On this episode of the ProfitWell Report, Michael McCarthy, CEO at Inkit, is curious to see what benchmarks we have on delinquent churn. After gathering data from just over four thousand subscription businesses and a few million credit card transactions, we've excited to share all that we found.
Delinquent churn is when a payment fails - goes delinquent - and you’re unable to get that customer back with updated payment information. This is surprisingly the largest single bucket of churn in your business, but you’re probably not doing much about these payment failures.
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Delinquencies in both B2B and B2C account for 20 to 40% of your churn when analyzing the median proportions across companies of different sizes.
Note that as you get larger, the proportion of your churn that comes from delinquencies actually increases. This is likely because you’re getting a bit better at regular churn, but also because you don’t get economies of scale with more credit cards.
What’s funny is we look at credit cards as futuristic technology, but they’re old as hell. The first concept of the credit card in history was in 1887 with credit cards that look super similar to the ones today showing up as early as the 1930s.
Unfortunately, they’re pretty old and there’s 130+ different reasons a credit card fails, from expirations and insufficient funds to issues with the credit card processor.
Ironically, even though this type of churn is purely mechanical, we’re really bad at recovering failed payments.
No matter the size of the company, we’re recovering only around 30% of those individuals that have a failed payment. To put it another way - for every 10 people who have a payment failure, you’re only recovering 3, leaving 7 to basically be flushed down the tubes.
A lot of folks like to say that these customers would have churned anyway, but in our analysis we found that you should be recovering at least 70 to 80% of these individuals, because most of the reasons they’re churning out are purely functional and solvable.
There are over a thousand credit card transactions every second and that’s just in the United States. It’s a technological feat, but it doesn’t mean it’s perfect, and unfortunately it’s impacting your business significantly.
That's all for now. If you have a question, ship me an email or video to firstname.lastname@example.org and let's also thank Michael from Inkit for sparking this research by clicking the link below to share and give him a shoutout. We’ll see you next week.