Involuntary churn happens when a customer unintentionally loses access to a product or service, usually because their payment fails. Unlike voluntary churn, where a customer actively decides to cancel, this type of churn is accidental and often preventable.

Failed payments are a common and frustrating part of running a SaaS business. They can happen for many reasons, including:

• Expired credit cards
• Insufficient funds
• Incorrect card details
• Bank-side transaction blocks for fraud protection

While a single failed payment might seem small, the cumulative effect of involuntary churn can significantly impact revenue, growth, and customer relationships. Addressing it is one of the highest-leverage activities for a subscription-based business.

Dunning is the process of communicating with customers to collect payments after a transaction has failed. A well-designed dunning strategy is not about aggressively demanding money but about gently helping customers fix the payment issue so they can continue using your service without interruption.

A typical automated dunning sequence involves a series of steps:

1. Initial Failure: A scheduled subscription payment fails.
2. Smart Retries: The system automatically retries the payment at strategic intervals. For example, it might wait a few days, as the issue could be temporary (like a temporary hold on the card).
3. Customer Communication: If retries fail, automated emails or in-app notifications are sent. These messages inform the customer about the payment issue and provide a simple way for them to update their billing information.
4. Grace Period: Most systems offer a grace period, allowing the customer to use the service for a short time while the payment issue is being resolved. This prevents a poor customer experience.
5. Subscription Status Change: If the payment issue isn’t resolved after several attempts and communications, the subscription is eventually suspended or canceled.

Effectively managing failed payments is crucial for maintaining a healthy revenue stream and a positive customer experience. A good dunning process helps you recover revenue that would otherwise be lost and retain customers you’ve already worked hard to acquire.

Here are a few key benefits:

• Reduces Involuntary Churn: The most obvious benefit. By resolving payment issues, you keep customers who never intended to leave.
• Increases Customer Lifetime Value (LTV): Retaining customers means they continue to pay for your service, increasing their total value to your business over time.
• Improves Customer Relationships: A thoughtful, helpful dunning process can be a positive touchpoint. It shows you value the customer and want to help them, rather than just cutting off service.
• Automates a Manual Process: Without an automated system, your team would have to chase down failed payments manually, which is inefficient and doesn’t scale.

Creating a dunning strategy is a balancing act. You want to recover revenue without frustrating your customers. Here are some best practices to follow.

• Automate smart retries: Don’t retry a failed payment every day. Use an exponential backoff schedule, where you wait longer between each attempt (e.g., 3 days, then 5 days, then 7 days). This increases the chance of success without overwhelming payment gateways.
• Keep communication clear and friendly: Avoid alarming or accusatory language. Assume the best—the customer likely doesn’t know their payment failed. A simple, helpful message like, “We had trouble processing your payment. Please update your billing info to keep your account active,” works well.
• Provide an easy way to update payment details: The goal is to make it as frictionless as possible for the customer to fix the problem. Your dunning emails should link directly to a secure page where they can update their card information in just a few clicks.
• Use in-app notifications: For active users, an in-app notification can be more effective than an email that might get lost in their inbox. A dismissible banner at the top of the UI is a common and effective pattern.
• Offer a grace period: Don’t immediately cut off access to your service after the first failed payment. A grace period of 7-14 days gives the customer time to resolve the issue without disrupting their workflow.

Managing failed payments and dunning workflows can be complex to build from scratch. Kinde simplifies this by providing the necessary infrastructure to monitor and react to billing events.

Kinde’s billing webhooks can automatically notify your application when a payment fails, succeeds, or becomes overdue. This allows you to build a custom dunning process tailored to your business needs. For example, when you receive a customer.payment_failed webhook, you can trigger a workflow that sends a customized email, displays an in-app notification, and schedules a payment retry.

By connecting your application to Kinde’s billing events, you can create a robust and automated system for reducing involuntary churn and recovering lost revenue without heavy engineering effort.

• Respond to customer activity using webhooks
• Cancel a subscription
• Subscription upgrade and downgrade methods
• About billing