Go Beyond Retention: Executive Whitepaper

GO BEYOND
RETENTION
EXECUTIVE WHITEPAPER
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GO BEYOND RETENTION
EXECUTIVE SUMMARY 3
DEFINING AND MEASURING ‘GOOD’ CUSTOMER RETENTION 4
The Metrics of Customer Retention 5
Optimal Churn Rates 7
RETENTION STRATEGIES 9
REDUCING INVOLUNTARY CHURN 10
Authorization Failures 11
Soft Declines 11
Hard Declines 11
Expired Card Handling 13
Account Updater Services 14
Retry Logic 16
Success Varies Wildy 16
Try and Try Again 16
Persistance Pays Off 16
The Law of Diminishing Returns Applies 16
Intelligent Payment Routing 18
Dunning Management 21
Authorization Dashboard 25
REDUCE VOLUNTARY CHURN 26
Enable Self-service 26
Single Sign On and Customization 28
Cancellation Surveys and Discounts 29
Free Trial Management 31
Free Trial Best Practices 33
Cohort Analysis 34
Chargeback & Refund Management 36
Chargeback Visibility 38
CONCLUSION 39

GO BEYOND RETENTION
Executive Summary
Executive Summary
If the pervasiveness of the cloud as the predominant business

model for software and services companies has taught us
anything, it is that a customer ‘on the books’ is worth two or more
off of them. While new customer acquisition is still certainly
important, the simple fact is that the most successful cloud
businesses today are the ones focusing their attention on
retaining their existing customers.
A recent study by the Gartner Group posits that a company that

is able to retain 20% of its existing customers would be able to
secure 80% of its future revenues. With so much riding on
retention, it’s no surprise that businesses (especially in the B2B
space) are willing to spend more on strategies to improve the
customer experience. But even as companies spend more on
customer service, few if any are realizing any significant gains
from their investments.
In 2014, Accenture surveyed approximately 1,500 B2B executives

in 13 countries and found that while 85% recognized the
importance of customer experience to their overall revenue
strategy, 76% were wasting more than half their investments on
ineffective initiatives. With more than 50% of these companies
reporting that their efforts had little or no positive affect on
customer retention, it may be time to take a fresh look at the best
practices the industry leaders are using to retain their customers
and go beyond retention.
Let’s start by examining what it is exactly that constitutes

retention.

GO BEYOND RETENTION
Defining and Measuring

‘Good’ Customer Retention
1. What is the target churn rate for a ”best of 3. If you have 10,000 initial customers and lose
breed” software or service company? 1.25% per month, how many of those
customers will you have retained by the end of
the year?
a. 1.25% a month c. 7.5% a month a. 3,000 c. 8,500

b. 5% a month d. 15% a month b. 6,000 d. 1,000
2. If you have 10,000 initial customers and 4. How much would a company need to
retain 85% per month, how many of those increase its retention to boost profitability from
customers will you have at the end of the year? 25% to 95%?
a. 5,000 c. 500 a. 25% c. 50%

b. 2,500 d. 0 b. 5% d. 10%
Answers: 1-A, 2-D, 3-C, 4-B (Bain and Co).
As this quiz demonstrates, even a small increase in retention can have a dramatic affect on a
company’s revenue. But as we’ve also seen, increasing retention is a difficult challenge for a majority
of companies. Before we can answer why, we’ll need to define exactly what retention is and outline the
metrics the industry uses to measure and benchmark it.
Retention as it is generally defined is the sum of all processes, mechanisms and costs associated with
keeping existing customers from churning and securing the recurring revenue they generate. There
are many factors that contribute to whether an individual customer ‘stays’ or ‘goes,’ but customer
retention rates speak volumes about service / product value and quality, user satisfaction and
long-term business financial outlook by measuring the degree to which acquired clients are “loyalized.”

GO BEYOND RETENTION
The Metrics of
Customer Retention
The number of benefits a company receives from retaining a
current customer is almost too much to quantify. Retaining an Companies selling subscriptions
existing customer carries with it significantly less costs, resources thrive on repeat business, so
and stress than acquiring one new. Plus, it provides a stable customer retention and
source of recurring revenue measured through the predictable recurring revenue are key
Average Customer Lifetime Value (ACLV) metric. ACLV represents metrics to consider. A source of
the total recurring charges through the customer lifetime, the risk for a recurring businesses,
duration passed since the initial acquisition. A customer using a churn is both an indicator of the
monthly subscription that charges $40 a year generates $480 (the health of the subscriber base
ACLV). Companies are spending on average five dollars to acquire and of the company’s
new customers (lead acquisition) for every dollar spent retaining profitability and valuation.
an existing customer (Lee Resources 2010).
Value /
Innovation
Sources of Future
v Revenue
Business
Quality
Success/
Revenue New
Customers
20%
Average Existing Customers will

Customer Customer Generate 80% of
Lifetime Satisfaction future revenue
Value
Customer
Retention
Gartner Group

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Optimal Churn
Rates
Subscriber churn can be linked to a number of sources, including
credit / debit cards being declined, chargebacks and refunds, and
customers simply forgetting to use the service they acquired or
cancelling because they find it doesn’t suit their needs.
According to a report from River Cities Capital Funds,

“[B]est-of-breed Software as a Service companies achieve gross
margins in the 70%+ range and manage annual churn rates
below 15%.” A 15% annual churn rate provides a company with
some breathing room, in the sense that it will only need to add
1,500 new customers by the end of the year to keep the
subscriber base intact. On the other hand, a 15% monthly churn
rate would spell disaster for a SaaS business. Churning 15% per
month would mean having to attract at least 1,500 during the
same period just to achieve net zero growth.
1.25% 15% 15,000

Monthly Annual Customers lost out of
Churn Rate Churn Rate every 10,000

GO BEYOND RETENTION
To put things into perspective, a 15% annual churn rate translates

into a 1.25% monthly churn rate, whereas the 15% monthly rate
represents an annual attrition of 180%. In the latter case, a
company would lose almost twice as many customers as it
started the year with – which is far from desirable. Ideally, a
company should keep its annual churn rate under 10%, which
represents a monthly attrition rate of less than 1%.
All of the
initial
15% 180% 15,000

Monthly Annual Customers lost
Churn Rate Churn Rate

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Retention Strategies
Customer retention strategies generally fall within one of the two following categories: Those aimed at
reducing voluntary churn, and those designed to curb involuntary churn. Voluntary churn, or customer
defection, is what we typically think of when considering issues of customer retention. It is the
decision-driven shopper actions that are strongly correlated with the customer’s actual experience with
the product and service or the support-oriented touch points. It is the area of customer retention
where most companies place their greatest focus and resources, whether to strengthen quality or
provide more value at the beginning of the customer cycle.
While the focus on voluntary churn is certainly important, to do so at the exclusion of involuntary churn
is a mistake many companies make, and a major contributing factor to the low retention rates they
experience as a consequence. In contrast to voluntary churn, the source of involuntary turnover is not
the customer, but rather a circumstantial occurrence, such as payment failures, that can be addressed
in most cases by business process and infrastructure optimizations.
Reducing
Involuntary Churn
While the majority of recurring subscription payments are processed successfully, payment failures
represent one of the top sources of involuntary turnover. Transactions can fail due to a number of
reasons, including expired cards or insufficient funds. Surprisingly these very solvable issues cause
up to 17% of recurring transactions to fail. While the failure rate for each business is dependent on
its model, industry and situation (B2B v. B2C or billing cycle, etc.), the specialized tools and strategies
for solving them are pretty universal. Let’s next look at the some of the key payment failure scenari-
os and the specialized tools and strategies that have been designed to correct them.
Key reason for why card payments fail:

• Insufficient funds.
• Card activity limit exceeded.
• Processing failures due to system, technical or infrastructure issues.
• Card restricted

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Authorization
Failures
Card declines or authorization failures contribute more to
involuntary churn than possibly any other factor. Fortunately,
they are also some of the simplest to resolve. All card declines,
however, are not created equal. As a result, the best practices
and strategies for retrying card authorizations are dependent on
whether it is a soft or hard card decline.
Tale of the Card - Variances in Authorization Rates by Card
Jan ‘14 - Jun ‘14
Payment Method Authorization Authorization

rate Overall rate Renewal Apparently, nor all credit cards are
created equal either. The data from the
Visa / MasterCard 86.50% 83.35% millions of transactions shows that
renewal authorization rates for different
American Express 89.98% 92.14% cards can vary by as much as 11% points.
Discover 94.27% 92.89%

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Soft declines Hard declines
With a soft decline, the authorization failure is Hard declines, in line with industry practices,
most likely a temporary issue, and there is a are permanent authorization failures that
good probability that a subsequent try would cannot be recovered, regardless of the retry
be successful. Avangate recommends retrying strategy employed and can range from 10-20%
all transactions with authorization failures of the total declines. Hard decline reasons
accompanied by soft decline messages from include:
payment processors, because there's a
probability that subsequent authorizations will • Stolen or lost cards
be successful. Soft decline reasons include: • Invalid cvredit card data
• Account closed.
• Insufficient funds.
• Card activity limit exceeded.
• Processing failures due to system, technical or
infrastructure issues.
• Expired cards.
In hard decline scenarios, the best practices involve contacting customers through alternate
retention channels instead of attempting additional authorizations that will result in more failures.
Alternative payment methods Call center and email marketing
Hard declines are the most difficult to resolve Another strategy to combat hard declines,
successfully. The best strategy is institute logic provided that you have the resources, is the
that enables you to react immediately -- direct customer service outreach to declined
preferably while the shopper is still in the cart – subscribers. While it may not make sense for
and or institute an ordering process that every customer, it could be worthwhile for
enables shoppers to change their method of those with a high ACLV. A CRM system would
payment. also be required to manage the interactions
and to determine which subscribers require the
personalized service.

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Expired
Card Handling
Another easily solved cause of involuntary churn is expired or
1st Try:
out-of-date credit cards. The most successful strategy for ADD 3 YEARS
handling this is relatively straightforward. While an algorithm is 2nd Try:

ADD 2 YEARS
required to do the actual work, the solution itself simply involves
identifying expired cards and adding three, two or one year to the 3rd Try:
ADD 1 YEARS
current expiration date until it is authorized. For example, for a
card expiring on 01/14, the first authorization attempt would use
an end date of 01/17. If that try fails, two years would be added,
and then one. In order for this to be successful, it must, of course,
be deployed in conjunction with some type of Retry Logic (which
is covered in 4.4)
By deploying this method, we are seeing authorization rates of

40% to 50% for expired cards that would otherwise result in
failed recurring charges. What this means is that for every 10
expired cards four are actually authorized successfully, securing
recurring revenue for our customers.
Number of authorized cards out of thouse updated for a

selection of participating companies Successful authorizations of
expired cards in the
example above generated
over $2,000,000 in total for
the companies leveraging
Updated cards the service in the first six
Authorized succesfully
months of the year.
January,14 February,14 March,14 April,14 May,14 June,14

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Account
Updater Services
As we’ve seen, simple strategies such as extending credit card Available account updater
dates can significantly reduce involuntary churn, and increase services include:
recurring revenue. And even when those methods fail, there are
other strategies, such as an account updater service that can help
pick up the slack. Account updating is a service offered by all the
major credit card issuers in the United States, Canada, Australia, • Visa Account Updater
New Zealand and some European markets. It enables you to
update card data when the accountholder information has
changed to a degree beyond the expiration date. The changes
can include everything from a new account number and the • MasterCard Automatic Billing Service
cardholder’s contact information to a specific new expiration date
that cannot be remedied by the simple method described in 4.2.
Key benefits of the an account updater service • Discover Network Account Updater
• Higher success of fund collection

• Decrease customer retention cost
• Increases customer loyalty by eliminating service disruption
• American Express Continuity Billing Program

GO BEYOND RETENTION
When used in tandem with the expiration date handling,

Avangate has witnessed successful authorization rates of over
85%, and no less than 50% when using an updating service alone.
The bottom line is than an account updater service can help you
salvage over 90% of the unusable cards used for recurring billing.
It’s importance for handling involuntary churn cannot be
overstated, especially when taking into account the transactions,
subscriptions, customers and revenue that would other be lost
without it.
How the MasterCard Automatic Billing Updater works
Participating issues submit

MasterCard account changes
to the Automatic Billing Merchants who have registered Acquirers submit these
Updater database for the program submit account account queries to the
numbers queries to their acquirers. MasterCard Automatic
Billing Updater database.
Issues provides cardholder
with new or replacement card
Acquires return matched MasterCard Matches account

Merchants can then update their billing files account query records to queries to issuer submission,
with the changed account information. the specific merchants then returns matches to acquirers

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Retry Logic
As we covered in 4.1, there are many factors that can cause a
card payment authorization to fail. But as long as the failure was
accompanied by a soft decline notice, there is a good chance that
it can be authorized upon resubmission. While the basic tactics of
the payment retry (or declined credit card transaction recycling)
strategy are relatively simple, there are varying methods and best
practices that need to be considered before deploying them.
Avangate recommends that your particular strategy, especially

with respect to the frequency and number of retries, should be
tailored to your specific business and customer base, to achieve
an optimal conversion rate. That being said, there are a few
things every business should keep in mind before they start.
Success Varies Wildly Try and Try Again
The success rate for retrying authorizations for Configure multiple retries, at least three, and
soft card declines varies from company to spread them across a few days. For example,
company, but on average ranges between 2% you can schedule them the first, fourth and
and 15%. seventh day after the initial authorization
attempt fails for monthly subscriptions. For
Persistence Pays Off yearly subscriptions, the frequency between
tries in days can be greater provided a grace
Looking at the aggregated data for vendors with period is offered. The schedule should be
a retry logic mechanism in place, we have seen adapted and tested at the hour level as well.
a decrease in the decline rate of between 4%
and 6%. And as we know, any reduction in the
The Law of Diminishing Returns Applies
decline rate is significant, as it represents
‘recovered revenue.’
In terms of schedules, we’ve also seen that
~95% of retries are successful on the first retry
attempt, while less than 0.5% are successful on
the eighth retry attempt.

GO BEYOND RETENTION
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
The graph shows the evolution of authorization rates three

months before and three months after the feature was enabled
for three SaaS companies. If you were to apply this model to
revenue, and plugged in $100,000, for example, you could poten-
tially increase collected funds by as much as $15,000 per month.

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Intelligent
Payment Routing
Up to this point, we’ve mainly been discussing reactive strategies
for dealing with involuntary churn. While addressing payment
failures as they occur is certainly important, no retention strategy
is complete without a component that enables you to proactively
prevent failures from happening in the first place. One of the best
methods for accomplishing that is intelligent payment routing.
Intelligent payment routing offers shortcuts to optimal
transaction routes. A global ecommerce must-have, intelligent
payment routing can juggle card transactions between multiple
payment gateways based on a set of definable rules, maximizing
authorization rates.
To increase the successful authorization of payments, an
automated system needs to intelligently match, or route, card
transactions to the payment gateways best equipped to handle
them. The process also should be capable of compensating for
authorization failures by relying on a payment retry process using
failover or back-up gateways.
The following addresses the best practices for the matching or
routing card transactions to their appropriate gateways.

GO BEYOND RETENTION
Transaction Type -- New v. Recurring, Subscription v. Trial
Intelligent payment routing needs to be tailored to the type of

transaction, with specific governing rules. For example, the
algorithm matching recurring charges to specific payment
gateways has to take into account previous successful
transactions. Recurring transactions and payments made by
returning customers also imply lower risk of fraud, refund or
chargeback. Route transactions from high-risk customers, such as
new/first time shoppers from markets with fraud legacies, to
secondary payment gateways. This will help you protect the
relationship with your main payment processors.
Card BINs (Bank Identification Number) offer a wealth of

information, including the country of the issuing bank, and can be
used in anti-fraud efforts to check that it matches the IP address
and the billing address of the shopper.
Payment Methods, Customer Billing Country and Local Currencies
Use localization to your advantage to match transactions to

domestic payment gateways. Local processors/banks in the same
geography as the shopper will consistently deliver the highest
authorization rates. Ideally, shoppers will always be able to use
their preferred payment method/card in their local currency, with
the transaction being processed by a payment gateway in the
same country. This also means that you need to support
advanced localization.
For Brazilian customers for example, payments made with local

Visa and MasterCard cards in Reals and processed by a local
payment gateway deliver an authorization rate from 70% to 90%,
depending on business. Authorizations for international cards are
half that.
Once again, you can rely on card BINs to identify the best-suited
processor for a transaction.

GO BEYOND RETENTION
Balance Transaction Volumes
Split transactions between multiple payment gateways. The old saying, don’t put all your eggs in one
basket holds true for the way you manage your relationship with payment gateways. Think about it in
terms of risk distribution and balance the transaction volumes between multiple processors, setting in
place a failover mechanism smart enough to reach rapidly, automatically and efficiently in case one of
the gateways becomes unresponsive.
Some gateways may impose specific limits in terms of the total volume of transactions that you can
perform for a certain amount of time. If this is the case, a backup gateway will help you balance the
transaction load without penalizing shoppers in any way.
Authorization Failures Average Order Value
Authorization response codes for failed Minimize processing costs. Protect your profit
communications. Program your routing system margin. Route transactions to specific gateways
to manage authorization response codes for if the processing costs are lower based on the
failed transactions. Not all authorization failures value of orders.
are “created equal” and routing can help you
complete a payment successfully even after the
transaction failed initially. It’s critical to
distinguish between soft and hard declines, and
retry the authorizations with a high probability
of success on a failover gateway.
Single Payment Gateway vs. IPR

100%
90%
The chart on the left contains a comparison

Authorization rate
80%
70%
between the authorization rates that you can
expect from a single payment gateway vs. a
60%
50%
40%
setup where multiple gateways are used in
30% concert with Intelligent Payment Routing (IPR).
20% IPR delivers consistently higher authorization
rates, from 5% to as much as 18% in one month.
10%
0%
May June July

73.23% 85.63% 84.65% Single Payment Gateway
91.23% 90.76% 89.61% Intelligent Payment Gateway

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Dunning
Management
While the majority of the strategies to reduce involuntary churn
deal with the mechanical aspects of the payment process, one
very important tactic, dunning management, brings the effort
back full circle to the customer. Dunning management, which
refers to the process of salvaging unfinished/past due/overdue
payments through the use of delinquent user notifications, can
be deployed both proactively and reactively, either before or
after the transaction. In either case, great care should be given to
the messages you deliver. It should be no surprise then that
dunning management is also an essential part of an effective
customer communication strategy, as it is as key to maintaining
good customer relations as it is it reducing churn and increasing
retention.

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Proactive approach Reactive approach
Using your CRM system, you can act proactively Reactive dunning management involves
to prevent potential payment failures. One communicating the problem to your customers
tactic involves the smart identification and after the failure has occurred. An automatic
automated notification to customers whose notification system is the best solution to
cards are set to expire before the next recurring reduce your costs while delivering emails timely
charges are due. Other proactive tactics include and efficiently for each subscription payment
enabling customers to update their card data in failure. A three-step approach is generally
your shopper portal. considered standard, with notifications spread
out over a number of days. The following are
some best practices for distributing these
Initial follow-up email
notices.
as soon as the payment has failed. It’s best not

to jump the gun and offer discounts too early, Second notification
but instead bank on the fact that your
customers want to renew their subscriptions. This email should be designed to reinforce the
first notice, and confirm that the notices are
being received. Once again, including a
Third email promotion at this stage would not necessarily
increase the conversion rate, but reduce your
A final notification would serve as the last revenue, since may be customers that would
attempt to nudge customers in the direction of renew even without a discount. It’s a good idea
a renewal. You can schedule this email after a to send the second notification within 48 hours
few days since the payment fails, preferably of the failed payment event, but statistics
within the first week after the event. generally indicate that shoppers are most likely
to react within the first 24 hours.

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Additional things to keep in mind:
• Speak differently to customers based on the type of payment

failure event. Unfinished, automatic recurring payments for a
subscription renewal or a trial conversion should mention such
details to shoppers. Clear communication is critical in these
circumstances, as the customers should understand that the
payment was attempted through an automated process.
• Tailor the frequency of your dunning notifications to your

customers. Test different setups in terms of email frequency. You
might find that a combination of dunning messages sent out in
the first two days converts best, or you could identify a strategy in
which emails spread out across an entire week produce the best
results.
• Adapt the frequency to the type of payment method used.

o React faster for failed payments involving cards and PayPal,
since these types of transactions are generally instantaneous.
o Slow down the pace when a payment method such as Direct
Debit is used, and wait for a failure confirmation from the
shopper’s bank.
• Enable tracking for all communications and monitor and

measure the following metrics.
o Open, click and conversion rates for the emails sent out.
o The revenue generated through purchases initiated from a
dunning email.
o Bounce rate, but also log soft and hard bounces to optimize
your campaigns.

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100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Merchant 1 Merchant 2 Merchant 3 Merchant 4
Open rate Click rate Conversion rate
The chart above shows some result for four Avangate merchants
over the course of 2 consecutive months in the second half of
2014. Merchant 1 is using a 2, 6 and 8 days strategy for
unfinished payment reminders. With just 3 emails, more than
one in every four dunning emails that are opened by customers
result in a successful sale.
Merchant 3 also has a healthy conversion rate, almost one in

every three dunning emails opened generates a sale. This
particular company opted to send the first unfinished payment
notification just 2 hours after the failure event. Two subsequent
emails are scheduled for days 2 and 3.

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Authorization
Dashboard
Once you set up a complex strategy to fight involuntary churn
and are utilizing multiple, automated processes and tools, the
next step is to monitor their impact. Recurring revenue and
average customer lifecycle value provide invaluable proof of the
efficiency of curbing churn, but there’s additional data to keep an
eye on from segmented data on authorization and decline rates
to specifics that are not available easily via the providers:
• Recycle Recovery Report

• Optimized Expiration Date Performance Report
• Account Updater Impact Report
You need clear metrics on the efficacy of

authorization retries, not only the
success rate of charge attempts made on
cards with updated expiration dates and
the number of successful payments
facilitated by an account updater but also
for those at the subscription level – type
of messages and next actions scheduled
in terms of retry logic number of
attempts for your customer support
reps.

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Reduce
Voluntary Churn
Premeditated turnover is a metric of your services / products
value and quality which translates into user satisfaction, or lack
thereof. It involves your newly acquired or existing customers
voluntarily churning out, opting to not use your service any
longer and requiring you to stop billing them. Worst-case scenar-
io? They’ll ask for a refund, or bypass you altogether and request
a chargeback directly with their bank. With the right tools and
strategies in place, you’ll also be able to curb premeditated churn.
Enable Support
Self-service
Self-service Support Staff
33%
Are you empowering your customers? According to a 2013 study
by Zendesk, no less than 67% of consumers expressed a
preference toward a do-it-yourself approach when the 67%
alternative was to contact support. Think about it. Almost seven
out of every 10 customers enjoy solving any issues they might
have without increasing your support overhead and stretching
your resources thin.

GO BEYOND RETENTION
Self-service in ecommerce is about offering control to your

customers, maybe even on par with that of your customer
relationship managers. It’s critical to offer self-service tools
enabling them to:
• Manage subscriptions throughout their lifecycle, including

cancelling services.
• Control payments, update payment information and request
refunds.
• Access additional support information, purchase history,
invoices, acquired resources, etc.
Providing your customers with a self-service area for their

subscriptions/services also opens up retention scenarios for your
company and creates new engagement paths, making it simpler
to reach out to those shoppers in danger of churning before it’s
too late.
On average, looking at the customer portal behavior

(myAvangate) we see:
~10% of users actually logged into myAccount and updated

~10% their credit cards to ensure that they could be billed
recurrently without loss of service.
1% of shoppers switched on recurring billing for their

1% subscriptions, which they were previously renewing by going
through cart purchases.

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Single Sign-On
and Customization
When using shopper hubs, look for two features in particular:
Customization
Your shopper portal must match the look and
feel of your web properties, down to details
such as the same or a similar domain name.
The last thing you want is to provide an incon-
sistent experience that ends up confusing your
customers.
Single Sign-On
Don’t penalize your customers by requiring
them to re-log into their portal, or require
different usernames and passwords than the
ones they use for your service. If you’ve already
successfully identified and validated customers,
use single sign on to seamlessly transition them
into their account in the shopper portal.
customers.

GO BEYOND RETENTION
Cancellation Surveys
and Discounts
Who best to explain why they’re churning out but the customers
themselves? And it works both ways.
• Loyal, returning customers will help you find out what’s working
and why they stay with you / why they keep coming back.
• Churned customers will help you get an idea of why they left or
trying to leave.
Marketing email or surveys in your online shopper hubs offer

plenty of opportunity to interact with customers, without taking
those who stay for granted or ignoring those leaving. Ask the
right questions:
• Why customers leave or why they stay?

• Would they consider returning in the future?
• How do you compare to competitors?
• What role did pricing play in their decision?
Make sure to measure their satisfaction with your business and

services in the context of demographics and the length of your
relationship with them.
The end goal should be to produce a list with the top reasons
generating churn. Subsequently, you need to react to the
identified issues either by resolving them when possible, or
coming up with retention strategies.

GO BEYOND RETENTION
Don’t impede their departure, but there’s no harm

in attempting to get customers to reconsider
Hiding the cancel subscription button and training your support

staff not to take ‘no’ for an answer will end up causing more
problems than you’re trying to solve, especially around generat-
ing chargebacks that you really can’t afford -- as you’ll see further
down. Some customers will inevitably churn out, and you’ll have
to let them go. Focus on minimizing the attrition rate rather than
on gimmicks designed to retain customers at all costs.
One strategy to consider is to customize your retention flow

based on churn triggers. You can for example provide special
offers and discounts as incentives to deter customers from
churning. Try to A/B test different promotions to see which one
resonates best with customers and curbs your attrition rate.

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Free Trials
Management
Offering access to free trials is a great tool to increase your
customer base. Provided that you offer a strong enough
product/service capable of ‘speaking for itself,’ you’re bound to
$
retain at least part of those that sign up for the evaluation
process. You can also use different tactics to come up with the $ $ $ $
top-converting mode. Best practices:
• Make sure the trial is free and without any hidden costs. When
collecting card or PayPal data, pre-authorizations will be made,
generally sums of $1 or 1 Euro, to validate the payment method.
The authorized sum is returned to shoppers, but it’s a good idea to
inform this of this financial operation.
• Decide on a free trials model:

o Are you going to collect payment details upfront as a
requirement to accessing the trial and use the info for
conversion changes?
o Or are you going to provide unrestricted access and ask for
payment details later?
• Loyal, returning customers will help you find out what’s working
and why they stay with you / why they keep coming back.
• Churned customers will help you get an idea of why they left or
trying to leave.

GO BEYOND RETENTION
According to Totango, trials that don’t require card data can

produce a higher conversion rate compared to those that do ask
for the payment details upfront. In the graphic above, 120 users
were retained after 90 days from an initial 1,000 free trial
signups, with 150 of them providing their card data after they
used the trial. By comparison, is the group where 200 shared
their card data before the trial, only 60 of the 100 originally
converted were retained as paying customers. Of course, if you
run an established SaaS company with a strong brand, your
retention rate will be higher, enabling you to retain a minimum of
200 customers.

GO BEYOND RETENTION
Free Trial
Best Practices
1 Run A/B tests to see the scenario that will deliver the highest
conversion rate, requiring cards upfront or after the trial was
accessed.
2 Monitor testers closely and identify those that are most active.
High activity is generally synonymous with conversion and a high
probability of retention. Those with a lack of interest will most
likely result in churn.
3 Be proactive. Engage your top users early and nurture them. One
approach that you can take is to push special offerings packaged
with early trial conversions on-demand.

GO BEYOND RETENTION
Cohort Analysis
Think of cohorts as clusters of your customers sharing a key
characteristic, such as users who purchased a product in the
same interval of time. Case in point, you can track all users who
signed up in January 2014 and their usage lifecycle. Cohorts give
€
you a global overview over the evolution of your customer base
in terms of churn rate, placing it in the context of how your
business/service/product/etc. are growing, while also enabling
you to get a sense of the impact of your retention strategies.
Product evolution
A critical use of cohorts is to see if you’re taking your product in

the right direction by monitoring and measuring modifications of
engagement rates over extended periods of time. New features
and functionality introduced, redesigns and other changes will all
impact usage. Negative impact is immediately visible through
cohort analysis, as churn will increase. Let’s look at the example
below.
Retention efforts
On top of this, you will also be able to evaluate the impact of

retention efforts at a macro scale by analyzing churn fluctuations.
The more optimized your retention strategy, the lower the churn
rate and with more customers retained, you will notice an
increase in recurring revenue.

GO BEYOND RETENTION
The data reveals a clear increase in churn rate

% %
Cohort Start Billing Billing starting with May and a steep increase in attrition
Size Cycle 1 Cycle 2 in July. Only 0.78% of the customers who started
using the product in April canceled by the end of
Jan-14 100% 4.95% 7.92% the first month. By contrast, 4 out of 100 users
who started in May decided that they didn’t want
Feb-14 100% 1.87% 6.54% it by the end of the first month of use. Almost
13% of users from the June cohort did the same,
Mar-14 100% 0.85% 6.84%
with the churn rate doubling in July. It’s clear
from this that a change introduced in April had a
Apr-14 100% 0.78% 3.88%
negative impact and that it reverberated
May-14 100% 3.96% 6.93% throughout the mass of new customers in June.
In situations such as these, you need to correlate
Jun-14 100% 12.9% 24.73% cohort and operational data, identify the source
of the problem and mitigate its impact.
Continuing to track cohorts, you will be able to
assess if the change you made worked and to
what degree.
Churn rates & Retention

Cohorts with billing cycle of 1 month
Cohort Jan Cohort Apr

100% Cohort Dec Cohort Oct estimate
95%
Cohort Jul Cohort Oct
Cohort Dec estimate
+40%
90%
85% Highest Churn rate -

Estimated RR in the 1st and 2nd billing cycle
80% Increase
Starting with June cohorts, churn
75% rates are decreasing> Customers who
bought in June, and later, have higher
70% retention rates compared to earlier
customers
65%
60%
+$ 19,953~
0
6
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cl
cl
cl
cy
cy
cy
cy
cy
cy
cy
(on billing cycle 6 only)

ng
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ng
ng
ng
ng
ng
lli
lli
lli
lli
lli
lli
lli
Bi
Bi
Bi
Bi
Bi
Bi
Bi
%

GO BEYOND RETENTION
Chargeback &
Refund Management
Costly and detrimental, especially to businesses
relying on recurring revenue, chargebacks and
refunds are problems that you need to face
head on. Since you can think of refunds as the
lesser of two evils, maintaining a painfully low
chargeback rate should be a top priority.
Companies including Visa and MasterCard

require businesses to keep their chargeback
rate well below the 1% mark in terms of total
sales revenue. Exceed this milestone and you
risk fines upward of a few thousand dollars, as
well as the very real possibility that Visa and
MasterCard could refuse to work with your. Not
being able to accept Visa and MasterCard cards When customers open a dispute, you will
is a good a death sentence for your business as need to provide information about the disputed
any. charge to the shopper’s bank. Info retrieval
requests are accompanied by nominal fees,
Chargeback reasons vary and can range from generally below $15. If the dispute is resolved in
not being to use/access the subscription/ser- favor of the customer, resulting in a
vice, to duplicate charges, a fraud claim, or the chargeback, you’ll also be required to pay
shopper forgetting about a future recurring chargeback fees, which can amount to as much
charge, especially in the case of extended as $40. This on top of the initial processing
renewal intervals such as one year. There are a costs of the transaction. Escalating the dispute
number of steps you can take to prevent to the arbitrage stage might generate cost of a
chargebacks: few hundred dollars in fees.

GO BEYOND RETENTION
1.Inform shoppers clearly and concisely about 2. Use subscription renewal notifications to
future recurring charges when they opt to have let shopper know in advance of any upcoming
their subscriptions auto-renewed. Get your charges. They’ll have a chance to opt out before
legal department to validate the verbiage of you collect the funds, and you can mitigate the
your message and make sure that you don’t risks and costs of refunds and chargebacks.
hide important details in the fine print.
3. Personalize card descriptors. This very 4. Customer support can make a world of
simple move will help customers identify the difference. Some problems that customers
source of the charge from their account have can be resolved amicably. Technical
statement. You can use details such as your issues, access glitches, erroneous system
company name, or even info that identifies the behavior, if reported via support should be
product/subscription for which the charge is dealt with expeditiously. If the problem is
made. The truth is that customers who can’t related to not being able to use a purchased
identify a charge correctly will most likely subscription / product as advertised and you
assume that their cards were compromised can fix it, there’s less risk that the customer
would churn.
5. When push comes to shove, offer a

refund. Refunds deliver a softer blow
compared to chargebacks, and if possible,
choose to return the money to shoppers
yourself rather than having to go through the
pain of the chargebacks.

GO BEYOND RETENTION
Chargeback
Visibility
One way in which you can prevent future disputes is to monitor your past charge-
backs, identify your vulnerabilities and fix them. If you manage to win just one in
three fraudulent chargebacks, you’ll be able to cut your financial losses from false
disputes by almost a third. The following best practices will help you
Track the evolution of disputes from the Dig a little deeper and match the dispute
moment they’re opened to when they’re reasons provided by the bank with the actual
resolved, either won by you or lost in favor of reason why shoppers requested the
the customer. Identify a trend, how many are chargeback. Identify patterns and use them to
you losing vs. how many winning, what’s your fight chargebacks more efficiently, increasing
chargeback rate compared to the total number your chances to win.
of sales. Remember, you need to keep it less
than 1%, no easy task. But with continuous
Monitor customer names, email addresses,
monitoring, you will be able to know where you
cards used. This will help you not only to
should focus more. For example, if the
immediately block services for customers once
chargeback rate is approaching 1%, focus on
a chargeback is initiated, but also to identify
resolving customer complaints and increase
fraudsters that are trying to get a free ride. They
flexibility on the refund front.
might fool you once, but you’ll be able to
recognize them the next time they try.
Total chargeback
fraud loss
$2.79
Visa estimated that chargeback fraud ballooned
to some $11.8 billion in 2012. According to a
study by LexisNexis, the costs of a chargeback
For every $1
in 2013 was $2.79 for every $1 of fraud. This
disputed
fraudulently means that for every fraudulent dispute, your
losses are three times the value of the actual
dispute.

GO BEYOND RETENTION
Conclusion
Throughout this whitepaper we’ve looked at key business and
operational areas you can focus on to increase retention and
decrease churn. The strategies explored are as diversified as the
scenarios that can contribute to inflating the attrition rate, but
they offer a roster of tactics to be prioritized. Performed as a
coherent, unified and continuous effort, the optimization of
customer retention processes, mechanisms and tactics will
reverberate across all aspects of your business, in addition to
growing recurring revenue and your user base:
• Reduce and mitigate chargeback costs and risks.

• Empower users with self-service capabilities and boost
satisfaction.
• Cut your support overhead and load.

GO BEYOND RETENTION
How can Avangate

help you Go Beyond
Retention?
At Avangate we understand that you need to bring an entire arsenal of solutions to go beyond
retention and battle the customer churn fight. Our ecommerce platform includes a collection of
powerful and flexible solutions that can automate and tailor retention strategies to your
business needs and customer specificities.
• Account Updater for seamless updates of credit / debit card

account information.
• Retry Logic for highly customizable multiple subscription
renewal authorization attempts.
• Intelligent Payment Routing for retrying failed payments
through alternate processor based on specific transactions
rules.
• Customer communication for your efforts around engaging
users with lead management messages and dunning emails.
• myAccount for a complete, fully customizable customer
self-service solution with Single SignOn capabilities.
• Cohorts for an overview of retention and churn evolution
based on customer segments.
• Chargeback visibility for a deep view into the chargeback
activity for your account.
• Authorization report for full transparency into the
authorization efforts around recurring payments and critical
retention tools.
Go to www.avangate.com to learn more

or email us at info@avangate.com.

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GO BEYOND

www.avangate.com (650) 963 – 5701 info@avangate.com

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If the pervasiveness of the cloud as the predominant business

A recent study by the Gartner Group posits that a company that

In 2014, Accenture surveyed approximately 1,500 B2B executives

Let’s start by examining what it is exactly that constitutes

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Deﬁning and Measuring

a. 1.25% a month c. 7.5% a month a. 3,000 c. 8,500

a. 5,000 c. 500 a. 25% c. 50%

Answers: 1-A, 2-D, 3-C, 4-B (Bain and Co).

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Average Existing Customers will

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According to a report from River Cities Capital Funds,

1.25% 15% 15,000

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To put things into perspective, a 15% annual churn rate translates

15% 180% 15,000

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Key reason for why card payments fail:

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Tale of the Card - Variances in Authorization Rates by Card

Jan ‘14 - Jun ‘14

Payment Method Authorization Authorization

Discover 94.27% 92.89%

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Soft declines Hard declines

Alternative payment methods Call center and email marketing

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handling this is relatively straightforward. While an algorithm is 2nd Try:

By deploying this method, we are seeing authorization rates of

Number of authorized cards out of thouse updated for a

January,14 February,14 March,14 April,14 May,14 June,14

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• Higher success of fund collection

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When used in tandem with the expiration date handling,

How the MasterCard Automatic Billing Updater works

Participating issues submit

Acquires return matched MasterCard Matches account

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Avangate recommends that your particular strategy, especially

Success Varies Wildly Try and Try Again

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The graph shows the evolution of authorization rates three

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Transaction Type -- New v. Recurring, Subscription v. Trial

Intelligent payment routing needs to be tailored to the type of

Card BINs (Bank Identiﬁcation Number) oﬀer a wealth of

Payment Methods, Customer Billing Country and Local Currencies

Use localization to your advantage to match transactions to

For Brazilian customers for example, payments made with local

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Balance Transaction Volumes

Authorization Failures Average Order Value

Single Payment Gateway vs. IPR