The subscription billing business model has been gaining serious momentum for years. Whether it be shippable products, or software as a service (SaaS), the goals are identical: Get as many customers as possible, and keep their subscriptions active. Any experienced internet marketer knows that those goals are more easily announced than achieved. Embracing the vital keys to success in this post, however, will make it easier to amass lots of delighted customers and extend their lifetimes and values.
Choosing the right product or service people need
When it comes to choosing the right product or service to offer, I like to break the options down into two categories: Shippable products, and Non-shippable products or services. The reason I make this distinction is that, for shippable products, there are several other factors to consider which can be ignored if you focus strictly on non-shippable services or memberships.
Shippable products on a recurring basis
Since we are talking about auto-delivery, the product must be consumable. I know, that is stating the obvious. However, many people make the mistake of thinking that their product is consumable when (by my qualification) it isn’t. By consumable, I mean that it gets “used up” in a time period of no longer than 3 months, and that it isn’t a permanent “cure” to a problem.
I set the maximum “consumption timetable” at 3 months for two reasons. First, if you are advertising, you want the shortest possible time period to get your ROI on the advertising investment. For example, if you need 3 sales (1 initial, plus 2 renewals) to get your ROI, waiting 3 months between billings will require some deep pockets. On the other hand, if you bill every 1 month, the time for ROI is much faster. Unless you have very deep pockets, you will want to stick to my 3 month rule.
I don’t like to sell products that permanently “cure” a problem for the obvious reason that people don’t need it any longer after the product “works”. Here’s an example in the health supplement marketplace: I once consulted on a project where the product was a pregnancy supplement that boosted a woman’s egg quality and supposedly increased the chances of conception. The product was sold on a monthly delivery option. However, since the “problem” was solved for women who got pregnant, all the “success stories” turned into immediate cancellations of their subscription. Lesson learned.
The next factor I use to qualify a product as a good choice for auto-delivery is it’s size and weight. You need very little space to inventory a bottle of wrinkle cream, or a jar of vitamins. That’s a good thing in terms of warehouse cost. It’s also a great thing for your postage bill. The USPS prices jump way up for anything over 1 pound, so if you can get your product packed and shipped in a way that weighs less than a pound you will be saving more than a few dollars on each order.
Other factors like how fragile the product is, and if it requires special storage (like refrigeration) or extra fast delivery, also help me to disqualify or qualify potential products for a subscription shipping project.
Non-shippable Products or Services on Subscription
Memberships or Software as a Service (SaaS) can be wonderfully profitable, if you can create enough value for your customers. The beauty of this non-shippable category is that you have no inventory, no storage, no postage, no packing, and no shipping. That’s a lot of expense which is immediately added to your bottom line.
The challenge is that you have to continue coming up with great value that your customers are willing to pay for, month after month. Now, if you are selling a membership that is recreational in nature to your clients, they better really be enjoying what they are getting each month. If the service you are selling is for businesses, you need to make sure your clients are making more from using your service, than it costs. No clients will cancel if your software or service earns them more than it costs. Your job then becomes making sure the clients KNOW that they’re making money from your service, and keeping them informed on updates and improvements that you’re making.
Those are the more important factors I have found when it comes to choosing the right product or service for a subscription-based product. As you can see they revolve around keeping costs lower, and maximizing the lifetime of customers’ subscriptions. If you have any other key factors you rely on, please share them in the comments section below.
Choose the Right Initial Subscription Cycle
The subscription cycle is important for a few reasons. Yes, you can adjust it later (if your subscription billing platform allows), but it’s key to get it right in the beginning for the majority of customers.
If your product is shipped to your clients, you want to make sure that you are shipping it when the vast majority of customers need more. Customers hate to get overwhelmed with product they haven’t used yet. They feel they are over paying, and the stock-pile of product serves as a constant suggestion that maybe they should cancel their subscription. On the other hand, customers get mad if they run out of a product before the next supply arrives. I know, it’s virtually impossible to get the timing perfect for most products, but make your best guess as the starting point, and make sure that your subscription billing software lets you adjust to any possible requirement of a customer.
If you are selling a non-shippable service or membership, you don’t have to worry about customers getting overwhelmed, or running out. So, make sure you set the cycle to something they will see as fair, and try to never bill so frequently that two charges can appear on the same credit card statement. For example, if you want to essentially bill a customer monthly, set your cycle to 33 days. This way, you avoid a charge appearing at the beginning of the month, and another at the end of the month. That almost always causes issues, and acts as a suggestion to cancel their subscription. Once again, you always want to be thinking about avoiding reasons for customers to have to contact you and potentially cancel.
Must Have: The Flexibility to Prevent Cancellations
You spend money advertising. You work every day to try and earn new customers. It’s hard, and your list of customers is the most valuable thing your business has. It’s vastly more expensive to acquire a new customer, than it is to keep an existing one. So, when those customers contact you, you better have the flexibility to customize their subscription and make them happy. You need to prevent cancellations at all costs, and extend the life of their subscription so you can continue billing. Your attitude is part of it, along with your willingness to give them what they want. For the most part, you can save any customer by using one or more of the techniques below. Of course, you have to have subscription billing software that enables these, and if you do, you’ll get the most out of your customers, guaranteed. Some of these are standard in most subscription billing platforms, but others are hard to find and worth paying for.
The Subscription Savers: Features to Prevent Cancellations
Note: I’m not mentioning features like “pause” or “cancel” a subscription. That’s what these features are meant to Avoid.
- Customize and set the next billing/shipment date
- Personalize subscription cycle to ANY number of days/weeks/months
- Offer a discount going forward on all charges
- Offer a discount on a set number of future charges
- Modify the product on future shipments
- Modify the quantity of a product on future shipments
- Modify the shipping method and cost on future shipments
With the above features, you can please even the most difficult customer who thinks they want to cancel. Here’s an example exchange:
Customer: “I have too much product on hand, as my monthly deliveries are piling up. I can’t afford this any more, and I won’t need any for a while anyways. I’m mad because one of my packages was dented when it arrived. Plus, I saw another brand in the store that was cheaper. I want to Cancel ! “
Your Company: “Sir, I think I can solve this. Here is what I’m going to do for you: First, I am going to set your next shipment date to 3 months from now. That will let you catch up on your supply. Then, I’m going to set the deliveries to get shipped every 47 days, instead of 30 days like they were. To make up for that dented delivery, I am going to give you your next shipment completely free. And to give you even more value, vs. that brand you saw in the store, I’m going to give you a 20% discount on all the future shipments going forward. Would that be enough to stop you from cancelling? “
Customer: “Oh my gosh! What awesome service. Yes, I’ll stay, and I love you so much. I’m going to tell all my friends!”
Now, that may be a bit wishful in terms of the customer’s response (and funny), but that’s a TON of flexibility you are showing the customer, and the vast majority of them will accept the offer. With serious subscription billing software, you can do all that and save this customer.
Allow Customers to Self-Adjust Subscriptions or Not?
For the most part, I am willing to let customers adjust certain things about their subscriptions, but I do not want them to be able to cancel without at least giving me the chance to save them. Some features like discounting, obviously, can’t be self-service with the customers.
A good idea is to consider how willing or capable your business is, in terms of handing customer support requests. If it’s a pain, and you want to avoid it at all costs, then let your customers adjust things like “next shipment date” or “days between shipments”. I don’t like to let them cancel by themselves. Instead, I make the “cancel” button trigger a form that submits an email request. Then, I can reply back with whatever ideas and options I feel might save the subscription.
Many retailers have customers on auto-ship for various products like dog food or household supplies. In those cases, I am all for letting the customer pause, re-activate, cancel, set the next shipment date, and modify the subscription period. I don’t really consider an “auto ship” option at a large retailer to follow the same rules as the subscription model that we are discussing in most of this post. I consider that type of “auto ship” option to be a convenience to the customer, not the primary focus of the business.
Consider Trial Offers to Begin the Subscription
Many times, a subscription offer is begun with some type of trial offer. This can be a free trial, or it can be a discounted price. While many consumers have become wary of any “free trial”, they are still common and can be very effective at increasing conversion rates.
Your flexibility when it comes to structuring your trial offers will depend greatly on your subscription billing software, and how well it accommodates the nature of your offer. For this post, we will assume that your software can accomplish the options I discuss.
Should I offer a Free Trial?
This discussion will assume that you are charging some type of shipping fee at the beginning of the trial, or at least require a credit card from the customer in order to checkout. There are pro’s and cons to offering a free trial. The big pro is that your conversions will increase. That means more customers will be in your funnel generating money, and successfully being re-billed on the subsequent subscription. On the other hand, there are more than a few cons to consider with free trials.
I name the 2 big Con’s of offering free trials below:
- “The dummy” – This is the customer who, no matter how well you spell it out, doesn’t read. They see the word “free” on your page and they purchase. They literally blow right past all the language of your offer. When you get the cancellation request from one of these, you can be assured the customer will be angry. They think you lied and charged them when it was supposed to be free. So, in order to save this customer and prevent the cancellation, you will probably have to offer a refund on that “surprise” shipment, and then maybe offer them a discount going forward. With the right tools in your subscription management software, you should be able to overcome.
- “The scammer” – Believe it or not, there are people who are professional free trial hunters. They will cancel as soon as they get the free product. They may even cancel before it is delivered to them. Many times, they will pay with a pre-paid credit card, so that they can just pull out the money before the subscription charge kicks in. Some billing software companies will let you block pre-paid cards to avoid this. You won’t save these customers. Just try to avoid them.
Something to expect when you offer free trials, is to have to negotiate a bit more with the customers, as their subscription payments kick in. The “free trial” mentality of some customers, in my opinion, qualifies them as being more price-focused and more of a “bargain hunter”. So, just keep that in mind. Your trial offer type and price will often dictate the type of customers you will end up with.
You may find that you require some shipping flexibility when you start offering free trials. You will want to have the flexibility to create a shipment automatically when the trial is initiated, when the trial period ends, or both. The ability to determine when shipments are created with your trial offers will help you get creative in the types of trials you can sell.
A Happy Medium: A Paid but Discounted Trial
I am a strong believer in the paid, but discounted trial. This weeds out the two con’s I described above, and indicates that your customers are willing to spend some money. It’s a happy medium for increasing conversions too. You will definitely boost the number of sales by offering a nice, low, attractive price in the beginning, and you avoid some of the, “Free trial pitfalls”.
For those who might not understand what I mean by a discounted trial, let me clarify a bit. Here is a good example for a 30 day supply of vitamins that costs $19: You could offer an initial trial of a 30 day supply for $8.99 plus shipping. In 30 days, the trial would end, and the normal subscription would kick in, at the $19 price. You hooked the customer with that attractive $8.99 price, but will profit from them as the full priced subscription charges take over.
Naturally, some of the customers will have failed to read the details of your offer. So, you’ll probably have to offer some discounts going forward on their subscriptions, as a way to prevent cancellations. A good practice is to limit the price difference between trial price and subscription price to a reasonable amount. You don’t want to fully shock the customer by offering a trial of $8.99, and the subscription at $69. Keep it in a similar ballpark to avoid bad feelings and un-savable cancellation requests.
Control the Credit Card Number of Your Subscriptions
Essentially, when it comes to subscription billing software, there are two “levels”. The first is the cheaper solutions that cost you $200 once, or even a few hundred or so per month. These cheaper ones are either plugins for common e-commerce software, or they cater to the people who are doing a handful of sales a day. They don’t bother with the expense of being serious PCI compliant companies who actually are encrypting and storing credit cards which can be updated, selectively charged, or moved elsewhere.
These types of platforms rely on your gateway to do the hard work. Gateways like Authorize.net will store the card information, and your subscription billing software just requests to bill the ID of that card in your gateway. That’s fine for some things, but you will NEVER be able to move your business to a different gateway or processor. You are going to be held hostage to your current setup, because you don’t actually control the credit card. Further, and most importantly, this type of solution prevents you from creating payment flows that utilize multiple card processors. If you’re big enough, you know what I mean. I get to that in the next section.
The more serious recurring billing softwares store and encrypt the cards. This means that you can update the card, and take your subscriptions to different processors or gateways if you want. You can make billing decisions like which card processor should be used at certain times or for certain charge types. You have lots more freedom and lots more ability to do the things that large-scale subscription billing businesses need to do. If you are getting serious with your volume, you’ll want a serious software that gives you the freedom you need.
The Subscription Billing Industry’s Dirty Word: Load Balancing
For the record, I am not telling you to “load balance” the credit cards of your subscription billing project. Visa has stated that they do not want that. That doesn’t mean that employing some form of it isn’t very common for high-volume subscription billing companies. What is load balancing? It is the practice of having multiple credit card processors, and spreading the volume of transactions between them in a way that minimizes attention and spreads out your riskiest transactions.
Ok, so why do you care about that? First, if you are doing subscription billing, you are at risk of chargebacks. Any given month could be your last month with your credit card processor, if they suspend you for too many of them. You never want to lose your only processor. It is a serious interruption to your business, that can even sink you. Always have at least 2 processors. Just in case. Your subscription billing software should enable you to send some charges to 1 processor, and the rest to others. Split it up between as many processors as you have. You can never have too many, believe me. It’s as easy as applying, and plugging them in.
But can it get more involved than that? Yes, actually. Think about this for a second… what specific transaction is your most “risky”. Your most likely to be disputed? It’s your first renewal. The charge from the initial sale is always expected by the customer. But there is always a percentage of customers who are “surprised” by that first renewal charge. That’s where most of your chargebacks come from. After that, the repeat renewal charges are usually not disputed, since the customer is already on their 3rd or more charge. So, what if you sent that first renewal charge (the risky one), to one specific processor who has a higher tolerance for chargebacks. Or maybe, you could spread out that first renewal between many processors, so as to dilute the chargebacks. These are all options. I’m not suggesting you do any of these, but managing your credit card charges can be very helpful to a high-volume subscription business. Pick a subscription billing software that has this capability. You won’t find it with the “cheap” solutions. Worse, if you happen to get your processor suspended with a “cheap” solution, you’re stuck. That’s because you don’t control the credit card numbers, and can NOT switch your subscriptions to bill on a different card processor and gateway. Bad news. Game over.
I do not want this confused with Payment Cascades or Payment Flows. Any good subscription billing platform lets you set up a cascade for your charges. This is basically a set of actions that are daisy-chained together, if a charge is declined. Here’s an example: You have two credit card processors. One of them accepts Amex, and one of them doesn’t. But, the one that does NOT accept Amex, charges you a lower processing fee. So, you would like to send all of your charges through the low-fee processor, but when a charge gets declined (like when someone uses an Amex), the cascade sends the charge instantly over to the second processor in the flow, which happens to accept Amex. The customer won’t know that you tried two processors to successfully bill him. It all happens instantly. But you will get the charge to go through for his Amex, while still sending all other charges through your lower-cost processor.
Payment cascades will even let you specify how long you should wait between attempts, and if you should attempt to charge a lesser amount on the subsequent tries. It’s a great way to get SOMETHING out of a customer that you would have gotten nothing.
Decline Salvage Profiles: Create and Use Them
Ok, so what is a decline salvage profile? Good question. It is a set of rules and actions that happen when a renewal charge gets declined. Much like the Payment Cascade I described earlier, you set up a chain of actions and processors to attempt the charge when it is declined. Good subscription billing software will let you specify the number of days to wait between attempts (like maybe wait until the first of the month), and if you should charge a discount on the next attempt. Usually, there is a maximum of about 10 steps you can set up. You will make your final step be “suspend the subscription”.
Let’s look at an example: You have a customer who gets a $99 product every month. His charge on this month’s renewal gets declined. Your decline salvage profile waits 5 days to try it again at the same price. It gets declined again. Your salvage profile waits 1 day this time, and tries the charge for $10 Less. It gets declined yet again. Your salvage profile instantly tries it again for just $29, to see if you can get anything at all from this client. The charge is successful this time! You salvaged $29 from a would-be declined charge, that would have ended up in a cancelled subscription.
In good subscription billing software, the rules, timing, and discounts are completely up to you, when you set up the salvage profile. Some software may actually even let you create different profiles for each campaign or business that you run in the system.
Utilize the Best Reporting You Can Get
I can not express enough how vital it is to understand some very key metrics when it comes to your subscription billing business. Since your sales are subscriptions, by nature the numbers look better over time… as they continue to renew. For that reason, it is very important that your reporting provides metrics over time, on a customer-lifetime basis. Many tracking programs (especially for marketing) only track campaigns and such, up to the point of the sale. After that, you’re on your own.
For example, lets say we know the keyword, “diet pill”, generated a sale for $50. We know how much we spent on that keyword, and we know that it got 1 sale and $50 of revenue. We can calculate a bunch of interesting facts at that point. HOWEVER, with subscriptions, you need to have ATTACHED the keyword “diet pill” to that customer, permanently. Then, you will be able to see what your spending on that keyword truly resulted in, by summing all the subsequent renewals and purchases. THAT is the real key. It’s the attachment of a variable to a customer for LIFE. This is the most important factor when it comes to reporting on your subscription business.
This type of “permanently attached” lifetime tracking has to be inherent to your subscription billing software. You can not achieve that type of insight by using an external tracking company, even Google Analytics.
What Reports You Should Be Running for Your Subscriptions
“Stickiness” is a term I use to reference how long customers remain active. In other words, a product/campaign/project is “sticky” if the customers rarely cancel. The reports I will list below are my go-to reports that surround that “Stickiness” factor.
- Average Lifetime Value of New Subscriber Overall
- Lifetime Value of Customer by Ad Campaign (down to the keyword level)
- Average Lifetime Value of Customer by Product Sold
- Average number of Renewals for above
- Trial Offer to Paying Customer Conversion Rate
- Cancellation Rate by Product
- Cancellation Rate by Ad Campaign
The above are just some of my favorite reports. I run many others. If you are running on a serious subscription billing platform it will have those reports integrated. It is nearly impossible to get that lifetime data from tracking software that is external to your software. In fact, very good subscription software will basically only limit you by your own creativity. You should never be limited to the number of reports you can run, or how often you can run them. Once you get started really diving into your reports, you will find it almost addictive to uncover cool insights.
Lots of Options for Email Notifications
Email notifications for your customers can be helpful or harmful to your subscription business. It’s up to you to decide which ones best match the offers you are running, and your management style. The higher-end subscription billing softwares will give you a large array of “triggers” that can send an email template. A trigger is an event that must occur in the software, which says, “Hey, an event happened. Send the appropriate email”. The more triggers built into your software, the more advanced you can get with your email notifications.
The Obvious Email Notifications Almost Everyone Sends
- Initital Order Confirmation – this is your order confirmation email on the initial purchase of the customer.
- Shipping Confirmation – for shippable products only, this email usually lets the customer have the tracking number for their package.
- Refund Notification – this one is helpful because problem customers are likely to call and email. It’s best to let them know a.s.a.p. that their refund has been completed.
The less obvious (or even risky) email notifications
- End of trial notice – this is the email that tells the customer their trial is ending (or about to). These are courteous, but can remind people to cancel.
- Subscription renewal notice – this is the email telling the customer that their subscription is renewing (or about to). Again, this is a nice courtesy, but can trigger cancellations.
- Subscription success notice – This lets people know that their charge for the subscription has been completed. This one also might trigger cancellations.
- Renewal decline – This email goes to customers who’s charge was declined on a renewal. You might as well email them and tell them to update their card, or call their bank. You can’t bill them anyway.
- Credit card expiring – this is a good one to tell customers who’s card will expire before their next charge, to get the card updated. You won’t be able to successfully charge them, so you might as well contact them. This is a good one to also send to management. Have this alert go to a customer service rep, who can call or manually begin contacting the customer for a new card.
There are many more email triggers that can be used, but the above are some of the more common ones that I selected for our post today.
Choose the Right Subscription Billing Platform for Your Business
To choose the right recurring billing software for your business, use this post a a check-list. Comb through all the features or aspects that I highlight, which strike a chord with you. Then, check each subscription software you find against that list. You’ll be able to quickly rule out many of them. When you get down to the one or two that actually solve all the issues, you can make your choice on personal preference.
Naturally, cost comes into the picture. Some of the higher-end subscription billing softwares charge a flat fee for a few levels. For example, they might say the beginning fee is $1500 per month. If you get above X number of transactions, it goes to $2500, etc. Others charge a small fee, like 1% of your revenue, with a maximum cap. So, if you are just getting started, you can enjoy the features of top software without having to pay thousands per month. The main thing, is to be sure your software can accommodate all the vital keys that I outlined in this article. Many of them simply cannot. Then see if the cost of the software matches your budget. Remember, it’s better to get the right software NOW, rather than have to figure out how to migrate later, if your card processor even lets you. The biggest dangers in that regard are with the cheap solutions.
Here is an explainer video for our subscription billing features.
So who am I?
My name is Brad Markin, and I am one of the founders of RevCent. I spent 20 years as a marketer in very competitive niches, including the beauty and health verticals. Much of my focus was on subscription billing offers. I searched and tried to find the best subscription software for years. I found the best software at the time, but felt that several features I wanted were missing, and that the cost to value ratio was off. That is why I founded RevCent. This post was not written to advertise for RevCent, but rather, to help you understand what I feel are the main keys to a successful subscription billing business.