If you’ve been paying any attention at all, you’ve probably seen a huge number of subscription services crop up over the last few years. According to Forbes, the “subscription economy” has been growing exponentially year over year, reaching an estimated $2.6 billion in sales in 2016. That growth wouldn't be possible without recurring payments.
If you’ve been paying any attention at all, you’ve probably seen a huge number of subscription services crop up over the last few years. According to Forbes, the “subscription economy” has been growing exponentially year over year, reaching an estimated $2.6 billion in sales in 2016. That growth wouldn't be possible without recurring payments.
Think about all the services you 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.
Recurring payments enable merchants to charge customers at regular intervals for services provided over that time period. While subscriptions are certainly the most popular form of recurring payment, regular charges like membership fees also utilize this function.
For customers, recurring payments 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. However, customers should be clearly informed of the recurring payment 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 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 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 have recurring payments available, 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, so you won’t have to set up anything new to use them. Because these platforms are created specifically for recurring payments, 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 sizeable 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, making financial projection 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:
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!
Michael is the co-founder and CEO of Swipesum. A veteran of the payments industry, Michael and his brother Stephen have led Swipesum since its inception in 2016. In his free time, Michael likes to play with his two daughters and skateboard.
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