the past 15 years, Vindicia has accumulated a massive set of payment and subscription-related data. This data is 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 machine learning with expertise in the banking and payment card industry, Vindicia Select can automatically recover up to 30% of declined transactions.

How does Select work? It uses the techniques explored in this paper, including making the most of the information in response codes, optimized retries, and intelligent account updating. For instance, Select goes beyond the hit-or-miss approach to retries that is so typical with retry logic. Select leverages advanced analytics to optimize retries and maximize revenue capture. Select also makes use of partial authorizations to gain an understanding of the best potential route to full transaction success.

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“The Vindicia team brings the outputs of their analysis, along with benchmarking data. It’s an opportunity to catch and correct issues that could be affecting revenue. In our case, our overall performance was strong, and we were especially pleased to see how much retention has improved since we started working with Vindicia.”­—PAUL­KRILOFF­Senior­manager­of­customer­revenue­and­customer­acquisition­marketing­Allrecipes

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Realize Higher Revenue Quickly

Vindicia Select doesn’t replace your billing platform—it works alongside your current solution.

Select is noninvasive to your current solution. This means it’s fast to deploy and requires only minimal modifications to current workflows. Data related to failed transactions flows between PCI-compliant environments, keeping your customer data secure.

Select may sound like magic. It’s inexpensive to deploy and PCI compliant, and it provokes measurably higher revenue quickly. But it’s not magic. It’s the result of taking a scientific approach to making the most of transaction codes, retries, and account updating. Retention rises when you use Select , but you’ll still experience some passive churn. That’s because taking an over-aggressive approach could lead to high chargeback rates.

Select simply makes the most of Vindicia’s acquired transaction knowledge to:• Reduce passive churn by as much as 30%.

• Increase overall retention by as much as 5%.

• Boost revenue by as much as 5% immediately, with even higher gains as many retained customers continue to subscribe over the long term.

• Improve ACLV without increasing customer-service spending.

• Enhance customer satisfaction by keeping customers connected to the services they choose.

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See for Yourself How Select DeliversReducing passive churn is the easiest way to boost retention and ACLV.You could try to address passive churn by following the steps outlined in this eBook—even if you achieve only small improvements, you will realize higher revenue. But why think small? Attain the best results by taking advantage of Vindicia’s dedication to understanding how to resolve failed transactions—use Vindicia Select.

See for yourself. To see how much of a difference Vindicia Select could make for your business, get your free, personalized ROI report using our automated ROI Calculator today. Or better yet, sign up for the complimentary Vindicia Trial. The Vindicia Trial applies the retention-boosting power of Select to your real customer data. Use our fully compliant trial process to send Vindicia your data, and Vindicia will return successful transactions.

Learn more about Vindicia Select and find out how you can participate in the Vindicia Trial.

Copyright © 2019 Vindicia, Inc. All rights reserved. Vindicia, the Vindicia logo, Vindicia CashBox, Vindicia Select, 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. 0219