The “Subscription Tax” Nobody Talks About
One thing I’ve noticed after spending a lot of time in the subscription world is that there’s a hidden cost almost every company pays without realizing it. It doesn’t show up on invoices, and nobody budgets for it, but it drains revenue every single month.
It’s involuntary churn — the customers who did want to stay subscribed, but couldn’t because their payment failed.
This is the part of subscription revenue that often gets ignored because it lives deep in the operational plumbing. It’s not as visible as a cancellation survey or a downgrade request. It just quietly chips away at MRR.
But once you start paying attention to it, it becomes very clear very quickly: this “subscription tax” is one of the easiest sources of found revenue for SaaS and subscription companies.
What Involuntary Churn Actually Looks Like
When people talk about churn, they often focus on customers who intentionally cancel. That’s intentional churn — a real, expected part of running a subscription business.
But involuntary churn is different. It’s made up of customers who:
tried to pay
wanted the product
had no intention of canceling
and were removed anyway
The causes vary:
expired cards
banks declining legitimate charges
cards replaced after fraud
insufficient funds on one particular day
authentication challenges
outdated billing logic
None of these are product issues. They are operational ones. And they compound.
The part that surprises most teams is the scale of it.
20–40% of churn in subscription companies comes from involuntary churn
Most of it is preventable
Fixing it is one of the fastest ways to unlock new revenue
When people ask me where “found revenue” lives, this is where I always point first.
Three Changes Every Subscription Company Should Make
These are the practices I recommend across the board because they’re low-effort, high-impact, and immediately reduce involuntary churn.
1. Build Better Expiring Card Workflows
Many companies wait for a card to decline…and then notify the customer. That’s backwards.
The goal should be to catch the problem before the failure happens.
Proactive workflows look like:
notifying customers before their card expires
sending reminders spaced out across the expiration window
minimizing friction by linking to a super fast payment update page
making the update doable in under 10 seconds
Small touches like this keep customers from churn they didn’t choose.
2. Enable Network Tokens (If Your PSP Supports Them)
Network tokens are no longer a “nice to have.” They’re part of the modern payment ecosystem, and they meaningfully improve authorization rates.
When a customer’s card is replaced — because of fraud, loss, or expiration — network tokens automatically update the underlying payment credential without requiring the user to do anything.
That means:
fewer declines
fewer support tickets
fewer churned customers
a smoother experience overall
Depending on region and industry, companies see 2–8% higher auth rates just from enabling network tokens. That’s a real lift.
3. Segment Your Dunning Instead of Treating Everyone the Same
One of the biggest mistakes I see is sending the exact same dunning email to every customer. The problem is that churn risk, tone expectations, and urgency vary wildly across segments.
An enterprise customer paying $2,000 per month should not receive the same message as someone on a $9 consumer plan.
Context matters.
Effective dunning workflows should adapt based on:
plan type
customer value
payment method
region
relationship history
usage or engagement
The more relevant the communication, the higher the recovery rate. Generic dunning leaves money on the table.
Why This Matters More Than Most Teams Realize
Companies spend a lot of time thinking about acquisition, pricing experiments, and retention strategies. Meanwhile, a huge chunk of revenue silently disappears because of operational gaps.
Involuntary churn is the definition of “fixable revenue.” It doesn’t require convincing customers to return — just preventing them from getting kicked out in the first place.
That’s why I call it the quiet subscription tax.
You don’t see it.
You don’t plan for it.
You just pay it, month after month.
And it’s almost always higher than people expect.
Final Thoughts
If you’re looking for places to grow revenue without adding new CAC or changing your product, addressing involuntary churn should be at the top of the list. It’s one of the rare levers where small improvements compound quickly.
Operational cracks leak the most revenue — especially in subscriptions. Tightening up these three areas is one of the easiest, highest-ROI places to start.
If you ever want to talk through what this looks like in practice or where the biggest opportunities are in your billing flow, I’m always happy to chat.
FAQs
What is involuntary churn?
Involuntary churn happens when customers are unintentionally removed from a subscription due to failed payments — not because they wanted to cancel.
How much churn is typically involuntary?
On average, about 20–40% of total churn in subscription businesses comes from involuntary causes like expired cards, declines, or authentication issues.
How can subscription companies reduce involuntary churn?
The most effective strategies include proactive expiring card workflows, enabling network tokens, and segmenting dunning communications based on customer value and context.
Do network tokens really improve revenue?
Yes. Network tokens can improve authorization rates by 2–8% depending on region and industry, which directly reduces involuntary churn and increases recovered revenue.
Why does generic dunning perform poorly?
Generic, one-size-fits-all dunning doesn’t match the needs or expectations of different customer segments. Customized messaging consistently improves payment recovery.