How Much Revenue Are You Losing to Failed Payments?

The average SaaS business experiences payment failures on 5 to 9 percent of recurring charges, according to Chargebee's revenue recovery research. Without a systematic recovery process, 60 to 69 percent of those failures result in permanent revenue loss.

For most subscription businesses, that is the single largest preventable revenue leak. Bigger than voluntary churn in many cases. Almost entirely recoverable with the right system.

Here is how to calculate your exact number and what to do with it.

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The baseline calculation

Start with your monthly recurring revenue. Multiply by 0.07 (7 percent, the midpoint of the 5 to 9 percent failure rate range). That is your monthly payment failure volume.

Multiply that by 0.65 (65 percent, the midpoint of the 60 to 69 percent permanent loss rate without recovery). That is the revenue you are currently losing permanently each month if you have no dedicated recovery system.

Multiply that by 12. That is the annual revenue loss.

Example: $500K ARR business

• Monthly payment failures: $500,000 / 12 x 0.07 = $2,917 per month
• Monthly permanent loss without recovery: $2,917 x 0.65 = $1,896 per month
• Annual permanent loss: $1,896 x 12 = $22,750 per year

Example: $2M ARR business

• Monthly payment failures: $2,000,000 / 12 x 0.07 = $11,667 per month
• Monthly permanent loss without recovery: $11,667 x 0.65 = $7,583 per month
• Annual permanent loss: $7,583 x 12 = $91,000 per year

ProfitWell's research puts the average annual loss for a $10M ARR SaaS company at $900K to $1.2M from payment failures. At that scale, with proper recovery automation, 70 to 80 percent is recoverable: $630K to $960K per year.

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How to get your actual number from Stripe

The estimate above is based on industry averages. Your actual failure rate may be higher or lower depending on your customer base, average transaction size, and card mix.

To find your actual number in Stripe:

Go to the Stripe Dashboard and navigate to Billing. Look at your invoice failure rate over the past 90 days. Stripe shows the number of failed invoices as a percentage of total invoices. That is your payment failure rate.

For the permanent loss calculation, look at how many of those failed invoices were eventually paid (through retries or customer update) versus how many resulted in subscription cancellation or remain unpaid. The unpaid and cancelled share is your permanent loss rate.

If you are using Stripe's default Smart Retries only, your permanent loss rate is likely around 60 percent of failures. If you have a dedicated dunning system, it should be lower.

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What recovery is worth

Dedicated recovery systems recover 60 to 80 percent of failed payments, compared to 38 percent for Smart Retries alone. The gap is explained by four specific things Smart Retries do not do. The incremental recovery from moving from Smart Retries to a dedicated system is approximately 22 to 42 percentage points of your failure volume.

For the $500K ARR business above: 30 percentage points of incremental recovery on $2,917 monthly failures = $875 additional MRR recovered, or $10,500 per year.

For the $2M ARR business: $3,500 additional MRR recovered, or $42,000 per year.

There is also a compounding factor Recurly's data surfaces: 38 percent of a subscriber's total lifetime revenue occurs after a recovery event. A customer whose payment fails and is recovered is not just one invoice saved. This is why involuntary churn is so worth fighting: the recovered customer stays for months, not just one billing cycle. It is months of future revenue that remains intact.

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The free way to see your number

Recova's free Stripe audit pulls your actual failure rate, decline code breakdown, recovery rate, and estimated recoverable value directly from your Stripe data in about two minutes. It shows you where you stand against industry benchmarks by decline code and what the estimated annual recovery opportunity is for your account specifically.

No account required. Start your free audit.