Involuntary Churn (churn due to payment, admin issues, late contract signing)

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ANITA GAZICA
ANITA GAZICA Member Posts: 6 Contributor
edited December 2020 in Metrics & Analytics
Which one of you is counting Involuntary Churn in the Gross Churn? Is there a time limit in which if the client comes back, you don't treat it like churn (i.e. if they come back in the same month)? Looking forward to seeing how this discussion will evolve.
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  • Jarren Pinchuck
    Jarren Pinchuck Member Posts: 38 Expert
    edited December 2020
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    Hi Anita,

    Involuntary churn is a very interesting phrase. There aren't many reasons for churn that I would classify as "involuntary". I'd be very interested, do you have some data on what percentage of your overall churn sits in this category?

    If you're talking about gross churn then you should be counting churn as the last date you'll receive revenue from that customer. You may make an allowance for a missed payment or something like that but technically that is not churn because you'll start generating revenue again from that customer shortly. 
    Is that what you're actually asking; how long should you allow the account to lapse until you decide it's "churn"? That's very company dependant. If you have a large volume of customers then maybe you can let customers go up to 3 months without paying. 

    I would say that the reason/s for churn are important to assess where your product or service needs to improve but the reason doesn't have bearing on gross churn. If the customer was paying and now isn't, they've churned.
  • Anita Toth
    Anita Toth Member Posts: 246 Expert
    Photogenic 5 Insightfuls First Anniversary
    edited December 2020
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    @ANITA GAZICA  Can you provide an example of what the situation you're referring to? I want to give you the best answer I can but I'm a little unclear as to what specifically you're seeking. Could you clarify?  
  • ANITA GAZICA
    ANITA GAZICA Member Posts: 6 Contributor
    edited December 2020
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    Hi Anita, Hi Jarren,

    Here are couple of articles talking about Involunatry churn 
    https://www.chargebee.com/resources/glossaries/what-is-involuntary-churn/
    https://baremetrics.com/blog/involuntary-churn
    https://securionpay.com/blog/involuntary-churn-the-most-effective-prevention-strategies/

    We can also call it Payment Churn for easier understanding. 
    Clients usually come back after a month or two, 60% of them come back in the same month.
    I am interested do you include this number in your gross churn or eliminate it from the calculation when it balances up with reactivation.

    Thanks a lot, 

    Anita
  • Anita Toth
    Anita Toth Member Posts: 246 Expert
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    edited December 2020
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    Anita -- if they come back in the same month and don't miss a payment, they haven't churned. Churned customers no longer pay (whether voluntary or not). Up to 40% of gross churn can come from involuntary churn. It needs to be counted in gross churn. It also needs to be separated from gross churn to get a better idea of how many customers are involuntarily churning.
  • ANITA GAZICA
    ANITA GAZICA Member Posts: 6 Contributor
    edited December 2020
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    Hi Anita,

    It is clear that churned customers no longer pay for their products. There is no doubt there.
    I am not sure how much are you familiar with the subscription business. I will try to explain. What happens is that at the end of the monthly subscription period companies in SaaS try to charge the subscription again to insure continuous usage of the product. This happens every month until clients are willing to use the service and when they decide to quit - they cancel subscription. That cancelation is obeviously churn.

    It is an industry-standard that around 5% of monthly churn comes from failed payments. In that case, customer is willing to continue the service but has issues with the bank, funds on the card or their credit card data got stolen. 
    We usually get them back very soon - 60% of them in the same month.

    My question is do companies like ours count that reactivated churn in gross or do they diminish gross churn for the amount of Involuntary churn that has been reactivated? 
    I am asking this question as a lot of other metrics in SaaS industry depends on gross churn (i.e. LTV).

    Have I managed to explain?

    Anita
  • Dan Balcauski
    Dan Balcauski Member Posts: 7 Contributor
    edited December 2020
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    Hi Anita,

    I might be reading this wrong, but I think the difficulty is conflating two different, but related concepts:
    1. Payment failure
    2. Subscription cancellation
    As you've described, a customer goes into payment failure. It's a business policy decision whether or not to immediately cancel that customer's subscription. Most companies will not. There is some leniency for failed payment rectification to happen. However, once that limit has happened, the company will cancel the subscription.

    Canceling the subscription means that the service is no longer available, but also, to your point, means the customer is now officially "churned". This should absolutely be included in your gross churn number because you're no longer receiving revenue from this customer (and they are no longer receiving value from the product). If, at some point, they come back and remediate their failed payment situation, you'd reactivate their subscription, but then, they should be considered "reactivated" and not "new". 

    Personally, I dislike the concept of "involuntary churn" because it implies intention on behalf of the customer, of which, the business really has no idea. Many customers may prefer to cancel by letting their payment method expire (or worse, using a prepaid card for a subscription service that eventually runs to a $0 balance). You really have no idea, so trying to play games with voluntary vs. involuntary is not worth it. 

    Hope that helps,
    Dan