Subscription Payment Processing

Subscriptions have experienced a massive increase in popularity as consumers seek out greater convenience and product discovery opportunities. According to UnivDatos Market Insights, it’s estimated that the subscription market will grow to almost $500 billion by 2025.

A subscription model can make sense for both new and established businesses. When done right, it can lead to better cash flow, happier customers, and a healthier business overall.

Recurring payments are the backbone of any subscription business. If you can’t easily bill customers or offer their preferred payment method, you’re going to struggle to attract and retain subscribers. That’s why it’s so important for merchants to implement a powerful subscription payment processing solution that streamlines subscription management.

In this post, we’re going to cover the benefits of subscription payment processing and how you can set up seamless recurring payments at your business.

What is Subscription Payment Processing?

Subscription payment processing, also known as automatic payments or recurring payments, is a payment solution where online payments are made at regular intervals for an ongoing product or service offering.

This billing method is most commonly used by subscription businesses or companies who are collecting membership or access fees, such as gym memberships or SaaS providers.

By automatically charging customer accounts for every billing cycle, merchants can streamline subscription management and billing workflows. Recurring payments eliminate the need to send out invoices or payment reminders — activities that take considerable time and energy away from other business tasks.

How subscription billing works

  1. Customers sign up for a pricing or subscription plan in which they are billed at regular intervals for a product or service (e.g. bi-weekly, monthly, or annually).
  2. To enable recurring payments, the customer must agree for their credit card details to be kept on file to automate payment processing. Other payment methods for subscription billing include bank accounts (ACH transfers) or digital wallets such as PayPal.
  3. Stored payment details will be used to charge the customer in advance of each new payment cycle. This will be done either for a specified time period or until the customer decides to end their subscription.

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What are the Benefits of Subscription Payment Processing?

The following are some of the benefits you can unlock by implementing subscription payment processing.

1. More predictable cash flow

Setting up recurring payments allows businesses to build more reliable revenue streams than relying on one-off purchases. Because businesses know exactly how many customers will be charged on a specified day, companies can predict cash flow with greater accuracy. This is why businesses using subscription models are able to reinvest revenue back into their operation with more confidence than other merchants.

Moreover, billing customers upfront means that merchants no longer have to waste time and resources sending late payment notifications, as is often the case with invoice-based systems. This saves valuable resources that can be put to use for other business needs.

2. Streamline the customer experience

The unfortunate truth is that most of us don’t enjoy parting with money, even when it’s for a good reason. This makes payment processing one of the biggest areas of friction in the customer experience (CX).

If your checkout process is stressful or difficult to navigate, customers are going to abandon their carts in droves. According to Baymard, roughly 20% of customers have abandoned carts due to a long and confusing checkout. So, by improving the payment process, you’re also improving CX.

By offering a recurring or subscription payment plan, your customers never have to wait for an invoice or remember to pay their monthly fees. Once they’ve authorized their payment information to be stored on your network, they never have to think about billing again. This convenience removes one of the biggest pain points from the customer experience, boosting retention for a fresh payment cycle.

3. Create add-on subscriptions

For retailers and startups, recurring payments aren’t just a way to speed up payment processing. This billing strategy also opens the door to add-on product or service subscriptions.

Add-on subscriptions refer to subscription services that merchants can create out of existing products or services. The purpose is to establish additional revenue streams by attracting different segments of customers than those who are interested in one-off products or services.

Bite Toothpaste is an eco-friendly oral hygiene brand that eschews packaging in favor of tablets that consumers chew to create toothpaste, mouthwash, and whitening gels. Customers can buy individual jars of products, or sign up for a subscription plan where they received replenishment of their chosen product on a monthly basis.

By running both one-off and subscription payment plans, Bite Toothpaste adds value and flexibility to the customer experience. New customers can try out the product on a one-off basis without having to commit to a plan, while existing customers have the convenience of knowing their product will arrive at regular intervals.

In sum, add-on subscriptions enable you to reinvent existing products and services — simply by changing the pay that you process payments.

Bitetoothpaste Utilizes Subscription Payment Processing

4. Scale effectively by minimizing customer churn

Customer churn — i.e., when customers choose to stop doing business with a product or service provider — is one of the biggest reasons why businesses struggle to scale. If you’re unable to build reliable revenue over time, it’s extremely difficult to invest back into your operation and allow for sustainable growth.

While churn rate is often related to poor customer experiences, some reasons for customer churn are preventable. Industry data shows that nearly a quarter of churn is involuntary, with subscriptions ending due to credit cards being declined at payment gateways.

If we consider that credit cards have a limit of three years, this means that roughly 1 in 3 of your customers will need to update their card details within the next year. That’s a lot of customers that your business could lose.

Using a subscription billing system enables merchants to capture updated details and retry charges via smart dunning management. This helps you avoid losing customers and having to spend time recapturing them via email marketing or cold calls.

The Types of Businesses That Would Benefit From Recurring Payments

Subscription box businesses. Recurring payments help subscription businesses to manage a dynamic customer base that commonly sees large fluctuations in sign-ups and customer churn.

Replenishment subscription models. Replenishment subscriptions for everyday goods like prescriptions, cosmetics, and toiletries benefit greatly from recurring payments. This is because customers don’t have to remember to pay for mundane but necessary products, which strengthens your value proposition as a subscription service.

SaaS offerings. Recurring billing offers a lot of advantages to SaaS providers, as this allows for the creation of multiple pricing plans. Software subscriptions, mobile apps, or gaming plans can opt to adjust their prices depending on the term that a customer is signing up for — e.g. offering discounts for annual or two-year subscriptions to encourage longer sign-ups.

Content platforms. Recurring payments make it possible to offer your subscribers access to restricted content on a monthly or quarterly basis, whether that be news content, blogs, or e-learning courses.

Professional services. There are many high-priced services where it may be essential for service providers to offer payment plans to help clients to manage their finances, such as medical services or accounting services. This makes recurring billing very useful for splitting up charges into several payments at regular intervals.

How to Set Up Subscription Payment Processing

Ready to implement subscription payment processing? Here are some tips to do it successfully.

Decide what payment methods to support

Before you select your merchant account, you need to decide what payment options your business wants to offer customers. This is because not every payment processor will offer a full roster of options, especially when it comes to digital payment methods. For example, many payment systems do not accept digital wallets or certain types of debit cards.

Many subscriptions or membership plans will tie customers into minimum billing cycles, so it’s important that you can offer them the payment options that are most convenient in the long term. It’s a good idea to take stock of which payment methods are most popular at your business to guide your decision-making.

Here’s the good news: Stax supports multiple forms of payment, including credit cards, debit cards, and ACH. This means you can implement subscription plans using a variety of payment types and allow customers to pay using the method that’s most convenient for them.

Select your subscription payment processing solution

Subscription management solutions enable your business to do far more than just process payments. Here are some of the key features you should look for in potential systems:

Subscription management. The ability to manage pricing, discounts, free trials, and customer segmentation at a granular level gives you maximum flexibility to keep up with your customers’ evolving preferences for their subscriptions.

Customer self-service tools. Allowing the customer to adjust their subscription plan and manage their chosen payment method takes the pressure off your customer care team and allows you to focus on more complex issues.

Seamless API integrations. Being able to integrate directly with your chosen CRM, task management, or enterprise system makes it easy to onboard to your new platform and keep your existing workflows.

Subscription analytics. Analytics are an absolute must for subscription businesses who want to keep track of new sign-ups and churn rates in real-time. As well as getting accurate cash flow projections, it enables you to understand how your subscription plans are performing so you can make informed business decisions.

Set up your subscriptions

Once you’ve chosen your subscription payment processing system, it’s time to set it up. If you’re a new business or are adding a subscription plan to an existing offering, you need to decide on some administrative factors, including:

  • Will your customers have multiple payment plans to choose from (e.g. weekly or monthly)?
  • Will your customers be charged different amounts depending on the payment plan they choose (e.g., giving customers a discount for paying upfront for longer plans)?
  • Do you plan to segment customer billing cycles (e.g., giving long-term customers special discounts or offers)?

Answering these questions at the start of your subscription journey will give you the best chance of maximizing revenue and retaining customers over multiple billing cycles.

Final Words

By implementing a robust subscription payment processing solution like Stax, subscription businesses and service providers can simplify subscription management and create frictionless payment experiences for their customers.

But the benefits of seamless subscription billing are far more than just smooth transactions. Subscription billing opens up opportunities for building reliable revenue, creating fresh offerings, and minimizing involuntary customer churn.

Ready to take subscription management to the next level?

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FAQs about Subscription Payment Processing

Q: What is Subscription Payment Processing?

Subscription payment processing, also known as automatic payments or recurring payments, is a payment solution where online payments are routinely made for an ongoing product or service offering. It is commonly utilized by businesses that offer subscriptions or access fee services, enabling seamless subscription management and billing.

Q: How does Subscription Billing work?

Subscription billing initiates when consumers sign up for a pricing or subscription plan where they are regularly billed for a product or service. Their payment details are stored with their approval to automate the payment process. These details are then used to charge them in advance of each payment cycle, either for a set time or until they choose to end their subscription.

Q: Why is Subscription Payment Processing beneficial?

Implementing subscription payment processing introduces several benefits. Firstly, it leads to a more predictable cash flow as recurring payments permit businesses to build reliable revenue streams. Secondly, it enhances the customer experience by simplifying the payment process, thereby reducing cart abandonments. Lastly, it facilitates the creation of add-on subscriptions, fostering additional revenue streams from existing products or services.

Q: How can Subscription Payment Processing minimize customer churn and aid scalability?

Utilizing a subscription billing system can reduce customer churn by enabling merchants to capture updated details and retry charges via smart dunning management. This approach aids in retaining customers and prevents businesses from investing time in recapturing lost customers, thereby facilitating sustainable growth.

Q: Who can benefit from using Recurring Payments?

Recurring payments are beneficial for various businesses, such as subscription box businesses, replenishment subscription models, Software as a Service (SaaS) providers, content platforms, and professional service providers. It helps these businesses manage customer bases, build robust value propositions, create multiple pricing plans, and offer split charges for expensive services.

Q: How to set up Subscription Payment Processing?

To set up subscription payment processing, businesses need to decide which payment methods to support, select an appropriate subscription payment processing solution, and set up subscriptions as per business and customer needs. A good subscription payment processing system should offer advanced features like seamless API integration, subscription analytics, customer self-service tools, and detailed subscription management.

Q: What companies offer Subscription Payment Processing?

Several businesses provide subscription payment processing services, such as Stripe Billing, Recurly, Stax, FreshBooks, and Zoho Subscriptions, among others. The selection should correspond to the company’s needs and the kind of payment options it wishes to offer its customers.

Q: Can customers change their payment method used for a subscription?

Yes, most subscription payment systems allow customers to manage their chosen payment method, offering them the flexibility to adjust their subscription plan as per their convenience.

Q: What are some popular payment methods accepted for Subscription Payment Processing?

Various payment methods are accepted for subscription payment processing, including credit cards, debit cards, Automatic Clearing House (ACH) transfers, and digital wallets like PayPal.

Q: How does Subscription Payment Processing enable reliable revenue and business growth?

Subscription billing provides consistent payments at regular intervals, ensuring businesses have a steady revenue stream. Additionally, it helps enhance customer retention rates, directly influencing company growth. Besides, it facilitates the creation of new offerings and minimizes involuntary customer churn, further contributing to sustainable growth.