Failed Payments Are Costing Companies Their Best Subscribers and 9% of Revenue

Subscribers want a smooth shopping experience: Data from several PYMNTS Intelligence studies shows that 27% of users are likely to cancel their subscriptions if they experience any service interruption due to failed payments. As a result, subscription companies see an average decrease of 9% in revenue due to this factor, and this effect can be even stronger when failed payments impact the most profitable customer groups.

Many companies offering subscription plans underestimate the impact that payment failures have on their best customers and bottom lines. Cancellations due to payment issues directly affect total lifetime value (LTV), the metric measuring the long-term return for each subscriber. The impact is much greater in the most profitable customer segments, multi-model subscribers and VIP customers.

As illustrated in “The Impact of Subscription Models on Consumer Choice,” a PYMNTS Intelligence and collaboration, VIPs are a group of predominantly young customers with high incomes that pay a premium for special benefits in their subscription, and they make up 8% of all subscribers. Along with them, multi-model subscribers have a variety of subscriptions and do not focus on one type. Both groups have the highest customer LTV and are primarily composed by people from the younger generations. In the case of VIPs, the average LTV amounts to $2,867, and for multi-model subscribers, it is over $3,000.

The cause of payment failures is not typically attributed to customers. In 4 out of 5 cases, it is due to system frictions, per “The State Of Subscription Business: Best Practices and Business Performance Drivers,” a PYMNTS Intelligence and FlexPay collaboration. Among the top reasons subscriptions experienced failed payments were false declines, in 43% of cases, and issues with payment processing software, in 37%. Solving these technical issues is key to retaining customers.

Subscription-based companies are realizing the importance of offering a smooth payment experience and how costly failed payments can be, according to “Adopting Subscription Companies’ Top-Performing Payment Recovery Strategies,” a PYMNTS Intelligence and FlexPay collaboration. More than two-thirds of top-performing subscription businesses specifically monitor failed payments, and companies that track them are able to recoup, on average, 61% of failed payments. Companies that do not track this metric recoup less than half — 49%.

Measuring LTV is directly linked to business performance, according to FlexPay CEO Darryl Hicks in a recent interview with PYMNTS: “If you’re tracking lifetime value, it’s because you’re focused on optimizing your business,” Hicks said. “You are making sure that your acquisition costs as a ratio of lifetime value is dialed in properly, and you are focused on minimizing all sources of churn. All subscription companies will benefit from this operational best practice.”