What is Failed Payment Recovery?
Failed payment recovery addresses the revenue lost when subscription payments fail due to expired cards, insufficient funds, or bank declines. This "involuntary churn" typically accounts for 20-40% of total churn and is largely preventable with proper dunning processes. Track overall churn with the Churn Rate Calculator and monitor subscription health with the SaaS Metrics Calculator.
The Formula
Monthly Revenue at Risk = Monthly Transactions × Failure Rate × Average Transaction Value Recoverable = Revenue at Risk × Recovery Rate
Worked Example
A subscription business processes 2,000 renewals/month with a 5% failure rate and $50 average transaction. Their dunning process recovers 60%.
- Failed transactions = 2,000 × 5% = 100
- Revenue at risk = 100 × $50 = $5,000/month
- Recovered = $5,000 × 60% = $3,000
- Lost = $5,000 − $3,000 = $2,000/month ($24,000/year)
📌 Failed payments put $5,000/month at risk. Current dunning recovers $3,000, but improving recovery from 60% to 80% would save an additional $1,000/month ($12,000/year).
Why This Matters
Silent revenue leak
Unlike voluntary churn where customers actively cancel, failed payments happen silently. Without monitoring, you lose customers who actually want to stay, the easiest retention problem to solve.
Compounding loss
Each unrecovered failed payment isn't just one month's revenue, it's the remaining customer lifetime value. A $50/month customer with 18 months remaining LTV represents $900 lost, not $50.
Growth metric distortion
Failed payments inflate your churn rate, making your business look less healthy than it is. Investors and acquirers evaluate churn carefully. Separating involuntary from voluntary churn and fixing the involuntary portion can improve your reported churn rate by 20-40% with minimal effort.
Common Mistakes
❌ Only retrying once
A single retry recovers 30-40% of failures. A proper dunning sequence (4-6 retries over 14-21 days with customer notifications) recovers 60-80%. Each additional retry attempt recovers incrementally fewer but still meaningful amounts.
❌ Not pre-emptively updating cards
Card expiry is predictable. Send email reminders 30 days before expiry asking customers to update their payment method. This prevents 40-60% of expiry-related failures before they happen.
❌ Retrying at the wrong time of day
Payment retries at 2 AM often fail because banks flag unusual activity. Retrying during business hours (9 AM-5 PM in the customer's timezone) increases recovery rates by 15-20% because banks are more likely to approve charges during normal activity windows.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Payment failure rate | Below 3% | 3-7% | Above 10% |
| Dunning recovery rate | 70%+ | 50-70% | Below 40% |
| Time to first retry | Within 4-6 hours | Within 24 hours | Above 48 hours or no retry |
Source: Recurly 2024 Subscription Benchmark Report
Benchmark data sourced from Recurly 2024 Subscription Benchmark Report.