The subscription economy is booming. According to Zuora, a software company that helps businesses launch their subscription-based services, this sector is growing so fast that the revenue for subscriptions businesses grew about 5 times faster than the retail sector and S&P 500 from January 2012 through June 2019.
There are many reasons that are driving this growth. Technological infrastructures continue to grow and evolve. They also offer great benefits for both businesses and consumers. For business, it offers stability by way of a recurrent income. For consumers, it offers a low-cost option that provides products and services, conveniently, on a monthly basis.
Benefits Of Recurring Payments
So what makes the acceptance of recurring payments so appealing for businesses? Let’s dive in deeper.
As soon as a business has implemented the subscription model and has begun adding subscribers to their list, they can formulate a customer’s “lifetime value” as well as the churn rate. Once that has been determined, the subscription business is easy to track and predict.
Because this type of model is based on recurring payments, the subscription business model offers a more stable source of income. Business owners can count on this revenue for strategic planning as well as investment purposes.
The subscription model also lends itself well to revealing key customer insights. When you have developed an ongoing relationship with a customer, you not only maintain contact but you gain deeper insights into how your customers are interacting with your products.
These insights fuel your business strategy choices, such as developing new products, changing current products, and making marketing decisions.
There are some challenges related to the subscription business model, one potential risk is “churn.” Churn refers to the rate at which a subscription business loses its subscribers due to elapses and cancellations.
However, this does not have to be your reality. It really comes down to pinpointing your products as well as knowing your market. You must aim to incite your customers to become obsessed with your company, product, and service. After this, you can pretty much count on subscribers to stick around with you for years to come.
How To Increase Your Revenue With Recurring Payments
Any subscription business model begins with setting up recurring payments. Regardless of the vertical, you are in, here are three key elements of success to boost your revenue via recurring payments.
1. Use An Account Updater Service
A customer’s credit card information can change at any time (e.g., lost, stolen, expired). An account update service automatically seeks updated account information when there are declined authorizations. Partner with a merchant services provider that offers this feature.
2. Have Contract/Terms Of Service In Place
Before offering your customers any recurring billing services, it is vital that you provide them with a completed and signed contract that thoroughly explains your terms of service agreement with your customers. It solidifies your reputation and protects your revenue.
3. Have A Powerful And Resilient Security Solution
Taking electronic payments sets you up for fraud. When you choose a recurring payment service provider, seek those who have a proven track record for featuring the latest in security measures such as tokenization and encryption.
In just the last decade, industries throughout the market have adopted subscription-based models for their business, and with great success. The Dollar Shave Club, Stitch, Blue Apron, Spotify, and Netflix are just some of the big players that have become incredibly popular as they provide essential products, goods, and services at a great value and on a regular basis.
More industries are taking the plunge and adopting subscription-based models for their businesses. But you don’t have to be a big player to get involved in this increasingly thriving business model.