One of the key differences between the transactional (one-time sale) world and the subscription world is the impact billing practices and systems have on your customers, and consequently your revenues.
In the transactional world, billing is pretty simple. A product or service is purchased and the customer is given the bill with the goods or it is sent at a later date, the bill is paid and the relationship ends. The subscription world works differently because customers pay on a recurring basis usually monthly, quarterly, or annually, under evergreen or fixed terms. Billing becomes a cycle and consequently plays a much larger role than it does with individual transactions.
The impact of this increased role of billing can make or break your bottom line. It all depends on how scalable your billing system is, and how well it meets subscription-based business requirements such as account, subscription, and dunning management, and access to the key metrics needed to measure and monitor the health of a subscription-based business.
Here are four things to you that may turn off your customers:
The shift from a transaction based economy to a subscription based economy has put a much greater emphasis on the customer vendor relationship. Gone are the days when your billing process just needed to keep track of purchases made and inventory, it now needs to include robust communication tools. Professional, consistent, trackable, manageable communication is no longer a nice to have, it’s a must have if you want to create long-term, profitable, customer relationships. Welcome messages, upcoming renewals, success/failure notices, receipts, statements, invoices, credit card alerts, account status change – you’re billing system needs to be able to handle all of these or face losing customers.
2. No Billing Intelligence
Businesses often follow billing practices that do not include business logic capabilities. This may work if all customers are the same — they pay the same amount, on the same date, and have perfect credit cards that never expire or exceed capacity. But we don’t live in a fairy tale. In reality, different factors, such as price and taxes, apply to different customers. So should more nebulous considerations.
For example, imagine you have two subscribers, one who has been with you for years and has never missed a payment, and another who is just one day passed a free trial. During the billing cycle, both credit cards return a charge failed error. The response shouldn’t necessarily be the same. Your loyal customer with a stellar credit record deserves service that goes above and beyond the norm. Loyalty deserves customer service that continues to solidify the relationship. Billing intelligence helps preserve this.
For instance, credit card failure due to expirations or maxing out can translate into significant customer loss. Compiled data shows that roughly 25-30% of cards that fail initially will succeed if retried. If no system for intelligent retries is in place, these customers may become a thing of the past without your even knowing it.
In addition, according to the IRCTC almost 27% of credit card fails on the initial charge attempt. This happens for a variety of reasons – the gateway didn’t process, the website was slow, etc. No matter what the reason, without a system that captures client information before the card is tried and fails, you have no way to contact the customer to invite them to come back and finish their purchase. This can translate to a significant loss of customers before the relationship even starts.
3. Inflexible Customer Terms
In a world where customers are ‘always right’, they expect even demand, that businesses will do business with them on their terms. If your billing practice allows for only one type of payment method, is inflexible about billing dates, makes it difficult to change plans, purchase online and/or doesn’t allow for self-service (which according to Forrester Research 72 percent of customers prefer) your customer probably won’t be your customer for very long.
To be successful in the subscription economy, there are key metrics you need to be able to measure, analyze, and react to on a constant basis. Customer lifetime value, monthly recurring revenue (MRR), churn, cost per acquisition, annual revenue per user (ARPU), total customer value (TCV), etc. These metrics are not only necessary for monitoring the health of your business but are necessary to evaluate and set pricing which in a subscription world not only impacts number of signups but length of stay. If your billing practice doesn’t support the collection of these metrics or makes retrieving them difficult, your customer count is at risk.
If you’re losing customers, you may not have to look any further than your billing practices to identify the culprit. The changes to the economy in the past decade reach much farther than you may initially recognize and billing practices need to be updated to match the rate of change.
About the Author: Steve Adams is the CEO of Fusebill, the secure SaaS solution that automates recurring billing and payments and manages the customer lifecycle. For more information about Fusebill, visit www.fusebill.com.