How to Optimize Subscription Payment Processing & Capitalize on Recurring Revenue
SAAS software businesses have been using a subscription model for years now, and for a good reason. Businesses with recurring revenue can often be valued up to 8 times that of a business without subscriptions. Ecommerce businesses are now catching up, with many ecommerce businesses using subscriptions to increase the revenue of their brand, and get a bigger asking price when they come to sell the business.
Subscription payments offer opportunities to increase sales that many ecommerce brands are missing out on. But subscriptions also raise questions for ecommerce business owners, such as how to manage recurring payments or what to do with failed payments.
In this guide, we will look at how you can optimize your ecommerce subscription payment processing to improve your bottom line and leave your customers happier, so let’s jump in.
What Is Subscription Payment Processing?
Subscription payment processing is an online payment method where businesses take payments at regular intervals, such as weekly, monthly or annually.
Ecommerce subscription businesses usually send customers products on a regular basis and charge their card automatic recurring payments for the products. Some charge a monthly fee, whereas others offer a discount for recurring payments.
The most common ecommerce subscription models are gift boxes such as TheraBox, hobby kits such as Mix Box, or consumables such as Dollar Shave Club. However, many different types of ecommerce brands now offer subscriptions, including fashion brands such as Rent the Runway.
Each of these brands will have a payment processing system that takes payments automatically on a regular basis, without the need to send invoices or reminders to pay. This makes it very efficient to take regular payments, leaving you to concentrate on business-critical activities such as marketing.
How Does Subscription Payment Processing Work?
- Customers choose a product, or set of products that they would like to be sent regularly.
- The customer chooses how regularly they would like to be sent the items, for example weekly, monthly or annually.
- The customer chooses their payment method. Usually, this would be a credit or debit card, but could also include payment processors such as PayPal.
- The customer enters their credit card information, and agrees to terms and conditions that allow payment to be taken at regular intervals.
- The payment details are securely stored, and an automation is created in the Order Management System and Order Fulfillment System.
- The orders are fulfilled at each interval, and the payment method is charged. The Order Fulfillment System will usually send an automated message to the customer to let them know the order is on its way.
What Are The Benefits Of Subscription Payment Processing?
The most important benefit of subscription payment processing is you get regular payments and the customer gets their products on time, but there are some less obvious benefits of having a good recurring payment processing system.
1. Turn subscriptions into an upselling opportunity
Customers will often welcome the chance to change their single purchase into a subscription. Amazon does this really well on the sales and checkout pages, and one of my products on Amazon has around 5% of the customers buying the products on a ‘subscribe and save’ basis. Amazon is obviously a massive company, but you can create a similar experience in Shopify, Woocommerce or most of the major enterprise payment processing software solutions.
2. Improve cash flow
Recurring payments are great for cash flow, as you can predict more easily how many sales you will have in the next period, and plan for any outgoings such as inventory purchases or marketing spend. A great payment processing system will encourage more sign-ups to your subscription service.
3. Great customer experience
A good payment processing system for subscriptions will fit into your current systems without any issues. If you can improve the conversion rate to the subscriptions by having a great experience, then you will have that additional cash flow coming in, improving your bottom line and your business valuation.
4. No more invoices!
Invoices are a pain. They are time-consuming, and they remind the customer that they have to part with money, giving them the opportunity to back out. Subscriptions do have customers drop out, but the rate is much lower than invoiced payments. This is called the customer churn rate, and it is one of the main KPIs you will track.
By having a subscription payment processing system, you can take automatic payments with saved payment information and provide the customer with an excellent experience. Most payment gateways accept subscription payments, so it is easy to set up recurring billing for the customers.
How To Optimize Your Subscription Payment Processing System
Subscription payment processing makes it easy for subscriptions to be set up, but if you don’t optimize your system you could be missing out on other upsides. Let’s have a look at some easy ways you can optimize your subscription-based payment system.
1. Streamlined Signup Process
A user-friendly interface with minimal steps can reduce friction and increase conversion rates. Some businesses such as Time4Sleep increased their overall conversion by 19% by implementing a new UX for their mobile website. If these results can be translated to subscriptions, you can see a huge uptick in your overall revenue.
Shopify has easy-to-use plugins and in-built tools to help you create a nice subscription signup process. As mentioned above, Amazon has a good example of a streamlined process too.
2. Flexible Payment Options
Offer multiple payment methods, including credit/debit cards, digital wallets, and bank transfers, to cater to a wide range of customer preferences. Customers love having multiple options, especially on mobile devices. Apple Pay, for example, has increased the conversion rate for Stripe payments by 250%! Which makes sense as the whole payment process is so easy to use.
You should also consider whether you need to accept multiple currencies, payment plans or bank account transfers. Many small businesses and retailers now choose to have multiple payment platforms in the checkout flow, so the customer can choose the best option for them.
3. Automated Renewals
Implement automatic renewal systems for subscriptions. This ensures the customer will get their orders on time and also helps you to ensure you get paid regularly. All subscription payment providers will allow you to set up automated recurring payments, and the best tools will allow you to preset what payments will be taken and when. This is particularly helpful when the subscription changes on a regular basis.
4. Transparent Policies, Pricing and Billing
Make sure all costs, including recurring charges, one-time fees, and any potential additional costs are completely transparent to the customer either on the sales page or the FAQ section. Transparency builds trust and reduces customer complaints and cancellations. We previously looked at how important it is to be transparent with your returns policy and the exact same principle applies to your subscription policies and pricing.
It is also very important to make the subscription billing policy clear to the customer, including when the billing cycle starts and how often payments are taken.
5. Mobile Optimization
Mobile shopping now accounts for more than desktop in the US, so you must optimize the payment journey for mobile. Mobile shoppers are also more likely to buy something on impulse. Choose a payment provider that is optimized for mobile shopping, including using mobile payment service providers such as Stripe, Square, Apple Pay and Paypal.
Mobile optimization becomes even more important if you have a mobile app for online shopping.
6. Customizable Subscription Plans
Some platforms offer customizable subscriptions, which allow you to pay based on different factors such as delivery regularity, order size or product preferences. Some subscription payment services have services like this as add-ons. Offering different options to the customer can be a good way to increase conversion, but it can also confuse customers.
If you are going to offer customizable subscription plans, make sure your products would suit that service. For example, food delivery services such as HelloFresh need to offer customizable options such as family size or dietary requirements, whereas a subscription for a simple product such as a magazine doesn’t need these features.
A great way to offer customizable subscription plans is to have a subscription management system that customers can access easily.
7. Effective Communication
Most subscription payment systems allow you to set up when messages are sent to the customer and what the content of those communications say. Use the communications to tell the customers about upcoming events such as payments or delivery notifications. These messages are a great opportunity to tell the customer about your business, so make them personal and on brand.
Any communications need to link up to your customer services systems so the team can see what messages have been sent to the customer, and provide excellent support.
It is also important to make sure you communicate when things don’t work, such as a failed delivery, or if you need to retry a failed payment (also known as dunning). Communication is the most important factor in reducing custom churn.
8. Data Analytics and Reporting
Use data tracking to understand how your subscriptions are performing. The most important KPI metrics to track are:
- Monthly/Annual/Set Period Recurring Revenue (MRR, ARR)
- Average Revenue Per Customer
- Customer Lifetime Value
- Customer Acquisition Cost
- Churn Rate and Customer Retention
Most software will have these data points available inbuilt, but check that the reporting tools work for your business.
9. User-Friendly Cancellation Policy
Make sure the cancellation process is straightforward and hassle-free. A positive cancellation experience can leave the door open for future business. I always recommend making it clear to the user on the purchase page and in the communications to the customer. Customers are more likely to sign up if they know that a subscription is easy to cancel.
10. Integrations
It is important that the subscription tool you use integrates with your current systems. Most tools integrate with all the major platforms via API, which will allow you to keep your current workflows and communications. This is especially important if you already have good systems set up such as a CRM, accounting software or email marketing software, as you don’t want to re-work all your old workflows.
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11. Compliance and Legal Considerations
The laws relating to subscriptions and recurring payments vary from country to country. The best payment solutions will have these terms and conditions as templates for different countries. This means you can make sure all your payments are compliant with the laws of the customers’ countries.
12. Personalization and Upselling Opportunities
The best platforms allow customers to personalize their subscription plans with self-service tools. For example, the customer might want to adjust how frequently they receive their products or increase the amount of product they receive.
Enabling personalization reduces the pressure on the customer service team, and also reduces churn rate.
13. Use subscriptions to add upsells
During the subscription payment processing journey is a great time to add an upsell. For example, you could upsell to an additional product, or give a better rate for a longer subscription. The coffee subscription brand Pact does this by offering superior coffee in the basket page, encouraging sign-ups to the higher payment option.
Wrap Up
Subscriptions are a great way to increase the income of your ecommerce business, and also improve the valuation if you want to sell. Processing payments is the most important part of the whole subscription journey, so it is important to make sure you are picking a solution that works for your business, integrates with your systems and can create upsells for your products.
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