25 October 2017
Advantages of Recurring Billing for Your Business and Customers
Back in April, Hyundai announced a subscription payment plan for it’s new Ioniq fully electric hatchback for its customers in California. Customers can pay $275 a month for 36 months which includes the purchase of the car and all associated costs. They say it’s a transparent, stress-free way to purchase the car and hopes the simplicity will convert uncertain buyers.
So, with subscription services and recurring billing models now spreading from mass consumption streaming industries into high ticket items like vehicles, we wanted to look at the advantages and challenges of recurring billing systems, and how you can implement them without damaging relationships with your customers/clients.
Why Subscription/Recurring Billing is so Popular
Jason Andrew, the CoFounder of Smart Books Online published an article recently that explains consumers are moving from ownership focussed transactions, to outcome focused ones. In other words, consumers no longer want the burden of ownership, they desire the immediacy and flexibility of the outcomes.
Subscription services aren’t a new thing either. Pymnts.com remind us “there’s a reason the tallest building in every city is an insurance building”. While not identical to the subscription services we think of today, the insurance and utilities industries have used recurring billing for years with incredible success.
Advantages of Recurring Billing
One simple reason recurring billing is so popular is that it’s a mutually beneficial option for the consumer and the business. The consumer only needs to set-up their payment details once and can enjoy the service without lock-in contracts or actively needing to make the effort of payment again. Businesses, on the other hand, get a steady cash flow, more reliable forecasted revenue, and potential savings on staff and administrative resources.
There are plenty of other reasons to consider recurring subscriptions though:
Advantages for Businesses
1. Reduces missed or late payments
Aside from potential loss of funds, the administrative costs associated with chasing payments reduce, giving businesses a double win.
2. Avoid payment conversations with customers/clients
With recurring billing set-up and running, you can focus on having positive interactions with your customers/clients, on your service and your products, and not on chasing payments.
3. Reduces administrative costs
Invoicing and associated costs are reduced.
Accounting becomes far easier, especially with some businesses where the entire process is digitised.
Between the PCI compliance and tokenisation used by payment gateways, you can rest assured that your customer data is safe.
5. Better experience for your customers
When setup properly, a recurring billing system implemented with an easy to use and understand interface is a huge win for your customers and can actively promote conversions and chances of organic promotion as people love to share great/easy experiences.
6. Allows you to easily offer subscription altering offers to your customers
Given the simplicity of subscription sign-up, most software allows you to easily offer promotions like free trials to new users, or allow existing users to adjust their plan to better suit their situation.
This flexibility can increase conversions (from trials to sign-ups) and can strengthen the bond you have with existing customers by allowing them to easily control their purchase.
7. Increase customer retention
Given the set-and-forget nature of recurring billing, the payments are out of customer's minds, allowing them to enjoy the products/services.
Advantages for Customers
1. Focuses on their needs
Subscriptions empower consumers to make a choice based on their budget and needs. This control makes customers feel comfortable and inspires positive sentiment towards the business.
2. Set and forget
Payment automation allows people to enjoy their purchase without unnecessary payment distractions.
3. No timing restrictions and instant gratification
Customers can access your services whenever they want to, 24hrs a day, seven days a week. In some cases, they’ll receive that service immediately which is a huge enticement to purchase.
Many recurring billing systems allow consumers to alter their payment details, their subscription inclusions, or terminate their subscription. In this way, customers always feel in control and debt-free.
Customers only have to enter their details once which removes decision barriers and encourages continued spending.
Advantages for the Environment
Depending on your commitment to sustainability and/or CSR endeavours, recurring billing can reduce negative environmental impact by removing things like excess paper and fuel usage from invoice printing and delivery.
Industries Benefiting Most from Recurring Billing
While industries like streaming, insurance, telecommunications and utilities have implemented recurring billing systems with great success for years, not every industry will be suitable. Having said that, subscription services are branching out to other industries with physical products that support regular purchasing patterns.
The retail industry is a clear target for subscription based offerings. The fashion industry in particular has begun to dip its toes into subscription systems with the onset of regular box deliveries. Ranging from business socks to entire outfits, businesses are hoping to create lifetime customers by removing the hassle of deciding what to wear.
Pet retail has also bloomed as businesses exploit the the deep seated urge to lavish your cat, dog, hamster, rabbit or goldfish with the latest and greatest in toys and treats. BarkBox, for example, deliver toys and food for your favourite four-legged friend every month.
Thanks to the incredible volume of fitness models and “influencers” on social media, the fitness industry and its shoulder industries, namely vitamins and supplements, have broadened their recurring billing options from just gym memberships.
Monthly supplies of vitamins for good health, protein powders for muscle building, and video/written content offering new workouts or health-conscious meal preparations are just the tip of the enormous growth the fitness industry is experiencing thanks to a subscription model.
From specialist sauces, chocolate extravaganzas, and ingredients complete with menus for your weekly meals, food subscription services like Marley Spoon, and YouFoodz have risen sharply in recent times, making it simple and hassle-free to feed your various culinary addictions or simply organise your dinners for the week.
Challenges of Recurring Billing
The challenges of recurring billing revolve around the platform you’re using and the visibility and control you have over the (hopefully) high volume of users you’ll have using your service.
Some of these challenges include:
1. Tracking users
When they signed up, what subscription they’re on, what upgrades/downgrades/offers are available to that user.
2. Tracking Payments
Depending on your offering, you could have multiple payment options being scheduled amongst hundreds or thousands of users. Ensuring that each user is served the correct automated bill can be challenging with the wrong platform.
Customers need to know that their payment information is being stored safely and anonymously. You need to use a payment gateway that offers complete PCI compliance and tokenisation so that you can rest assured you’re protected from threats of fraud and can offer your customers complete security.
4. Failed Transactions
While recurring billing reduces administrative costs, your payment gateway needs a system in place to manage failed payments.
5. Type of Product
Popular streaming services like Netflix and Spotify rely on the fact that they’re an everyday consumable item with near limitless options, have no physical presence and are relatively cheap. Fashion on the other hand is a physical item and there’s only so often that you’d want to buy or store items of clothing. Similarly, and much to the horror of your dog, there’s only so many toys they can chew at a time!
The Bottom Line
Provided you have a platform that can manage user interactions and a payment gateway that offers multiple forms of payment and an easy system for invoicing, recurring billing is an exceptional way to reduce overheads and increase profits.
This system must be connected with a user interface that offers exceptional simplicity and accessibility to customers. If their experience is quick and painless, you’ll increase your chances of organic promotion and increased subscribers.
With a simple to setup and use interface and complete management and overview of your clients, Bambora offers the ideal payment gateway for your subscription services. Get in touch with us today to see how a partnership with Bambora can deliver an excellent customer experience and a secure, reliable payment gateway for your recurring billing service.
About the author
Victoria Galloway is Bambora APAC's Technical Copywriter, and has been writing and producing in the payments and eCommerce space for a number of years, both in the UK and Australia.