Using subscriptions for customer payments

Is it time to ‘up your game’ when it comes to accepting payments from your customers?

In our guest blog from one of our Supplier Members, Sara Ballam, Marketing Manager at Membermeister, discusses the use of subscriptions.

Cash, standing orders and Direct Debits have been the reliable steed for a long time, but are they the most efficient way to manage your customer payments?

• Cash can get lost or stolen and raises security issues for any business
• Some banks charge considerable fees for cash and cheque deposits
• Standing orders can be changed, fail or be cancelled by the customer without you knowing
• Direct Debits are the more reliable option but can take a few days to reach your account.

What if you could streamline and automate this process? Many business owners still stand in line at the bank to deposit their day’s takings.  They spend time preparing and sending invoices, chasing late payers, having awkward conversations with non-payers and trying relentlessly to keep an accurate record of all transactions.

How do subscriptions work and what are the benefits?

According to fusebill.com ‘with a recurring billing model, your business could see substantial and sustained growth as well as higher revenues and customer lifetime values.  This helps you scale your business easier and faster’.

According to research by Whistl.com 81% of UK households have a subscription in place and 67% of UK retailers are planning to launch a new subscription service. Netflix, Spotify and Hello Fresh are all using subscriptions.  The advances in technology have made it easier for businesses to utilise this option to efficiently and automatically take regular payments be it weekly, monthly or annually.

Let’s discuss the benefits of using subscriptions for your business:

Predictable revenue and financial security

The main and most obvious benefit that comes with a subscription payment model is having predictable revenue. You know exactly how many customers you have, when the money is coming in and how much.

It reduces the stress of knowing whether you can cover your staff wages, property costs, bills, supplies and helps with forecasting, predicting future revenue and budgeting for marketing, events and growth strategies. It’s also a huge selling point and very attractive to investors if you want to grow.

Opportunities to up-sell and cross-sell

Having all of your customers on a subscription makes it very easy for you to up-sell and cross-sell additional products/services.  You already have regular communication in place and good engagement which means they are more likely to respond when you inform them of new services, offers and add-ons. A customer is going to be more than willing to pay a little extra for additional benefits and/or added value.

Launching a new product/service and attracting new customers from scratch is much harder and costlier.

Attracts more customers

A set monthly price is much more attractive to consumers than a larger one off price and it makes it more accessible: with a higher price not as many customers can afford to sign up. It also gives them immediate access to your products or service and provides your customers with the benefits that come when evolving and growing your business. These factors all contribute to the growth of your monthly recurring revenue.

The psychology behind subscription payments and why they are so effective

Jennifer Clinehens from Medium.com discusses how well-known brands such as Amazon and Disney have seen huge returns by ‘eliminating the pain of purchase’ with the ‘cashless effect’

In short, the cashless effect states that the more tangible the payments are (actually holding your cash and having to hand it over) the more psychologically painful it is for customers to pay.  It’s related to a concept called the ‘pain of payment’.

Subscriptions eliminate the pain of purchase, encourage the cashless effect and offer a host of benefits as a consumer as discussed here in the Drive Pivotal blog.

Convenience: Your customers, more than likely already have other subscriptions in place: Netflix, Spotify and Hello Fresh for example. In a recent report by zuora.com the subscription economy has grown by more than 435% in the last 9 years! People are short for time, the world has a faster pace than ever so anything that makes it quick and easy to purchase a product or service will always be more acceptable to your customer.

Control: Although in the main part you are controlling the way your customers pay, they have a sense of control of what they are paying for too.  We are in the middle of a cost of living crisis, meaning more people are budgeting and being more careful with their finances.  The fact that the subscription is so straight forward to set up and you only have one business to contact if there’s a problem is an advantage.

Sense of community: We have a basic need to belong, to connect and to be part of something.  Previously the only connection with a customer would be at the point of sale.  A subscription can be sold as a mutually beneficial and long term relationship between you and your customers. It builds trust, loyalty and open communication and your subscribers will enjoy being in the same boat as other subscribers ‘in a community’.

Drive Pivotal summarised perfectly why subscriptions are so popular, effective and growing and why it could be the best route for your business:

‘When looking at the psychology of subscription, it’s pretty clear why we as consumers are increasing the number of subscriptions in our lives.  Subscriptions attract us because they appeal to many major elements of human psychology. The convenience, flexibility and sense of community, as well as the connection we form with our subscription brands, make them undeniably enticing, and in most cases a smart financial choice. Subscriptions make the process easier and more enjoyable, while reducing our cognitive overload’.