Failed Payment Recovery: The Cost of Waiting
April 9, 2021 by: Alex Moisley
One of the most important metrics for evaluating your recovery solution’s success is understanding your current failed payment recovery rate. This is how many failed credit cards you are already reclaiming.
We refer to your ‘current recovery rate’ as your ‘baseline.’ Your baseline is significant for a few reasons:
- It measures your historical recovery rate of declined transactions.
- We use the baseline (alongside other data) to forecast the uplift FlexPay will generate. This is especially useful for prioritizing an integration*, if applicable, as you can attribute a revenue figure.
- Most importantly, it is how we calculate the recovery lift. These are the customers we saved who would have otherwise been lost. And this metric is used for our pay-for-performance pricing model.
*FlexPay integrates with leading payment providers and CRM.
Optimizing Your Decline Rate
Savvy companies believe they can save money by improving their baseline before going live with FlexPay. Optimizing decline recovery (while possible!) is not easy and typically expends substantially more time than you might assume. This, in turn, can cost you significantly (more on that below). Remember, if it were easy, you would have done it already.
For argument’s sake, let’s imagine you want to implement changes to your existing recovery strategy before moving forward with a failed payment recovery solution. We’ll make some assumptions:
- Your decline rate is the industry average for subscription transactions (23%, according to VISA).
- You’re currently recovering a respectable 15% of your payment failures and involuntary churn
- You’re generating $1,000,000 of monthly recurring revenue with a $100 average order size (AOV)
- Based on your 23% decline rate, you have $298,701 of failed payments each month
Assuming it is a top priority, you already know the changes you’re going to implement and can do them immediately. But you’re going to have to wait a minimum of two to three months to see the impact of those changes. The best-case scenario is that the changes are a resounding success and require no further tweaks or testing. As a result, you manage to increase your recovery rate from 15% to 18% – amazing!
The Opportunity Cost
If you partner with FlexPay and we double your current recovery rate (something we frequently see), you can quantify the potential gains and losses.
The company in this example would save money on their monthly fees with their improved baseline, but the cost of delaying FlexPay equals a whopping $33,604 per month. Worse still, it does not take into consideration the downstream revenue that you would have generated from these lost customers if you recovered them.
Assuming the delay would only be two months and no further sales were generated from these recovered customers, it would take you 30 months to break even! After this, you would begin to see a small amount of savings accrue from your improvements two and a half years ago.
Optimizing decline recovery is as time-consuming as it is onerous. The majority of businesses who want to improve their baseline try to prioritize this, but for most, this falls by the wayside and ultimately ends up costing them.
How much are you willing to lose for marginal optimizations? Get in touch with our team to schedule a demo and evaluate your revenue recovery opportunity.
FlexPay is the best performing decline recovery solution in the market. Click here to learn more about how FlexPay can help you reduce involuntary churn and increase monthly recurring revenue.