Average Failed Payment Rate for Recurring Payments + Ways to Fix Them

Failed payment rates for subscription payments may vary based on lots of factors (your business, location, payment method, industry, etc.)

But what they all have in common is that failed payments generally have significant consequences for subscription-based businesses, like involuntary (i.e. “delinquent”) churn and revenue leakage. Failed payments also complicate customer relationships and impact ongoing revenue.

Here are some statistics from the search results:

1. The average failed recurring payment rate is 35% (But it can be as high as 70%)

According to a survey, 35% of transactions fail on average, but it can go as high as 70%+ in many cases. This is why failed payments are now the top concern of 40% of subscription businesses.

This is the highest number on our list, but it’s also the most recent one dating back to May of 2023. The study claims a recent uptick in failed payments across the board (for both one-time and subscription payments).

2. 14.6% of recurring payments fail (Older study)

This is an older study by Spreedly (dating back to 2013) but I decided to include it here as a proof that (1) this has always been a problem for just about any business and (2) the rates are likely growing.

According to Spreedly, recurring payments see failure rates of 14.6%, compared to 11.35% for one-time transactions.

3. Almost half of subscription churn is caused by failed payments

According to Darryl Hicks, FlexPay CEO, almost 50% of the churn comes from failed payments.

This estimate is a bit lower based a study published by Profitwell, claiming that 20-40% of your subscription business’s churn comes from credit card failures. The same study places failed payments as #1 reason for involuntary churn.

Think about it: If you set up a process of monitoring and recovering failed payments, you can prevent about 30% of your churn. This is going to be a huge boost to your recurring revenue.

Reasons for failed payments in recurring subscriptions

The top reasons for recurring payment failures are:

• Card details expiration. These failed payment can be prevented by notifying your customers of the soon expiring payment details for them to be able to update them before the recurring charge happens.
• Insufficient funds. If you offer credit card payment options, these failures won’t occur too often.
• Payment processor errors. You can recover these accounts by prompting them to change a payment processor (for example, changing their payment method from PayPal to a credit card)

Other reasons may include:

• Customer’s card was reported lost or stolen
• Fraudulent activity on the customers’ card
• Customer’s bank declining the payment (for example, due to a change in the billing address)

Make sure you identify the most common reasons for failed payments in recurring subscriptions to take proactive measures to prevent them.

How to deal with failed payment issues

Obviously, most of these reasons are out of our control, but we can still have a plan for dealing with the problem as it can be a significant impact on our business’s revenue.

While failed payments can negatively influence your bottom line (which is already bad enough), it can also scare away your brand’s most loyal customers who may only realize something is wrong when they login and get the “Your subscription has been canceled” message.

Your once-brand-amabassdors may be frustrated enough to opt out of your service forever. This is the biggest loss your business can encounter: Loyal customers. 

Failed payments may damage your reputation and hurt your customer experience. You are losing a customer who didn’t intend to leave.

Managing payment failures should be the cornerstone of any customer retention strategy.

• Set up automated systems which would retry failed payment a few times before canecling an account
• Create a diverse digital engagement stratregy, especially using different methods. This could include automated email sequences, mobile text messages, in-app notifications.
• Provide multiple payment methods for your customers to be able to quickly switch from the failed method
• Segment customers with failed payments to be able to recover those accounts manually. You (or your team) should continuously monitor failed payments and intervene when necessary.

By implementing these strategies, subscription businesses will optimize customer retention and maintain financial stability. It is important to have a plan in place to manage failed recurring payments and limit their impact on customer churn rates and revenue yield.

Overall, you need to develop a retention plan that includes a payment recovery strategy to address the common reasons for payment failures. 

Subscription relationship management is another important aspect of dealing with failed payments. If your customers are used to hearing from your business, they will eagerly work with your team on solving the failed problem issue. Success in any subscription business relies on its ability to build positive and strong relationships with customers. 

This includes regular touch-base emails with individual users, educational programs (e.g. exclusive customer-only webinars and virtual events), re-engaging inactive paying customers, etc. Pro-active communication with your customer base will help you manage involuntary churn more effectively and recovering most failed payments through on-going conversation with your trial and paying users.

Conclusion

As a rule, subscription business owners spend much more time and effort on acquiring new customers than managing failed payments of existing customers. This is a huge mistake, as they have already invested in onboarding those users. Losing them mans wasting that investment.

Revenue retention should your biggest business priority.

It is crucial for businesses to have a plan in place for managing failed payments and limiting their impact on customer churn rates and revenue yield.

Ann Smarty

Ann Smarty is the Brand Manager at Internet Marketing Ninjas, as well as co-founder of Viral Content Bee. Ann has been into Internet Marketing for over a decade, she is the former Editor-in-Chief of Search Engine Journal and contributor to prominent search and social blogs including Small Biz Trends and Mashable. Ann is also the frequent speaker at Pubcon and the host of a weekly Twitter chat #vcbuzz

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