How Dunning Emails Help SAAS Businesses to Prevent Churn

A dunning email strategy is useful to a SAAS (Software as a Service) company because a software as a service business is based on a delivery method, where software or an application is made available to users on a subscription basis. So, an event where payment fails or is declined is inevitable.

According to gravysolutions.io ”customer churn” is a term every subscription business owner is all too familiar with and avoidable customer churn is costing US businesses a whopping $136 billion a year. So as a SaaS company, it’s important that your churn rate is low.

Furthermore, Tunguz found that the median churn rate per month for SaaS businesses is 0.75%. Scary statistics right? Yes, but that’s the reason for this article. One of the major causes of customer churn in SaaS companies can be tackled heads on. Because other reports show that more than one-third of SaaS companies were able to reduce revenue churn over twelve months.

What is a Dunning Email?

A dunning email strategy is used to tackle a pervasive challenge in SaaS companies. But first, what’s a dunning email?

A dunning email is used to notify or remind customers about the status of their accounts, while also providing useful information on how to update their billing information and continue to use your product.

Dunning is from the word ”dun”, which means to consistently ask for a payment. In other words, it is what a debt collector does regularly.

When a subscription payment fails, then there is a need to send a dunning email. Needless to say that they are triggered emails. That is, they are triggered by events that include failed subscription payment, overdue payment, declined payment, a need to update payment information, etc.

This clear and actionable email sent by Stitch Fix to a customer is an example of what a dunning email should look like:

– First, you want them to know who you are and why you are in their inboxes in your subject line.

“STITCH FIX, WE COULDN’T PROCESS YOUR PAYMENT”

– Next, the body of your email offers more explanation on the reason for the email and next steps.

“Unfortunately, we couldn’t collect payment on your purchase. Please take a moment to review your billing information —if it looks correct, please reply to this email to let us know. Otherwise, please update your information.”

– Also, a clear call-to-action is very important.

UPDATE CREDIT CARD

– Finally, offer more helpful information.

“If you have any questions about your checkout, please reply to this email or email hello@stitchfix.com & we’ll get right back to you.”

This company provided an easy way for customers to quickly update their payment information.

When should you send a dunning email?

1. Pre-dunning stage
2. Dunning Stage
3. Post-Dunning Stage

There are three (3) stages to consider. The pre-dunning has two phases, then the dunning stage and the post-dunning stage.

Pre-dunning stage

Phase 1: The first dunning email is triggered here. This is where customers enter the delinquency stage. You must be able to connect with your customers before credit card delinquency. For phase 1, one month before delinquency is ideal. Customers exit this stage when they update their card information or remain in this stage if no action is taken.

Phase 2: A week before credit card delinquency, a second dunning email is triggered. Customers exit this stage when they update their card information or remain in this stage if no action is taken.

Dunning Stage

The third email is triggered on the day the customer’s subscription expires. At this stage also, the customer is prompted to update payment information and exit at this point. Otherwise, the customer remains in this stage.

Post-Dunning Stage

A final dunning email is sent within a couple of days to one week after subscription expires. At this stage, customers must be aware that their account will be deactivated due to failed payments. Here, the customer exits the campaign if no action is taken.

Also, like the example cited above, a dunning email by Stitch Fix, you must also pay attention to your copy and call-to action. Your copy must be clear, straight to the point and personalized. Customers should feel like a real person is talking to them. Your call-to-action as well should be unambiguous and conspicuously placed.