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What Is Dunning Management And Why Is It Important For Subscription / Membership Models?

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Learn all about ecommerce dunning management. 

Do you run an online subscription or membership business? Chances are you’re constantly struggling to reduce the churn rate. 

According to Gartner, 75% of brands will offer subscriptions by 2023. However, only 20% will succeed at customer retention—that’s a serious challenge.

One of the biggest reasons for churn is dunning—payment failures and declines, card expiries, etc., that makes customers leave. 

To put things in perspective, 53% of all subscriber churn results from failed payments.

But these technical glitches are minor issues that can be solved. And so, they shouldn’t be reasons for you to lose sales or customers.

And that’s why you need to implement a dunning management system for your eCommerce store—to reduce churn rate, save time, and run your business smoothly.

Look at this chart to see customer churn rates by industry:

In this blog, we look into dunning management meaning, how it can help your business, and how to do it right.

Everything you need to know about eCommerce dunning management 

What is dunning?

Dunning is the process of handling failed payments. At times, online transactions do not go through. The reasons could be incorrect card details, system or network errors, or insufficient balance in the customers’ accounts, among others. 

At such times, retailers must alert customers to complete the payment. The customers can then take the necessary action. Some customers might leave the transaction unfulfilled and leave the eCommerce site. 

Dunning impacts businesses in many ways.

It can help recover failed payments

Following up on payments for subscriptions and memberships is not an easy task to manage, to say the least. Customers usually use cards for payments or make online payments via apps. This results in a higher number of transaction failures. Dunning management helps recover failed transactions and improve revenue. 

It affects customer retention

If failed payments and transactions aren’t recovered in time, it can lead to a loss of sales and customers. Instead of retrying payments, customers might decide to let their subscriptions or membership get canceled. 

It can take up a lot of time if not managed well

If dunning management is not automated, manually reviewing and tracking each payment and contacting customers can take a lot of time. Besides, it’s a tedious process and can lead to human errors when done manually.

What is dunning management? 

Dunning management refers to an automated payment recovery system. This system automatically starts working as soon as there’s a payment failure or decline.

So what happens in automated dunning management? First, the system alerts customers about payment failure. The notification could be via SMS, email, in-app alert, etc. 

This is followed by an automated payment recovery process. The dunning management system will send messages with payment links, guide customers on ways to complete payments, etc. 

Dunning management features also include discounts and offers. Retailers can activate discounts and offers (specifically for customers that retailers are on the verge of losing). By offering incentives, they can entice customers to revive their memberships.

Dunning management is highly effective in reducing customer churn. Now, let’s understand, in-depth, how it works.  

How dunning management helps reduce customer churn

So far, we learned about what is dunning, its overall benefits and how dunning management works. But it’s important to understand how it helps reduce churn. 

Dunning management helps save time via automation

There are two ways to manage dunning — manually and through automation. If you are a small business with a limited number of subscribers, manually managing dunning might be possible.

You can manually track failed or declined payments, contact customers, and ask them to complete the payment. However, the person responsible may be overloaded with work and unable to complete this task. This would mean the payment could get delayed. It could also lead to a lost sale.

That is why automated dunning management can help you save time and revive lost sales. The dunning management system sends automated reminder alerts to accounts that have failed to make payments.

For example, say an existing customer’s credit card details are saved in your system. However, during the auto-pay method, the card gets declined because there was a card change, and the customer forgot to update it in your system or app. 

In this case, the dunning management system will automatically notify the subscriber. This entire process doesn’t require human intervention from your (retailer’s) end. 

It helps save time. Since the software is doing the work a person would have done manually, you can allocate that resource to do some other strategic work. By handling a mundane, repetitive task such as sending reminders, your dunning management system helps save valuable time.

It helps reduce customer churn

Did you know the average churn rate is between 6% to 10%? This means, six to 10 customers out of every 100 tend to abandon businesses they transact with. Now multiply this number by tens or hundreds. It can be a significant loss to retailers.

There are two types of churn—active and passive.

1. Active churn: customers voluntarily cancel membership or subscription

2. Passive churn: they have to leave due to other reasons, not in their control

Dunning management helps reduce customer churn—one of the most critical tasks for any business. Acquiring new customers is hard as well as expensive. It costs 5X more than what it costs to retain customers. 

But dunning management systems can help reduce customer churn. Here’s how:

  • It sends automated notifications when customers’ card payments fail
  • It sends alerts before the payment due date so customers can update their card details
  • It sends instant and timely messages, which helps increase retention 
  • Fast and timely dunning notifications help improve customer experience and hence, retention
  • It keeps subscription rates higher with less manual effort and intervention
  • It helps you understand customer intention when they initiate transaction cancellation

It helps keep cash flow in check

Subscriptions and membership business models have many advantages. And one of them is—they help retailers predict the part of their revenue that comes from their subscribers and members. Retailers can predict the revenue on a monthly basis. 

But, there can be disruptions in this predictable revenue. 

For example, expired cards, payment gateway technical issues, and network problems are among involuntary challenges.  

Customers willingly not renewing their subscriptions, forgetting payment deadlines, etc., are some of the reasons for voluntary churn. 

And that’s where being proactive with dunning management helps to reduce customer churn.

Here’s what dunning management does:

  • It sends quick alerts about failed payments to customers
  • It guides customers to take the next steps to complete the payments
  • Dunning management offers a good customer experience
  • It helps save subscribers and members early on in situations
  • Sends payment deadline notifications to identify possible churn
  • Sends reminders to customers to update card details for expired cards
  • Provides data that can help identify customers losing interest

All the above actions can help ensure that retailers get paid on time. 

It improves retailers’ work efficiency

Imagine if the only method for dunning in billing was to do it manually. Retailers would have to have dedicated resources to track payments, identify failed transactions, send notifications, and guide subscribers to complete payments.

All these tasks require time and resources. Moreover, doing these manually can lead to mistakes. For example, missing out failed payments, sending alerts to a wrong phone number, etc. 

When not done well, this can have an adverse impact on customer experience. Moreover, scaling a business without automated dunning management would be next to impossible.

Setting up dunning management with the help of a dunning management tool for subscriptions and memberships can help you streamline and manage all these processes.

  • You can utilize your resources for more strategic tasks
  • You can have your tools look after the mundane and repetitive tasks
  • You can ensure you never miss a failed payment
  • You can send timely notifications to customers
  • You can scale your subscription and membership business
  • You can send appropriate and relevant notifications to customers
  • You can use data to gain insights and plan your business moves accordingly

It helps automate pre-dunning tasks

One of the best ways to reduce failed payment situations is to identify payments that may fail and communicate the same to the customers. Let’s look at some cases where pre-dunning automation can help retailers.

Say some customers’ credit card details have been saved for auto-payment. But the cards are about to expire before the next billing cycle. In such cases, an efficient dunning management tool can identify such cases much in advance. Then, send reminders to customers to update their card or payment details.

Another reason for failed payments is longer billing cycles for subscriptions and memberships. For example, some subscriptions and memberships follow a yearly billing cycle. Now, customers join multiple memberships and subscriptions and may not keep track of payment deadlines. In such cases, dunning management can help send payment reminders to customers much in advance so they don’t forget about it.

Most often, retailers offer a free trial period to customers. But as soon as the trial period ends, retailers would charge customers for the membership. In such cases, it is best to inform customers before the trial period is about to end. This is when a dunning management tool can help send timely alerts.

Pre-dunning helps reduce cancellations and churn, increase timely payments, improve customer experience, and reduce friction during payment. 

It helps manage post-dunning tasks

It’s common for subscribers and members not to take any action even after repeated payment recovery attempts by retailers. For example, it’s possible they aren’t interested in renewing their subscription. Or they might have another reason; for example, they haven’t read the notifications sent by retailers.

In such cases, too, your dunning management tool can help. You can identify the reasons why customers did not retry payments or couldn’t complete the transaction. And then, address those issues through appropriate solutions.

For example, if a customer has missed reading your payment reminder emails, you could reach out to them via another channel, say a phone call or an SMS.

Post-dunning efforts made by retailers can positively affect customers when done right. Customers would feel like your brand cares about them and wants them to continue their relationship with you.

Customers also feel you’re putting in the effort to improve their experience. Post-dunning engagement can help revive customer interest in your brand. 

Using efficient dunning management tools can impact customers’ perceptions about how tech-savvy and progressive your brand is and their decisions accordingly.

How to set up an efficient dunning management system?

In a nutshell, you need to rely on competent digital tools to stand out in the eCommerce market. In addition, to provide a seamless customer experience, you need dunning management tools to minimize churn and optimize costs.

And that’s where Appstle comes in! 

Both Appstle Subscriptions and Loyalty and Appstle Memberships and Loyalty apps are designed to manage end-to-end dunning. Therefore, you do not need to look for other solutions for your Shopify store.

The Appstle apps have advanced features, such as they enable retailers to allow customers to pause subscriptions and reactivate them later. This sort of freedom and flexibility leads to better customer experience, as well as higher customer retention.

Once set up and automated to your desired settings, the apps efficiently handle all dunning tasks so that you can focus on the more strategic parts of your Shopify business. 

Both apps have comprehensive dunning processes for eCommerce businesses. 

Or, reach out to us for a personalized demo and try the apps on a free trial.

If you are looking to understand more about Appstle Inc’s products and solutions, you can get in touch with us. Our 24x7x365 available experts will be happy to assist you further.

About the Author

Vanhishika Bhargava

Vanhishika Bhargava

Vanhishikha Bhargava is the Content Marketer for Appstle Solutions. You’ll always find her creating content or reading up on the industry with a cup of coffee in hand, which makes her anxious at times! But stay tuned for insightful pieces. Always.
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