SaaS Dunning: What Is It, How to Manage It & Best Practices

Overview: This guide explores SaaS dunning, a process for recovering failed payments and preventing involuntary churn through strategies like automated reminders and flexible payment options.

Why It Matters: Effective dunning reduces involuntary churn, stabilizes revenue, and improves customer retention by addressing payment issues in a subscription-based business.

Best Practices: Key best practices include automating billing reminders, offering flexible payment options, personalizing communication, and optimizing retry schedules to improve customer retention and payment recovery.

How to Manage the Process: Automate notifications, retry payment attempts, and customize cancellation flows to efficiently manage the dunning process and retain customers.

Want To Know How SaaS Dunning Can Help With Client Retention?

When customers churn, it’s not always due to a loss of interest in your product. Sometimes, it’s caused by unintentional issues like payment failures, expired cards, or billing errors. The process of recovering these failed payments and retaining customers is known as SaaS dunning.

When done right, SaaS dunning can reduce churn and boost customer retention. In this Boathouse guide, we’ll explore how to effectively manage the dunning process in SaaS, along with best practices to ensure a smooth and successful payment recovery strategy.

Why Listen to Us?

At Boathouse, we've seen many challenges SaaS companies face with subscription billing. By offering flexible done-for-you solutions with our billing add-ons for Paddle, we've helped many businesses reduce revenue leakage and customer churn. Businesses we’ve supported have seen smoother operations, improved cash flow, and better customer retention, ultimately driving their revenue growth and business success.

What is SaaS Dunning?

SaaS dunning is the process of recovering failed payments or resolving billing issues in a subscription-based business. Since SaaS customers often pay on a recurring basis, payments can occasionally fail due to expired credit cards, insufficient funds, or technical errors.

The primary goal of dunning is to promptly address these issues to prevent involuntary churn, where customers unintentionally lose access to your service due to missed payments. This involves sending automated reminders, retrying payment methods, or offering alternative solutions to help customers resolve payment issues and maintain their subscriptions.

For instance, a tool like Boathouse streamlines SaaS dunning by automating tasks like billing emails, renewal reminders, and card expiry notifications, proactively managing failed payments to reduce customer churn.

Why SaaS Dunning is Important

An effective dunning process is key to recovering failed payments, retaining customers, and stabilizing revenue. Here's why SaaS dunning matters.

Reducing Involuntary Churn: Involuntary churn can account for a large portion of subscription losses. A well-executed dunning process, including automated reminders and payment retries, ensures customers are retained even when payment issues arise. This minimizes unnecessary churn.
Increasing Customer Retention: Proactively addressing payment problems can help businesses maintain stronger retention rates. This is because customers are more likely to stay when billing issues are resolved smoothly, ensuring a positive experience with your service.
Improving Revenue Stability: Retaining existing customers is 6-7 times more cost-effective than acquiring new ones. Dunning helps reduce churn and stabilize revenue by ensuring customers stay subscribed and preventing avoidable billing failures from disrupting recurring payments.
Enhancing Customer Relationships: A well-executed dunning process does more than reduce churn—it enhances customer satisfaction. By providing flexible options like subscription pauses and alternative payment methods, you create a user-friendly experience that shows your commitment to maintaining strong customer relationships.

With Boathouse's billing solution, you can offer these choices alongside advanced features like customizable dunning workflows, automated reminders, and seamless payment processing. These features not only minimize disruptions but also foster long-term customer loyalty.

How To Manage SaaS Dunning Process

Managing the SaaS dunning process involves key steps. Here’s how to ensure a smooth, customer-friendly experience:

Automate Billing Notifications

Send timely renewal reminders by setting up automated emails that notify customers of upcoming renewals before their payment is due. Tools like Boathouse make it easy to stay ahead by sending reminders for renewals or alerting customers about card expirations.

In the event of a failed payment, immediately notify the customer via email or SMS. This alert should include a clear call-to-action, such as updating payment details or retrying the transaction to resolve the issue efficiently.

Retry Payment Attempts

To recover failed payments, implement a retry schedule that automatically processes failed payments multiple times over a defined period, typically every 3-5 days. Most payment gateways allow for multiple retries before officially canceling a subscription.

Optimizing the retry window is also vital. Experiment with retrying payments during times that maximize the chances of success, such as payday or weekends, when customers are more likely to have sufficient funds.

Customize Cancellation Flows

When a customer decides to cancel, it’s important to gather feedback. Customizable cancellation flows from services like Boathouse enable businesses to ask for reasons behind cancellations and use this feedback to improve service. Also, offering alternatives like pausing subscriptions instead of canceling outright can help retain customers who may be experiencing temporary financial issues but don't want to leave the service permanently.

Personalize Communication

Tailoring messaging to each customer can make a significant impact. Personalize emails with the customer’s name, usage stats, or other relevant details to highlight the benefits they are getting from the service.

This reinforces the value proposition and encourages them to resolve payment issues. If a customer is on the verge of canceling, consider offering incentives like a temporary discount or bonus features to entice them to stay.

Monitor and Analyze Dunning Metrics

To ensure your dunning process is effective, track payment recovery rates closely. Monitoring the percentage of payments successfully recovered will give insight into the efficiency of your current process. Regularly reviewing performance can help identify areas for improvement, such as adjusting the retry schedule or modifying messaging based on customer behavior patterns.

Best Practices for Effective SaaS Dunning

Best practices for effective SaaS dunning are crucial in managing failed payments while retaining customers by offering a positive experience. To achieve this, several key practices should be followed.

Send Timely and Clear Notifications: When a payment fails, it is important to notify the customer immediately, providing a clear explanation and instructions on resolving it. The language should be simple, and actionable steps should be included to facilitate a swift resolution.
Automate the Dunning Process: Setting up automated workflows using tools like Boathouse effectively manages billing reminders, payment retries, and follow-ups. Automation minimizes manual effort and ensures consistent communication with customers.
Offer Flexible Payment Options: Providing customers with multiple payment methods accommodates different preferences, making it easier for them to update their payment information when necessary. Also, offering subscription pauses as an alternative to outright cancellations can help retain customers facing temporary financial issues but don’t want to cancel their subscriptions permanently.
Gather and Use Feedback: Whenever a customer decides to cancel, it’s vital to collect feedback. Customizable cancellation flows can ask for reasons behind the decision, providing valuable insights into areas where your service or process may need improvement. Regularly reviewing this feedback allows you to identify trends and address common customer retention issues.
Monitor and Optimize Key Metrics: Tracking key metrics like recovery rates, response times, and customer retention is essential for assessing the effectiveness of your dunning process. Use this data to refine your strategies and adjust retry schedules, communication approaches, and cancellation policies based on performance and customer feedback.
Ensure Compliance and Security: It’s important to ensure that customer data, mainly payment information, is handled securely and complies with data protection regulations. Transparency is also important, so be clear about how you manage payment issues and provide straightforward instructions for customers on how they can resolve them.

Maximizing Customer Retention Through Effective Dunning with Boathouse

Managing SaaS dunning is key to reducing involuntary churn and maintaining a healthy subscription base. Best practices like timely notifications, automated payment retries, and personalized communication can significantly improve retention efforts.

Boathouse enhances this process with automated billing reminders and customizable cancellation flows, reducing payment failures and offering flexible options like subscription pauses. Want to consider Boathouse? Create your free customer portal here.