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RevOps Recovery: The Top 10 Dunning Tools to Help Your Business Reclaim Lost Revenue

By May 25, 2021August 20th, 2021Customer Retention

If I’ve drilled anything into your minds through these blog posts, I hope it’s that churn is a many-headed beast. There’s a reason churn problems are so difficult to solve and require a full-company effort to reverse. The topic is complex, and customers can churn for any number of reasons. 

Though we think of churned customers as angry, raising hundreds of support tickets and leaving negative online reviews, we’ve seen that many customers leave silently. And some, it appears, may not mean to leave at all. 

This is where the dunning process, or the actions companies take to collect late payments from customers, comes into play. There are dozens of dunning tools that help reclaim revenue from customers whose credit cards have expired or whose charges simply didn’t go through. Their approaches vary, but most labor under the belief that your customers didn’t mean to churn. 

These tools can be powerful, but it’s important to understand where they fit in your wider customer retention strategy as well as the key differences between them. 

Active vs. Passive Churn 

Broadly speaking, churn can be classified into two types: active churn and passive churn. It’s vital to understand the difference and to focus on both within your business. 

  • Active Churn: This takes place when customers decide to stop using your product and proactively cancel their subscriptions. 
  • Passive Churn: Often referred to as “involuntary churn,” this occurs when customers stop paying for your product. 

In other words, if a customer takes the time to click the “Cancel My Subscription” button or talks to a customer service representative about canceling, that’s active churn. If you can’t collect payment because a customer has insufficient funds in their account, for example, that’s passive churn.  

The dunning tools we’ll discuss here focus exclusively on passive churn. And as we’ll see, there are several strategies to address it. 

Why I Don’t Call It “Involuntary Churn” 

It’s very possible that when you can’t process payment from a customer, it’s a complete accident. The customer simply forgot to input new credit card information or someone left the business. Maybe the payment provider is having a network problem. Who knows? 

The issue here, in my opinion, is in assuming that all customers who fall into this camp are happy — that they would continue using your product if only the payment had gone through. The reality is that, hidden within passive churn, are unsatisfied customers. Some customers will use a card’s expiration as an easy out from a product they no longer want. Others will use prepaid cards to try out a product and will simply decide not to replenish its funds. 

My point is that sometimes churn can be passive (maybe even a little passive-aggressive) while also being 100% voluntary. So calling it “involuntary churn” is a misnomer. 

Let’s break down some of the reasons for passive churn: 

  1. Insufficient funds
  2. Expired credit card
  3. The cardholder has left the business
  4. Payment provider error (e.g. Stripe outage)
  5. Bank connection error (exacerbated in international transfers)
  6. Credit card canceled
  7. Customer lets any of the above happen to stop using your product 

What is Dunning? 

To address passive churn problems, you’ll likely turn to a product-focused on dunning. Dunning is generally defined as the process of working with your customers to collect accounts receivable. This usually precedes the “collections” process as we know it and might involve rerunning credit cards or sending customers reminders about upcoming or late payments. 

Dunning can be handled by hiring internally, outsourcing services, employing automation, or any combination of the above. Most subscription management software providers allow you some flexibility to “roll your own” dunning process workflow. 

Let’s take a look at some of the leading dunning tools on the market. 

Comparing The Top Dunning Tools

Because there are lots of reasons for passive churn, there are several solutions on the market. Most specialize in one or two areas, so it’s important to understand the strengths and limitations of each, as well as the needs of your business. Below, I’ve grouped dunning tools by their primary purpose so you can determine which is right for your business. 

Subscription Management Software

If your business charges customers regularly, a powerful subscription management software can help you automate the billing process. Subscription management software serves as the “system of record” for which subscription(s) your customers have active. As G2 defines it, “Subscription management software ensures that the right amount of money is being charged to the right person the accurate number of times a year.” 

Most subscription management software allows you to create modified dunning flows. This allows companies some flexibility on how to message and manage the dunning process, though it requires internal expertise to create the “best” process for your company and customers. Notably, subscription management solutions do not usually handle payment failure problems and often lean on internal expertise to guide the dunning process, rather than industry best practices.

Major Players: 

Automated Payment Recovery

According to some sources, up to 50% of lost revenue may be due to payment failures. A surprising amount of customers churn because of processing errors with the payment provider or the banks involved. And while payments can fail for a lot of reasons, many businesses handling this problem manually may only follow basic retry logic (rerunning every Friday, for example). The companies included in this category apply an artificial intelligence (AI)/Machine Learning (ML) approach to the problem across the entire payment system to determine the best way to solve these technical payment processing issues.

Major Players: 

Subscription Analytics Software 

While the companies included below have broad product offerings that focus primarily on subscription analytics, they also offer products focused on payment recovery. Both Baremetrics’ Recover and Profitwell’s Retain focus on automated communications (e.g. email, SMS) to improve your recovery rates. Tools in this category can also add capabilities for customers to update their credit card information without needing to login to your platform as well as in-app messaging to notify customers of late payments. 

Major Players: 

Payment Recovery-as-a-Service

While some businesses may prefer automated reminders and communications, some argue that nothing is more effective than a human touch. Depending on your business, you might opt to outsource dunning services to a company that can follow up with your customers directly. These companies will white-label communications for your brand and have done extensive research on the most effective methods to collect payment. 

Major Players: 

Next Steps: What to Look For When Comparing Solutions

To prepare for this article, I spoke to several of the companies above about their products and what made them stand out. It became clear right away that many of the players are focused on solving a very specific part of passive churn. While some offer a wide variety of products, many keep their focus on either payment recovery or automated communications. This allows them to provide a best-in-class solution for a very specific issue but makes it challenging for potential customers to navigate this crowded industry. 

Luckily, a clear pattern emerged from these conversations. For businesses who have never thought about passive churn before, there are a series of logical baby steps to take before diving into using a robust, customizable platform or paying large amounts for dunning services. 

Where to Start

  1. Look to Your Payment Provider: Are you taking advantage of all the features your existing payment provider offers? For example, if your business runs on Stripe, are you using their payment retry features or analytics? Payment providers don’t specialize in addressing passive churn, so their capabilities may be limited. Furthermore, many customers don’t think to ask, so the payment providers haven’t usually highlighted what’s available, leaving customers unaware unless they go poring through documentation. That said, they can help you calculate important metrics like MRR and total declined revenue. This will help you understand the scope of your problem. 
  1. Consider an Automated Solution: When you’re ready to look beyond the basic capabilities of your payment provider, implementing an automated solution can be a simple next step. This may involve a more sophisticated, AI-driven method of retrying payments or setting up automated in-app and email messages to automate the dunning process. Maybe both.

    Because automated dunning tools often charge a percentage of what they save your business or a low monthly rate, they are often far more affordable than dunning services run by people. They also offer a lot more analytics that can help you pinpoint problems in your business that need addressing. 
  1. Hire a Dunning Service or Dedicated Employee: When you’ve got a solid understanding of your passive churn problems and have attempted to grab the low-hanging fruit available through payment retries and automated messages, you might decide to supplement those efforts with phone calls and tailored messages. 

Don’t Forget to Ask Around

As you consider your options, remember to take your specific circumstances into account. Ask the solutions you’re considering to share testimonials from businesses that are similar to your own. While subscription businesses share many of the same challenges, they are not all alike. For example, an international business with charges coming from all over the world may find more value in an AI-driven retry system and a high-priced subscription may benefit from the human touch. 

Though there are many players in this space, the key is simply to start by digging into your churn metrics. The more you dig and learn about how well your company is retaining customers, the better equipped you’ll be to find the right dunning tool for your business. And of course, I’m happy to help you along the way.