Payment Failures: The Hidden Gem of SaaS Retention

Ethoca estimates that payment failures account for $145.9 billion in sales lost globally every year. So why don’t more businesses focus on it as part of their win-back campaigns?

It’s easy to forget that growing your business isn't just about getting new leads. Retained customers give SaaS companies reliable monthly revenue and valuable word-of-mouth referrals that generate new business. So how do SaaS companies lose clients to failed payments? And what can you do to stop it? Today, we'll dive into this often overlooked area of customer retention and show you how to tackle it.

The Hidden Gem of Customer Retention

When companies look at customer retention, they usually focus on reducing cancellations. Most credit cards expire within three years, and payment failures can happen to anyone. ProfitWell notes that 20-40% of your lost customers are a result of payment failures. So, a little bit of effort in this area can significantly improve your customer retention.

Because it's an area many businesses have not explored, reducing payment failures may seem intimidating. To approach the problem from a strategic point of view, you'll need to break down the task into actionable steps. First, there are three angles from which you can tackle payment failures. These areas are:

  1. Pre-failure - the 30-day period before the credit card expires
  2. Grace period - the one to two weeks after the card's expiration
  3. Post-failure - the time following the grace period

You should treat every step of your customer retention here like your other retention campaigns. Remember that this is a form of marketing, and targeted, tactical messaging is worth more than blanket campaigns. It isn't just a matter of updating their card info; it's a matter of keeping a customer. Customer retention is far more reliable and profitable than finding and onboarding new customers for your company. Let's look at the three points above and break down what you can do at each step.

1. Pre-failure

Thirty days before a customer's payment method expires, you'll want to start prompting them to update their data and your system. Most of your customers don't know that their card is expiring, so approach it as a helpful message so they don't lose access to your services.

On your end, look into options to have your processor retry their payment method since expired cards aren't the only reason payments fail. Even in the case of expired cards, some payment processors such as Amex can still complete payments with the information on file. At the customer's end, you can begin with low-effort strategies such as in-app notifications to get them to update their payment information. It's important not to be pushy at this point in the process since that can actually lead to fewer users updating their information. Emails and SMS marketing at this point can lead to active cancellations. This happens because they have to consider that there's a charge coming for your product and make them think about whether or not it's worth it to them to keep it.

When you send these notifications to a customer, opt for "snoozable" reminders with increasing frequency leading up to the expiration date on their card. This will keep it fresh in their mind without being overly intrusive.

2. Failure and the grace period

Following the failure of your customer's payment method, it's time to be a little more aggressive with your tactics. Don't immediately suspend access to your software. A grace period of 1 to 2 weeks should give them enough time to update their information without being immediately booted off your software. 

A little empathy here goes a long way since there are many reasons why payments fail. Make sure not to blame your customer for the problems with their card. Also, avoid sounding overly authoritarian with your wording. Talk to them the same way you'd talk to your friend if they were in that situation, and remember to be human. Some options you can try are advising them to use a different mode of payment or contact their bank to see why the charge was declined. You can use firmer language as you go on, and their grace period draws shorter, but especially in the beginning, use friendly but persuasive language.

3. Post-Failure

It's possible that some of your customers won't fix their payment methods even after the grace period. Your win-back campaigns here can overlap with your marketing campaigns for active cancellations. For example, you can remind your customers of the value of your product and send ebooks and other downloadable guides. These kinds of content offers remind them of your product's benefits and show them the cost of letting their subscription lapse. 

In between the promotional emails and content offers, be sure to use some plain text messages through email that sound authentic and personable. Let them know there's a human being on the other end who wants to make sure that the product was working well for them and check if they need additional help. A personal touch may be all they need.

The Secret Sauce of Preventing Failed Payments

Here's where we reveal the most essential tidbit that keeps you from losing customers to payment failures. Are you ready?

The secret is to make it easy.

It seems simple, right? But adding extra steps to the process can actually turn customers away. In fact, a poor user experience here can actually lead to increased active cancellations. The last thing you want to do is make somebody question whether it's worth allowing another payment for your product because when you remind them that their current method will expire, they know they're about to get charged again. So why make them think about it?

You can make the process easier by letting your customers skip the login. Having them go to your website, login to their account, go to the settings, and then billing pages gives them a good long time to think about how much effort they want to put into renewing their subscription. Instead of making them go through all this, invest your time building out a private forum that lets them update their information from a link sent via email or within the app. While you'll need a hand from a developer for this one, it's well worth the effort to keep one of your customers.

The key to this, again, is empathy. Imagine for a second that you're the one going through this process. Sure, you're probably biased to love your own product, but if it was anyone else's, would you be willing to do what you're asking from your customers? Think about it the next time you update information on a website and consider what you do and don't like about the experience.

Of course, payment failures are the only reason for lost customers. Active cancellations are another cause of churn for SaaS companies. Read more about the causes of active cancellation and see how to prevent them in our blog article here.