If you’ve been paying any attention at all, you’ve probably seen a huge number of subscription services crop up over the last several years.
Jupiter Research projects the global market value of the subscription economy will reach $275 billion in 2022. That growth wouldn't be possible without recurring payments.
Think about all the services you might subscribe to: Netflix, Spotify, Birch box, Dollar Shave Club, Bacon of the Month (or am I the only one?). To consumers, paying a low monthly fee to get unlimited access to a favorite product is well worth it.
For merchants, subscriptions have been tremendously lucrative. McKinsey reports that half of all internet users pay for at least one monthly subscription, while about 30% pay for more than one.
However, businesses must also consider needs — and associated costs — for subscriptions. That includes finding a dependable recurring payment processing company and recurring billing software.
Recurring payments enable merchants to charge customers at regular intervals for services provided over that time period. This is foundational for effective subscription management. While subscriptions are certainly the most popular form of recurring payment, regular charges like membership fees also utilize this function.
For customers, recurring payments like subscription plans offer greater convenience because card information only needs to be utilized once. For merchants, recurring payments lead to more predictable revenues, stress-free billing processes, and improved customer satisfaction.
If your business is subscription or membership-based, then a recurring payment is probably a great solution for you. Setting up recurring payment services, including a subscription-based payment gateway, is usually crucial. However, customers should be clearly informed of the recurring payment through the billing platform when the initial purchase is made.
Many businesses will try to get sneaky by offering free trials or guaranteed returns, then charge customers when they forget to cancel the subscription. While these methods might help you make a quick buck, they’re hardly sustainable business practices. Embracing these strategies will likely result in copious chargebacks, causing your processing costs to skyrocket.
There are several different methods for setting up recurring payments which, to your customers, will essentially be the same. For the merchant, however, there are some things to watch out for. Of course, depending on your existing payments setup, some of these methods may not be available to you.
Most payment processors will offer a virtual terminal, which allows you to create charges online. These programs typically offer simple recurring payment functions, like correcting a failed payment, that can be added when an individual transaction is created.
If your business operates on set membership tiers, this method may not be for you. This is because you’ll have to create each customer’s charge individually. Furthermore, some processors may charge additional merchant services fees to utilize the virtual terminal in this way.
Depending on the platform you use, your online shop may or may not have this capability built in. Some of the major platforms, including Shopify and BigCommerce, make it possible for merchants to accept recurring payments, but they are outsourced to third-party providers. Users of applications like Square, Stripe, or Quickbooks will have access to this functionality right off the bat.
Unfortunately, many ecommerce platforms charge much higher fees for recurring transactions than they would for an individual transaction. Choosing to use your platform might mean rolling in less dough than you might hope.
If your business relies on subscriptions for all its revenue, you’ll probably want to look to a recurring payment specialist for help. Platforms like Rebilla, PayWhirl, and Chargify allow you to connect to your existing merchant account through a payment gateway. That way, you won’t have to set up anything new to use them.
These platforms are created specifically for recurring payments. That means they offer a customizable experience that allows you to create different charging structures for offerings like free trials, membership tiers, and more.
Of course, that convenience comes at a price. Most of these operate on a monthly membership structure (surprise!), with a sizable per-transaction fee. PayWhirl, for example, starts at $49 per month with a 2.0% per-transaction fee. Keep in mind that these fees are in addition to processor and gateway fees, meaning these costs really add up!
The positive side of recurring billing is fairly clear; there’s a reason why so many businesses have adopted this model in recent years. When customers are automatically charged, businesses have regular, more reliable deposits. That makes financial projections and other accounting practices much simpler.
Of course, it’s not all sunshine and daisies. Businesses that rely on recurring payments also face several issues that the typical business might not:
It’s not uncommon for customers to begin a subscription and forget it by the next time they’re billed. If you receive a large number of transaction disputes, you might incur higher processing rates or (in particularly bad cases) see your merchant account forcibly closed.
Even if they’re big fans of your service, you might find that customers neglect to update their payment information when a card expires or is closed. This could mean chasing down your customers to update their payment method, unless you have access to a card information updating service.
Basically, when card networks issue a new card, they'll issue a notice to updaters, who will then update it in your system. Prices will vary on this service depending on the provider you use.
Because recurring payment systems require that card information remains saved for the life of the subscription, you’ll have to be more savvy about card security measures. You shouldn’t have any issues so long as your business remains PCI compliant, but it would be wise to take additional security measures to protect your customer information.
If you have any further questions, feel free to reach out to the payments experts at SwipeSum.com for help. We specialize in helping any business find the best payment processing solution available at the lowest rate, guaranteed. Click to get started!