Published in Dynamic Business on 13 November 2013 written by David Miller.
“…here are some things to consider when deciding to offer a subscription payment option for your business.
Frequency pays off, so give your customers options!
The simple psychology of the subscription model equation is that a customer feels more comfortable with paying a small amount than they do a large amount. The more frequent the payment, the smaller the amount will be.
Our statistics show that weekly payments are the most popular with customers, and also the least likely to default. Clearly, paying a smaller amount – be it weekly or fortnightly – is more achievable, so don’t be reticent about making these options available.
Flexible timing is key – fit in with your customers’ busy lifestyle
As well as frequency, flexibility around timing of payments also goes a long way toward making customers feel comfortable about paying for a subscription service.
A further sampling of our statistics shows that Thursdays, Fridays and Mondays are the most preferred days for customers to pay. However, if your business can be enabled to facilitate payments on the day of the week that a customer chooses, you will be able to do business with more customers. (This is where a third party billing provider can be useful.)
Ensuring your customers can pay when they want and how they want to will build better relationships and help keep them coming back to pay you again and again.
Reversals are inevitable, so don’t stress if you get a few
In data tracked from a year’s worth of subscription billing, we know to expect that about 5-8% of direct debit transactions will bounce initially because customers have insufficient funds or for some other reason. That’s no reason to avoid such instalment payment plans. The important thing is that you have a method for following this up.
What it does require is that you have robust processes in place to manage credit control. Outsourcing your billing to a third party provider can easily solve this issue, and means that your business can focus on maintaining a great service, while your billing company manages the task of dealing with the reversals.
Avoid credit control at your peril
Not having a robust process in place to manage your credit control will mean less cash flow now, and ultimately more expense in administration costs. Once again, a third party billing provider can take this onerous task off your hands completely, giving you peace of mind and freedom to continue targeting new customers.
The foundation of the subscription economy is the notion that giving customers the option of paying for a product or service in small increments will not only make it more appealing to them, it will also mean that your business has a regular, guaranteed cash flow that arrives in your account sooner rather than later. It’s a win-win situation.
As more and more businesses get on board with the subscription economy, it’s worth asking yourself whether it makes sense to offer your customers a payment plan model for your product or service.
If it could be the difference between staying in business or going bust, the answer is obvious.”
What system do you have in place to direct debit customers payments?