12 April 2018
Recurring Payments: Which Business Models Can Benefit from Subscription Billing
The Australia and New Zealand markets are well and truly ripe for the subscription business model. Netflix, the poster child of the subscription economy, has seen its subscription base rocket past 7.5 million in June 2017 from just over 4.4 million in March 2016, according to Roy Morgan research.
There’s more to this trend. A 2016 study commissioned by Zuora found that consumers in Australia and New Zealand spend about AU$660 per month on recurring payments for goods and services as well as subscriptions. For many consumers, the convenience, transparency and flexibility that comes with subscriptions is a deal sealer. It’s not so surprising then, that 70% of businesses in Australia and New Zealand said in the same study that they plan to accept recurring payments in the next two to three years.
The recurring revenue model has traditionally been favoured by industries such as insurance and consumer utilities, not to forget mobile operators. Now, there are new and exciting opportunities bubbling to the surface in retail, food delivery, streaming services, and fitness industries.
There are, after all, a bevy of clear advantages of recurring billing for both merchants and consumers. As recurring payments become more relevant to emerging industries, we wanted to take a look at where the next wave of opportunities could emerge from.
Before You Set Up Recurring Payments
With all the buzz around subscription billing, it’s easy to be tempted to apply it to your business. But before you jump onto the recurring payments bandwagon, there are a few questions that you need to ask:
- Is the subscription model suited to your business? Your product or service needs to seamlessly lend itself to a recurring revenue model. If, for instance, you’re in the pet food business, making tweaks to your product line to deliver custom pet food boxes on a weekly or monthly basis could help your business tilt in the right direction. But if you’re an accomodation services provider like AirBnB, one-off payments might be your best bet.
- Are you PCI compliant? When you deploy the recurring payments model for your business, it’s important for your consumers to know that their data is safe. PCI compliance is key to ensuring this. But it’s not as easy as it sounds - PCI compliance for recurring payments is a complex process that’s best left to your payment services provider.
- Are you prepared for the challenges of recurring payments? Things such as expired, canceled or lost credit cards are just some of the challenges that will prevent the free flow of payments into your account. This means your business will also need a whole set of support processes such as email reminders, automated retry for failed payments, discontinuing services for declined payments, and communicating with customers about payment issues. (Did you know that our Bambora Collect recurring revenue product gives you access to all of these features and more?)
The bottomline is: your business will need to respond ever more intuitively and sensitively to your consumers’ changing needs. It’s best to discuss these aspects with your payments services provider before you decide to accept recurring payments.
Emerging Business Models Can Successfully Tap into Recurring Payments
Hitherto dominated by gyms, utilities, newspapers and telcos, the subscription business model is now booming. More products are being delivered to consumers’ doorsteps through hundreds of different kinds of subscription services. Let’s take a look at business types that can harness the powerful potential of the recurring revenue model.
Recurring Payments in the Food Industry
Grocery deliveries, meal prep boxes, or food deliveries - before consumers can decide what to eat, they need to decide how they’re going to source it. With food subscription box services such as Hello Fresh and Marley Spoon gaining popularity, it’s evident that consumers want to be involved in the meal-making process using healthy and fresh ingredients.
The trend is now seeping beyond homes. Catered corporate lunches across large and medium organisations, especially those in the technology sector, are becoming a popular perk. Sifted, an American player in the US$9 billion a year corporate catering market, has seized this opportunity by successfully using a recurring revenue model for their office lunch catering business. Closer home, in Australia, the corporate catering market is expected to surpass $4.6 billion by 2018, according to IbisWorld research - signs that a big opportunity for recurring billings is on the horizon.
What’s more, even large companies in the F&B sector such as Starbucks have stepped in to take a bite of the recurring payments pie with novel services such as coffee bean subscription.
Subscriptions in the Fitness and Wellbeing Industries
A FitnessAustralia report estimates that 1.4 million men and 1.8 million women in Australia participate in gym-based fitness activities -- and this number doesn’t even include those who do yoga, Pilates, aerobics, and weightlifting!
For millions of people who take health and fitness seriously, the appeal of having a box of fitness supplements, apparel or fitness gear specially curated for them can be hard to resist. As existing niches break down into micro-niches, companies are targeting subscription-based services for yoga enthusiasts, CrossFit fans,nutrition enthusiasts, marathoners and more.
Gym memberships might have kicked off the recurring revenue trend in the fitness industry, but it has now snowballed into something much bigger and more exciting!
Subscription Services in the Beauty Industry
If market research data is any indication, Australians love their beauty and skincare products. Millennials are a hot market for personal care and cosmetic products as they keep up with the latest trends and frequently purchase products based on new formulas and claims.
Mordor Intelligence expects the Australian cosmetics market alone to notch US$7.7 billion by the end of 2020, and millennials will have a significant role to play in this growth. With cosmetic subscription services such as BellaBox starting as low as $17.95 per month, competition in this sector is abundant but so are the opportunities!
As Australian businesses take clues from international markets, an automated recurring revenue model could soon become an asset for many beauty and cosmetic brands.
Recurring Billing for the Retail Industry
The set and forget concept works brilliantly for the retail sector, which is constantly brimming with new products. That’s not all, a recurring payments model also gives retailers the chance to gain detailed insights into customers’ behaviours and preferences, not to forget a predictable flow of income into their coffers and the power to better manage inventory.
For retailers with diverse product offerings, subscription billings also offer the opportunity to cross-sell or upsell products. Amazon’s Subscribe and Save, which offers automated deliveries of peoples’ favourite items, is a case in point.
But while many businesses dealing in products such as pet food, books, toys, gardening supplies have successfully deployed the subscription model, apparel retailers have been slow to warm up to this trend - for obvious reasons!
However, with the growing penetration of interactive virtual reality and artificial intelligence, it is now possible to make apparel shopping a highly personalised experience. For many retailers, the logical next step would be to also make it an automated experience by innovatively leveraging the subscription billing model.
Grow your Business on Autopilot with Bambora’s Recurring Revenue Product
Bambora Collect helps businesses of all sizes to accept recurring payments — be it fundraising donations, instalment plans, insurance premiums, membership programmes, fixed fees or bills — efficiently and securely.
With Bambora Collect, you can easily create and manage payer information, send SMS and email notifications for failed payments, process refunds, schedule payments, and even set up an automated retry for failed payments.
To learn more about how you can reduce missed payments and ensure steady recurring revenue, get in touch with our team today!
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.