Allen Kopelman is CEO of Nationwide Payment Systems Inc. and host of B2B Vault: The Biz-to-Biz Podcast.
Is your business optimized for today’s subscription economy? Researchers expect the global subscription market to reach $2.23 trillion by 2028, fueled by a 65.8% compound annual growth rate (CAGR). By leveraging advanced technologies, more and more businesses across industries are joining this bold growth curve.
For years, consumers have subscribed to phone, cable, internet and various other membership services. Over time, HVAC businesses and nontraditional subscription services entered the mix, creating more choices than ever before. Companies began to offer ongoing maintenance for a low monthly fee, which was easier for customers to manage and more affordable than extended warranties and annual contracts.
My partner Dave and I have seen a whole new generation of subscription-based companies emerge in recent years, from fitness clubs to curated delivery services. Through trial and error, these brands have leveraged subscription models to enhance the customer experience and improve revenue predictability. Here are five practices that we have found to be especially effective when building a subscription service for any business:
1. Tailor payments for the subscription model.
Ensure your manual billing, reminders and card-on-file updates are set up to reduce staff workloads, ensure timely payments and optimize customer satisfaction. For example, breaking up a yearly fee into twelve smaller payments is attractive to many consumers. What’s more, I’ve found that flexible billing cycles, proration and self-service portals can measurably improve the customer experience. Provide customers with essential tools and frameworks at convenient touchpoints and use optimal cashflow periods to facilitate on-demand payments.
2. Protect customer data.
Protect payment data and keep your processing systems secure by implementing tokenization, encryption and PCI DSS-compliant systems. While none of these measures guarantee that a business will not be susceptible to bad actors, they can reduce risk as a multilayered security strategy.
3. Comply with FTC click-to-cancel rules.
Follow the Federal Trade Commission’s (FTC’s) revised “Click-to-Cancel” rules by disclosing renewal terms and obtaining consent before re-enrolling customers. Post your cancellation policy on your company’s website and paperwork and maintain written records. Include a click-to-cancel button on your website, as well as a reliable email, phone number and contact form to further demonstrate compliance.
4. Use easy-to-understand contracts.
To protect against disputes and cancellations, obtain e-signatures on all contracts, invoices and credit card authorization forms for both one-time and recurring charges. Ensure your cancellation policies are clearly visible within an inch of a customer’s signature and have customer initial next to key terms, billing cycles and cancellation policies. You can also make it easy for customers to opt in to your services with a simple, highly visible sign-up link.
5. Build and maintain trust.
In addition to complying with regulations and best practices, subscription-based businesses need to continually earn consumer trust. Regularly review your cancellation policies and compliance measures, and optimize your subscription management platform to drive loyalty and lifetime customer value.
It’s also important that your business self-manage and self-regulate. For example, if a customer cancels a recurring transaction or disputes a charge, delete the recurring transactions and contact the customer. We’ve found that having policies and procedures in place also helps prove that a customer or cardholder authorized a transaction.
Examples Of Next-Gen Distributed Services
Subscription service models have come a long way from the early days of Netflix and Dollar Shave Club. I have found that many customers appreciate the ease of use, VIP treatment and personalized offers of a well-thought-out program, and merchants can benefit from them in terms of repeat business, predictable revenue models and upsell opportunities.
When crafting a subscription plan geared toward your customers, consider what services or products you can provide for free or at a discount that will appeal to subscribers. Here are just a few examples we’ve seen across various industries:
• Fitness Centers: Independent gyms can offer VIP access clubs that include early class bookings, merchandise discounts and nutrition consultations, and sports clubs like golf courses can offer flexible memberships for a set number of rounds per month.
• Food Services: Coffee shop and bakery club memberships can offer unlimited coffee servings, pastry box subscriptions and discounts on bread and pastries. Meanwhile, a number of restaurants have introduced VIP programs to promote exclusive meals and wine-tasting events.
• Home Improvement: Hardware store memberships can provide unlimited tool rentals and/or a variety of discounts for products and services.
• Auto Shops: Monthly car care plans can include unlimited car washes or discounts on oil changes, tire rotations and/or other maintenance services.
• Parking Garages: Parking garages can guarantee parking at a flat monthly rate and even include bonus services like car washes.
• Plant Shops: Monthly plant subscriptions can provide growers with plants, fertilizer and tips on how to care for different varietals.
• Bookstores: Bookstores can offer mystery bookboxes featuring curated reads based on the subscriber’s genre preferences.
• Tech Repair Shops: Offer monthly service plans centered around device protection, repair, cleaning and/or upgrades.
Future-Proofing Subscription Payments
The subscription economy has seen exponential growth, as all types of businesses can now leverage recurring billing models. However, in this dynamic environment, it’s important to stay ahead of regulatory updates, technological advancements and shifting consumer expectations. As consumers increasingly opt into subscription and membership programs, consider how you can apply these best practices to build a subscription service that will help your business retain customers, drive profitability and achieve long-term growth.
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