Optimize Your Payment Strategy to Prevent Churn
Businesses can’t afford to lose customers and they certainly shouldn’t be losing them due to a payments issue
Taking a cue from the Software-as-a-Service industry, companies have realized the financial benefits of recurring revenue. This has resulted in more companies offering their products and services through a subscription model where revenue is made on a recurring basis in return for consistent access to the delivery of a good or service. The Subscription Economy is not limited to a hand-full of industries, either.
According to Gartner, this year “all new entrants and 80% of historical vendors will offer subscription-based business models”.8 According to CB Insights, “There are several factors driving this growth, including advances in the tech infrastructure that supports it. Perhaps more importantly, the subscription model aligns incentives on both sides of the equation, offering stability for businesses and affordability and convenience for consumers.”
Challenge – Market Saturation
The biggest challenge to the subscription model may be the fact that everyone seems to be adopting one. At what point does a person reach their max? How many streaming services does one person need? In a 2019 survey by Fetch, 75% of respondents reported that the variety of options made it harder to choose a subscription, while 40% stated that they planned to reduce the number of subscription services they subscribed to.
Challenge – Churn
The number one concern of any subscription company is churn. Subscription fatigue is real. Per McKinsey, “Consumers are quick to cancel services that don’t deliver a superior experience — for example, because of poor product quality, dissatisfaction with the assortment or a lack of perceived value.”
Subscription metrics firm ProfitWell indexed roughly 15 thousand direct-to-consumer and software-as-a-service companies to understand how the market is moving in real time with the virus. Over a period of 6 days, they saw that 30 to 40% of subscription churn comes from failed payments. Losing 4 out of 10 customers to a failed payment is a high price to pay during a time with so much economic uncertainty. Businesses can’t afford to lose customers and they certainly shouldn’t be losing them due to a payments issue.
The Solution – A Payment Solution Built for the Subscription Economy
However, that doesn’t mean there’s not opportunity. Just like any product segment, customers figure out the good from the not-so-good, and companies that can deliver consistent experiences and provide frictionless payment options will thrive and continue to grow. There’s plenty of data to support that position as well.
According to CFO Research, subscription revenue business models are on the rise and Global Banking and Finance Review reports 70% of business leaders say subscription business models will be key to their prospects in the years ahead. Clearly the opportunity for success with subscription companies is there and growing.
Knowing that a significant portion of churn has to do with payments, it’s also clear having the right payment partner is critical to successfully supporting subscription-based and recurring revenue-based companies.
A gateway partner can offer companies a complete payment solution, eliminating the legwork required to source, set-up, run and manage all the software, hardware, connections, and security yourself.
Many companies offer gateway services and it’s important to make an informed decision on which payment partner will help you achieve your business goals. For more information, read our eBook. “Five Things to Look for in a Payment Gateway.”