What is Involuntary Churn and How to Prevent It?
What is Involuntary Churn?
Churn is the number of existing customers lost for any reason at all during a specific time period. Since there are different reasons for that, it can be categorized into two major types: voluntary churn and involuntary churn.
We are going to discuss the key aspects of involuntary churn in this article, but if you are interested in exploring the basics first, you can explore what does churn mean in business?
So, what is involuntary churn exactly and why does it happen?
Involuntary churn happens when a customer’s subscription ends. It does not happen because a user chose to cancel, but because their payment failed and was never recovered. Involuntary churn is usually calculated in percentage, so it can also be defined as the percentage of customers who unintentionally cancel their recurring subscriptions.
You can also think of involuntary churn as reaching the “expiry date” of customer’s subscription.
It is important to analyze and address involuntary churn because, usually, the customer still wants your product in such situations, but a billing issue forced them to not renew the subscriptions. Of course, it can also happen when a user simply let the subscription reach the end of its period without renewal or cancellation, but those cases are rare.
This is the fundamental difference between involuntary churn and voluntary churn, where a customer carefully evaluates your product and decides to leave. On the other hand, involuntary churn accidental, where the user had no intention of leaving, but a mechanical failure in the payment process pushed them out.
Involuntary Churn vs Passive Churn
Just to avoid any confusion later in the article, you should know that involuntary churn is also known by several other terms, such as passive churn, delinquent churn, and payment failure churn. Most people use these terms interchangeably, even though there are some minor differences between them.
Involuntary churn specifically refers to payment-related failures, such as when a customer’s card declines or has insufficient funds. On the other hand, passive churn is a broader type of churn that can also include situations where a customer simply forgot to renew or didn’t engage with renewal notifications.
This is a nuanced difference and many people, especially in the SaaS industry, use both involuntary churn and passive churn interchangeably.
What are the Differences Between Involuntary Churn and Voluntary Churn?
Involuntary churn vs voluntary churn has several important differences that goes way beyond their simplistic definitions. The following table summarizes these differences:
Involuntary Churn vs Voluntary Churn
| Factor | Involuntary Churn | Voluntary Churn |
|---|---|---|
| Customer intent | No intention to cancel | Deliberate decision to cancel |
| Root cause | Payment or billing failure | Lack of features, budget issues, found a better solution |
| Customer awareness | Usually unaware it happened | Fully aware |
| Preventability | Highly preventable with the right systems and strategies | Requires product and customer experience improvements |
| Recovery difficulty | Relatively easy as customer usually wants the product | Harder to re-convince the customer of product value |
| Typical share of total churn (backed by studies) | 20–34% | 66–80% |
Understanding the above differences between involuntary churn and voluntary churn are important because the strategies to prevent or reduce them are completely different. You cannot solve involuntary churn with better onboarding or feature updates. Instead, you need better payment infrastructure and communication systems.
What Causes Involuntary Churn?
Each and every case of involuntary churn is related to failed payment. However, the reasons behind why payments fail in the first place can be many, and understanding them is necessary to implement the right prevention strategy.
Every case of involuntary churn traces back to a failed payment. But understanding why payments fail is critical to building the right prevention strategy.
1. Expired Credit Card
All credit cards have a certain expiry rate, and when a card expires, any recurring charges associated with it will fail. It is also possible that the customer has already gotten the new card from the bank, but they simply forgot to update their details.
2. Insufficient Funds
Insufficient funds is one of, if not the most common, causes of involuntary churn. This is also a type of soft decline as payments can easily be recovered after a few days when the customer’s balance is equal or greater than the required amount.
3. Outdated Billing Information
It is common for customers to move, change banks, or update their card details with their issuer, but forget to update their billing information on your platform. So, when the billing address does not match what the bank has on file, there’s a high chance of transactions being flagged and declined.
4. Bank-Level Fraud Flags
Banks nowadays have modern automated fraud detection systems. But these systems are not always 100% accurate. Even a legitimate recurring charge can sometimes trigger a fraud flag, especially if the charge originates from a different country than where the card was issued.
5. Payment Gateway Errors
Sometimes, the payment failure can also be due to some issue with the payment gateway errors, such as API failure, network timeout, or a misconfigured payment processor. Such technical issues often resolve on their own or when the user contacts their banking services provider.
Frequently Asked Questions About Involuntary Churn
What percentage of churn is involuntary?
About 20–34% of total churn is considered to be involuntary, but the exact percentage can vary from industry to industry. The involuntary churn of SaaS companies, specifically, is about 22% of all churn.
What is the difference between voluntary and involuntary churn?
Voluntary churn happens because a customer deliberately cancels their subscription. Involuntary churn happens when a subscription ends due to payment failure, which means the customer didn’t choose to leave.
Can involuntary churn be completely eliminated?
No, because some payment failures (like permanently closed accounts or stolen cards) can’t be recovered. However, the majority of involuntary churn is preventable with better payment processing workflow.
How quickly should you act on a failed payment?
Immediately. Generally, the first automated retry should happen within 24 hours.
Is involuntary churn worse for B2B or B2C?
B2C companies experience higher involuntary churn (24% of total churn vs. 16% for B2B). This happens because B2C customers use personal payment methods that are more susceptible to expiration and balance issues compared to corporate cards.
Start Reducing Involuntary Churn Today
Involuntary churn is the most fixable type of churn. It is quite different from voluntary churn, where you need to convince a dissatisfied customer to stay. Involuntary churn can be prevented and reduced by the right systems to catch and recover failed payments before they turn into lost customers.
So, are you ready to tackle both voluntary and involuntary churn? Sign up for a free trial of Churnfree today to monitor and reduce churn.
