Recurring payments are starting to become the norm for consumers. If you have a Netflix, Hulu or other subscription service, you’re likely using recurring payments. From a consumer standpoint, it’s convenient to allow a business to charge you automatically each month.
Businesses benefit from recurring income that offers cash flow consistency.
There are many reasons to start accepting recurring payments at your business.
3 Reasons to Accept Recurring Payments
1. Increase Customer Lifetime Value
Increasing your customer’s lifetime value is always a good thing. When you attract a customer, it’s cheaper to retain them than it is to convert new leads. You always want to develop long-term relationships with your customers.
A one-time purchase is nice, but recurring payments lead to a much higher lifetime value.
Offering multiple plans or subscription options can help improve your business performance while making more money from the same customers.
2. Save Time and Money
Consumers like convenience. A lot of consumers subscribe to a business’ plans because they want to:
- Save time
- Save money
When consumers opt to join a subscription or plan of yours, they’ve vetted your business and are confident that your offer is worth paying for routinely.
From a business standpoint, you can realign your focus to the paying customers who are willing to accept recurring payments. You’ll be able to focus on product or service quality while improving your business performance in the process.
Improving cash flow helps businesses make rapid investments, pay bills on time and take advantage of business opportunities. When money automatically enters your account on a set interval, it helps create a steady cash flow with minimal fluctuations.
If your business can benefit from consistent revenue, recurring payments can help.
Lenders are also more inclined to extend credit to businesses with high consumer subscriptions because, unless you fail to meet your obligations, this is guaranteed income.
3 Drawbacks of Recurring Payments
Recurring payments are very beneficial for businesses, but they also have drawbacks in some cases. The main drawbacks include:
1. Difficulty Fixing Billing Mistakes
Human error exists, and if a consumer makes a mistake when entering their billing information, it can be difficult to correct these issues with recurring payments. Resolving errors, from a merchant perspective, takes time that consumers often overlook.
For example, a customer may forget to cancel their subscription until the last minute, leading to:
- Accounts being charged
- Wasted customer service time
Correcting billing mistakes too slowly can lead to complaints and bad reviews, which no business owner wants. Implementing internal policies and procedures can help your business overcome these issues.
2. Lower Profit Margins
If you’re shipping a product to consumers through a subscription service, it’s a standard industry practice to offer a discount. For example, many companies offer 5% off of goods purchased through recurring payments, from dog food to personal hygiene products.
You may need to entice customers to sign up for your service by offering a discount, too.
The discount will impact profit margins, but you’ll benefit from:
- Lower customer acquisition costs
- Less processing time
- Consistent cash flow
For many businesses, the discount offered is recuperated in the savings that they receive from a recurring customer.
3. Churn Can Be High
A major challenge for businesses is that they have high churn from subscribers. Statistically, 40% of subscriptions cancel in three months or less. You need to spend time refining your product and offerings to stop the churn.
The methods used to retain subscribers will vary from one business to another, but they often include:
- Personalizing the experience and offers to increase retention. Consumers are likely to continue with their subscriptions when they feel valued.
- Build a community that remains engaged. Customers will often unsubscribe when they only remember about your subscription when they’re charged for it.
Every business has churn, and it’s essential to find ways to keep subscribers paying for your product or service.
How to Accept Recurring Payments
If your business wants to accept recurring payments, ACH payment processing is a great option. When you autopay for utility bills, it goes through the Automated Clearing House (ACH). An ACH payment offers:
- Less processing time and overhead
- Cost-effective processing
- Large volume transaction discounts
ACH payments are convenient, cost-effective, and offer immediate fund access and top-of-the-line security.
What Business Models are Best for Recurring Payments?
Your business can always be creative and create a recurring payment option that goes outside of the business models listed below. However, the most common types of businesses that are leveraging recurring payments are:
- Subscriptions: A common business model is subscription-based. Netflix, Dollar Shave Club and Shopify are all prime examples of recurring payment models that people are willing to sign up for on a monthly basis. Streaming services, SaaS products and media are the main industries in this category.
- Memberships: Gyms, clubs, professional organizations and the like are popular options for membership services. These payments are often fixed and on a set interval from monthly to annually.
- Utilities: Many utility and municipal services charge consumers based on their usage each month. For example, you can often set up automatic payment for your electric bill to charge the consumer’s account for their use for the past month.
- Services for Hire: Any 1:1 service offered, such as personal training, landscaping, cleaning, childcare or similar, are good options for recurring payments. You’ll benefit from a routine customer who needs your services on a set interval and will be paid for these services upfront.
- Financial Services: Loan contributions or paying into your 401(k) or similar would fall into this category.
Of course, you can and should look for ways to create recurring purchase options for your consumers.
Start Accepting Recurring Payments
If your business isn’t accepting recurring payments, it’s an opportunity to begin making more money while maintaining steady revenue month-to-month. You can accept recurring payments for subscriptions, memberships, bills, services for hire or even financial assistance.
Offering your customers the opportunity to continue giving your business money at regular intervals is always a wise business decision.
Do you want to start accepting recurring payments for your business?