The DTC’s Guide to Avoiding Failed Payments and Involuntary Churn

Direct-to-Consumer (DTC) is the future of retail and if you’re already operating with this model, you’ve successfully future-proofed your business. Congratulations.

And for those of you still considering the DTC model, here’s why you should give it a chance:

These days, consumers are more comfortable shopping online, which makes third party channels, like brick and mortar stores, kinda obsolete.

Remember the days when we were forced to go to the mattress store all the way across town just to order a mattress and boxspring? Or when we had to visit our nearest big box store to buy a shaving kit or a bottle of wine? That went out with the last decade.

With the help of the Internet, the DTC model has switched up the game. Instead of relying on distributors who decide if and where your products sell, you can now appeal directly to the consumers who will use your product. That’s good news. Not only do you get to keep more of your revenue, you also get to build a stronger relationship with your customers.

For all of its benefits, there is one glaring issue that many DTC brands face: What to do when payments fail.

Notice it’s a when not an if.

Payments will fail. Cards will expire. And if you don’t protect yourself, your business will lose revenue every month because of these failed payments.

In this guide, we’ll discuss how to prevent involuntary churn from happening in your DTC business.

How Failed Payments Lead to Involuntary Churn

Failed payment happens when a payment is declined. It can happen for various reasons, including insufficient funds, expiration, customer data changes, or fraud alerts (just to name a few). Failed payment often leads to passive churn. This is a business killer because you lose customers who would’ve otherwise stayed with you.

[tweetthis]You’ve worked so hard to get these customers. Don’t let a single one slip through your hands.[/tweetthis]

Here’s a common scenario:

A customer signs up for a recurring subscription to your product. Everything goes well for several months and then the worst happens: The customer’s credit card expires. And, because the customer has a million and one other things going on, the customer receives their new card but forgets to update their payment information in your system. Dun dun dun!

Now, you’re left in the lurch because you don’t have their new credit card details and you don’t have a backup credit card, either. So, you suspend access to your goods or services. Makes sense.

But there are three problems with this solution. First, the customer probably has no idea about the payment failure because you didn’t notify them about it. Second, when you just cut the customer off, you’re still not getting paid. Third, and this may be the worst one, by shutting customers out, you negatively impact your relationship with them. They sign in only to see that they’ve been shut out (while perhaps still accruing fees). This is jarring, embarrassing, and confusing. This leaves a negative impression with your customer and now they have no incentive to continue their relationship with your brand.

You’ve worked so hard to get these customers. Don’t let a single one slip through your hands. Here’s how to do it:

Be Proactive

One of the biggest contributors to failed payments is a card’s expiration date. Most cards expire every three years. Depending on the size of your customer base, you may deal with expired cards every month.

Don’t wait until after a credit card expires before you reach out to your affected customers. Take steps to rectify the customer’s payment details before a decline. There are two ways to do this:

The first way is to attempt to update the card’s expiration date automatically. Using our tool, Stunning, your customers’ credit card expiration date can be reset without you having to reach out to the customer for a manual update. This provides a smooth continuation of service.

The second way is best done after attempting to automatically update the customer’s information. If our tool cannot access the customer’s updated billing information, we’ll then send out a series of pre-dunning emails. These customizable emails will encourage the customer to update their billing information before the payment fails. By notifying your customers ahead of time, you may be able to avoid involuntary churn.

Here are 9 best practices for avoiding churn in your DTC business.

Retry at the Right Time

DTC Failed Payment Recovery

Sometimes, no matter how hard you try to prevent it, a payment will fail. Beyond expiration dates, payments can fail because of fraud, incorrect billing, changes in the account, and a host of other reasons.

When payment fails, don’t panic. Instead, use Stunning to perform a series of Smart Retries. Here’s how that works:

After analyzing your customer base, our Smart Retries feature attempts to collect payment at a time when you have the best chance of recovering lost revenue. We continue to intelligently retry over a course of 21 days to give you the best chance at recovery.

Be Positive in Tone

There’s an art to dunning and pre-dunning emails. Definitely don’t send a “pay up or else” email. That’s not going to win over your customer.

Put yourself in the mind of your customer. No one wants to deal with a payment failure. It can be confusing and embarrassing. So, approach your customer with a good amount of empathy. Keep your email friendly, approachable, and solution-oriented in tone. Remember that your goal isn’t to be confrontational but to remedy the situation ASAP.

Empower Your Customers

What’s the process for updating payment information? It’s time to audit that process. If your customers need to jump through hoops just to change their default credit card payment, you’re setting your customer and yourself up for failure.

The goal is to reduce friction and eliminate hurdles. Make it easy for customers to edit their payment information at their discretion. Don’t hide this information from your customers, or force them to go through your customer service.

Make sure that your payment update page is optimized for your customer. Here are must-follow tips:

  • Create an optimized payment update page for your customers. This allows you to link directly to the payment update page (not just their general account page). Remove any steps that have the potential to derail your customers.
  • Don’t require your customers to log in first. Logging in is an extra hurdle for your customers. Sometimes, customers forget their password which means they’ll need to reset it. This delays your customers from taking the desired action. Instead, allow customers to update their billing information from a secured page without having to enter (and potentially forget) their password.
  • Make sure that your payment update page is mobile-friendly. The majority of your customers not only read emails from their phone, but they also update their payment information from their phone, too. Your payment update page should be optimized for small screens. Don’t make your customers wait until they’re in front of a desktop to update.
  • Encrypt your payment update page. This is an important security practice that keeps the customer’s payment information safe and protects your business.
  • On your payment update page, give your customers the ability to place a backup payment method on file. When primary payment fails, you can automatically bill the backup method to avoid interruption of service.

Don’t Depend on Email Alone

DTC Failed Payment Recovery

Email is reliable but it’s not always the best solution. Some inboxes are busy. If your customer is bombarded with emails on a daily basis, they may not see your dunning email. In this case, consider other ways to notify your customer of a payment failure, such as:

  • In-app notifications – Let your customers know about a payment issue as soon as they log in to your app or their account on your website. Link to your payment update page to make the path easy.
  • SMS messages – Automatically send SMS messages to customers after a payment fails. Stunning can help you find phone numbers for your customers.
  • Slack notifications – Everyone’s on Slack these days. Use real-time notifications to spark immediate action.
  • Phone calls – While you may not be able to reach out to every customer via phone, consider this option for high-value customers who spend a lot of money with your business. This personal touch can be effective at building a relationship with your customers.

Final Thoughts

You need a well-oiled system to handle failed payments. Your best option is to get a tool to manage payments for you. Stunning is that tool. Learn more about how Stunning can help you recover lost revenue here.

Don’t forget to download this list of best practices to avoid churn.