What is payment acceptance?
Payment acceptance (sometimes referred to as authorization rate) is the proportion of payment attempts that are successful, usually displayed as a percentage.
It’s a metric often associated with e-Commerce businesses and marketplaces, but it’s important for SaaS businesses to be tracking payment acceptance too.
This is because several elements of the SaaS model can have a negative impact on the rate at which payments are accepted if you don’t monitor and optimize your processes:
- Payment acceptance for online transactions is significantly lower than it is for purchases made in person. In other words, online payment attempts are more likely to fail.
- Self-serve SaaS is by default available to customers across borders, but you need to be able to accept international payments to let them purchase from you.
- SaaS and subscription businesses rely on customer retention and need to seamlessly process recurring payments to avoid customer churn.
Even with the best signup funnel and subscription billing workflows, low payment acceptance means losing revenue.
Why is tracking your payment acceptance rate important?
If your payment acceptance rate is low, you’re losing revenue from:
- Prospective customers who are actively trying to purchase your service.
- Existing customers who are trying to extend (or even expand) the use of your service.
By using the different ways of segmenting payment acceptance listed above, you can find the cause and ultimately prevent this from happening.
Our work with over 2000 SaaS companies tells us that the main reasons payments fail are lack of funds in the customers’ account or because of lost, missing, or expired cards.
For first time purchases, this means you can lose the customer.
At the point of renewal, it means your customers can churn without intending to pause or stop their use of your service – meaning you lose revenue from the current and any future billing cycles. We call this involuntary churn – which accounts for 20-40% of your overall churn rate.
With this in mind, it’s clear to see how identifying and fixing these problems can have a big impact and help drive your net revenue retention (NRR). To put it in perspective, just a 2% improvement in monthly subscription renewals drives can drive 21% more revenue in 12 months.
How do you calculate payment acceptance?
The basic calculation for payment acceptance is:
of successful payments ÷ # of attempted payments
You can calculate this for your business by exporting data from your payment processor as a CSV. This will give you a broad view of your payment acceptance and whether or not you have a problem.
There are, however, more meaningful ways to calculate payment acceptance to provide the insights you need to understand the different factors involved – and identify where you can take action.
One is to look at unique (or ‘net’) payment acceptance. That is to calculate the number of checkouts with payment attempts vs. individual payment attempts.
In addition, it can be helpful to segment payment acceptance by:
- Payment type - Is there a difference between checkout and automated subscription payments?
- Billing cycle - How do annual subscriptions compare to monthly or one-off payments?
- Payment method - Does payment acceptance vary for payments taken by PayPal vs. credit card?
What can you do to improve your payment acceptance?
If you find that payment acceptance is a problem, there are some simple things you can do to try and combat the issue:
- Consider offering payment methods that are less likely to fail, like PayPal or wire transfer. (Paddle data suggests that card payments have more than twice the proportion of failed payments than these other payment methods.)
- Think about how you can adapt your payment and subscription processes to remind existing users to make sure their payment details are up to date before the renewal date.
There are also some more complex changes you can make that involve looking at how you route payments and minimize fraud triggers that lead to false declines. At Paddle, we help thousands of software businesses optimize their payment processes to drive net revenue retention. Speak to one of our experts to find out more.