December 3, 2019 | Authored by: Kevin Cancilla
Tips for responsive billing and subscription payments management
The subscription business model is booming. Companies of all industries and pedigrees — from online insurance startups to traditional retail multinationals — are getting involved in subscriptions.
Attracted by the potential to generate recurring revenue, these businesses have quickly built offerings to entice modern, subscription-leaning consumers. But in the rush to create such products and services, organizations may be forgetting to address a crucial element to success: subscription payments.
Effective management of billing is important for one big reason: Regular payments are how subscription companies make money. Yet billing is just as important to the customer experience. Subscription billing is not something you can just set and forget. Companies need to be responsive in how they manage recurring billing and payments to ensure a high-quality customer experience, as well as their own revenue generation. Here's what to keep in mind and what you can do to improve subscription billing practices.
Recurring billing requires a different approach
Payment management takes on a whole new urgency in the subscription business model. That's because the way consumers pay for a product or service is fundamentally different from what many are used to. The one-time transaction is something both companies and customers have grown accustomed to: one payment for one product or service. This allows some businesses to lock up a year's worth of revenue with a single contract.
Subscription payments clearly work in a different manner. A model built on recurring payments for subscription services requires that businesses maintain constant vigilance in payment processing. It's easy to see the reason for this increased responsibility if a product is sold on a monthly basis, as many subscription packages are: Instead of handling just one payment, the company must process 12. This level of involvement naturally calls for agility and responsiveness in subscription management. But what does that really look like?
Manage recurring payments to limit churn
Churn is the bane of every subscription company's existence. It is the rate at which you lose customers, and uncontrolled churn can significantly impact growth and performance. Churn happens when customers decide to leave the subscription service (called voluntary churn or active churn), but also when an online payment fails through no fault of their own (called involuntary or passive churn). Passive churn and overall poor experience with the online payment process could compound one another and cause customers to exit.
The best way to get a handle on this situation is by having rock-solid processes for:
- Collecting payment details
- Secure management of credit card data
- Supporting a wide range of payment types
- Offering flexible payment plans
While these processes should be default practice, you still need to maintain some flexibility. If a customer wants to pause, but not leave entirely, you'll need a way to freeze the account, retain the payment information and restart when the customer is ready again. An onerous process for reentering credit card information or other account steps may instead cause the customer to leave altogether, costing you lifetime value instead of a couple months of lost revenue.
Achieve the ideal payment method mix
Deciding which payment methods you will accept seems like a straightforward decision. However, the menu of payment methods you do decide to offer will have an impact on acquiring and retaining consumers.
While credit cards remain a dominant payment method in certain countries, including the US, businesses may have to balance their mix according to the needs of the customers they sell to. Watching and listening to customers is crucial here: Younger consumers are more likely to use mobile or smart pay options, as well as have a digital wallet. If your customers skew younger, it is worth considering adding such payments into the mix to capture more revenue. The markets you operate in will also factor into that decision-making. If you're a U.S. company that doesn't sell internationally, there's likely little upside in offering cash or alternative options. However, those same payment methods are more popular in developing markets like Africa and Asia.
Your payment method mix has to be dynamic and informed by data. When it comes time to assess the methods you offer — an audit that should be done at least yearly — analyze the data to address inefficiencies and ensure you're not missing out on revenue opportunities. For instance, if you offer a payment method that makes up less than 3% of your overall transactions by value, you may need to reconsider its place.
Discounts necessitate flexible billing
Promotions and discounts are critical to customer acquisition and retention. Granting offers like six months of a service at a discounted price, or three free months of a premium tier, has become standard operating procedure for companies that sell subscription products and services.
However, while you may have all sorts of promotions in current circulation and others being cooked up, have you given thought to how you'd bill for each of them? Not only do you need the tools to push these discounts to market, but you also need the capability to faultlessly bill for them and resume normal pricing when the discount expires. It'd be a major headache to try to keep track of all of those disparate timelines — particularly at scale — so you'll need to lean on your payment solution.
And it needs to be a robust solution. There are several different categories of discounts, and one billing hiccup could prove disastrous to the customer experience, and in turn the bottom line.
Talk to Vindicia about subscription payments
Confidence in your subscription billing and payments solution to process complicated recurring payments and discounts is invaluable and a necessity in the modern business climate. Faultless and flexible billing can be achieved. Just reach out to Vindicia to learn more about our subscription billing and payment solutions.
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