Looking for ways to stand out amongst your competition? Or how about closing more sales? How do you get patients to say yes to a more expensive procedure? Certain business structures need an automatic way of processing recurring payments to protect cash flow and encourage larger sales.
A payment processor that seamlessly integrates with a recurring payment management platform will help keep track of recurring payments to ensure they are processed on time. This also allows you to integrate with other tools, like CRM and accounting software, for better financial management.
Understanding Recurring Payments Vs. Subscription Services
Businesses can set up recurring payments for customers or other businesses with B2B recurring payments. Recurring payments however, are not to be confused with subscription-based business models. Subscriptions involve billing customers regularly (typically monthly) in exchange for access to services or the delivery of tangible goods.
Netflix and Amazon Prime are two household-name subscription services. Consumers of every kind enjoy watching shows or movies and lightning-fast delivery of items they need (and don’t need). There are also subscription services for monthly wine memberships or the popular FabFitFun subscription with fun girly beauty products and household items, fresh meats with ButcherBox or Barkbox for your beloved fur baby. Whatever your fancy, there’s a subscription service out there for you. I am sure.
But I digress. We’re not talking about that. We’re talking about the pros and cons of recurring payments. Recurring payments don’t necessarily have to belong to a subscription. Rather, recurring payments are typically made to divide a larger payment of one product or service into smaller monthly payments.
Offering recurring payments has its pros and cons. Pro: You smashed that sale by offering to break that 5,000 sectional sofa payment into 36 months of a more digestible $138 payment. Con: You aren’t getting the lump sum up front (depending on the recurring model you use). Not getting all the funds upfront can really put a dent into your cash flow. But hey, if you never offered monthly payments, you’d never make the sale in the first place.
There is a lot more to explore when it comes to recurring payments. So let’s dive in.
Benefits of Offering Recurring Payments
Customer Acquisition And Closing Deals
In a sea of competition, how do you attract new customers? If your product is selling for the same price as Joe Schmo down the street, how will Nancy decide that she wants to buy from you? Well, offering payment plans could be the best way to close your sale.
Maybe Nancy has her heart set on that new dining set for her first home. But three thousand dollars is her whole month’s salary, and budget is tight right now, due to her new mortgage. With little wiggle room but her heart set, a payment plan makes you the hero in Nancy’s story. Dividing up her $3,000 into 18 months of $166 is a practical way of fulfilling her dreams of fancy Friday night dinner parties at her new farmhouse table that seats 12.
Joe Schmo couldn’t do that. Therefore, you’ve just gained a sale and outsmarted your competition. You may also have won yourself a loyal customer for life; I’m sure Nancy will realize after her first successful party that her patio would be extra special to enjoy a night cap if she had some outdoor seating and a gas fire pit. She’ll be returning in no time.
Upselling and Higher Ticket Sales
Not only will payment plans seal the deal, they can also help you to upsell customers, resulting in higher sales numbers. For example, let’s say Ben is in need of Lasik Surgery. He had been saving for a while and was ready to pay $3,000 as advertised. But you wanted to offer Ben an even better procedure, Contoura. It’s the newer, more fine tuned Lasik. But this procedure costs $4500 out of pocket and insurance won’t cover it. Good thing you offer payment plans!
The investment is absolutely worth it. But Ben wasn’t prepared for the extra cost. So instead of Ben paying $3800 today, he could pay $750 over 6 months. Not only is it easier on his wallet, but it’s the better decision for his long-term eye health. How could he say no? Now you’ve also gained an additional $1500 of revenue (minus operating costs) per patient you offer this to.
Common Challenges With Recurring Payments
Safely Storing Customer Financial Information
One challenge that all types of businesses face is how to most effectively collect payments from their customers. Recurring billing obviously necessitates storing customer financial information, whether that’s a credit card number, debit card number, or ABA and checking account number. There are regulations that specify how this information can be stored. Some of these laws are set by federal and state lawmakers, while others are set by card networks like Visa and MasterCard.
Card networks have created a set of protocols called PCI DSS compliance, or Payment Card Industry Data Security Standards. It is often cost-prohibitive for SMBs to adhere to PCI DSS on their own. Depending on the size of your organization, a thorough audit alone can cost thousands of dollars.
Fraud and Chargebacks
Another challenge that businesses that use recurring payments face are chargebacks and disputes. Consumer protection laws heavily favor cardholders in disputes—so much to the point that an increasing number of consumers are gaming in acts of “friendly fraud.” To protect yourself, you need robust tools and signed agreements that provide detailed documentation about transactions.
It’s more common than you think for a customer to “forget” they had signed up for 12 months of autopay to buy their new smart fridge. Or maybe they decided they just don’t want to pay for it anymore. Or maybe the kids threw a baseball at the LCD display screen and the smart fridge isn’t so smart anymore. So, maybe they feel they shouldn’t have to keep paying it off. That’s where not-so “friendly” fraud can come into play.
In addition to friendly fraud, regular old fraud is on the rise as well as cybercriminals come up with increasingly innovative ways to steal credit card information and make purchases. Victims of this fraud may initiate a dispute with their bank or credit card issue instead of reaching out to you, especially if they don’t know who you are. This type of dispute is called a chargeback, and I can create a cascade of fees that will slam your business.
Failed Payments
On the more prosaic end of things, there is always the challenge of failed payments. Customers can lose their cards. Cards can get stolen. Cards also expire. Any of these issues can interrupt the continuity of collecting payments from a specific customer.
Choosing the Right Payment Processor for Recurring Payments
If you want to add recurring payments to your existing business, or your business is inherently a recurring payments business model, you’ll need to find a good payment processor. This payment processor will collect and store customer payment information so that you don’t have to. They will largely take on the burden of adhering to PCI DSS standards.
The right payment processor will also have a robust dunning management protocol. Dunning management is the science of collecting failed payments from customers…although, because customers are sometimes unpredictable, it’s also a bit of an art.
Take note of what lenders do when a payment goes missing—they call, text, email, and send paper mail…certainly within the bounds of legality and hopefully within the bounds of tact.
Could you juggle doing all that for just one customer in an attempt to recoup dropped payments? This process needs to be automated, especially if it’s going to be applied to dozens, hundreds, or thousands of customers every month. Once again, a payment processor can help with that.
Beginner Processors
Shopify (Stripe), Square, and PayPal are all examples of large payment aggregators that offer customers (merchants) the option of charging their customers recurrently. These options are fine as long as your sales volume is very low. But if your business accelerates to be more substantial, these companies’ flat rate pricing will eat away at your profits.
Flat rate pricing means you will pay the same for every type of transaction, whether it’s a Visa, MasterCard, Discover, or American Express… whether it’s a credit or debit card. In reality, each one of these cards has a different processing fee.
Getting charged 2.90% plus $0.30 for every transaction is not something that established subscription services like Netflix or Amazon Prime tolerate. They work with payment processors who can provide more nuanced, interchange-plus pricing, like ECS Payments. This type of pricing model more accurately reflects the true cost of running card transactions.
Optimizing Recurring Payment Systems
From your end of things, a payment processor should offer a comprehensive, robust, intuitive dashboard. A dashboard is your command center for managing your customers and should display relevant KPIs without overloading your purview with irrelevant statistics. But at the same time, it should provide you with the opportunity to take a deeper dive into more nuanced statistics, if you should choose.
There are several ways to prevent a disruption of continuity in collecting payments from customers. Talk to your payment processor about their relationship with card networks and banks. Can it assist in updating card information automatically when cards expire, are stolen, or are routinely replaced?
Some types of recurring payments are better off using ACH instead of credit or debit cards. Landlords, utility companies, insurance providers, and educational services (e.g., those that charge tuition) are a few examples of organizations that are better off collecting an ABA and checking account numbers for recurring ACH payments.
In addition to the fact that banking numbers never change, ACH fees are significantly lower – usually a fixed amount less than a dollar rather than a percentage that would significantly eat away at card sales. If you are collecting rent payments over $2,000, would you rather pay a dollar per transaction or 3% in the form of $60?
Another important consideration is how well the payment process integrates with other software that you use. Do you have a CRM for managing your sales leads, an ISM for managing your inventory, an ERM for assessing risks to your business? Whatever types of systems you use, You should ensure your payment process is successfully integrated with them, minimizing the amount of manual labor you need to invest in transferring data.
Managing Customer Relationships and Retention
The other part of customer attention is more of an art form. It involves people skills, if you will. Even so, a payment processor can help with this as well. A smooth payment experience is paramount to ensure customer satisfaction.
According to faceless payment aggregator PayPal, 46% of consumers will abandon their online shopping card if they cannot find their preferred payment method (specifically, a digital wallet), while 17% will abandon their car if the checkout process takes too long.
Once you’ve got those card numbers, you’re good to charge the customer on a recurring basis, as long as you have obtained their permission. But that initial sign-up process must be seamless in order to create a positive brand experience.
Payment Reminders
Today’s consumers highly value transparency and proactivity. They’ve come to expect reminders from multiple angles – email and text, for instance—that a payment is about to be processed. This is especially true and light of the fact of how many subscriptions consumers have today.
The average millennial has as many as 17 subscriptions. When they are hit with a payment from a subscription – even if they want – if they were expecting, the impact on their finances creates a negative perception of your brand. If you are proactive with automated email, and or text reminders, this will reduce some of the friction with such customers.
Leveraging Data and Analytics for Subscription Growth
Data analytics are another feature that a robust payment processor will offer. Your payment processor can assess the payment trends and demographics of your customers so that you are better poised to make high-level decision-making. Think of this dashboard as a sort of table of contents or index.
Where are your customers located? What are their ages and genders? What type of payment methods they use can even yield some interesting information. You can use some of this information and future marketing campaigns to attain more customers. It all begins with the data that becomes available at the payment gateway. The payment gateway can also become the starting point for understanding Customer lifetime value, (LTV), and customer acquisition cost (CAC).
Let’s look at CAC, for example: payment data can integrate with your marketing management software, and you’ll see how much effort needs to be put into acquiring certain types of customers. You can use this information to make rejections moving forward and adjust your budget accordingly.
What about LTV? If your product has multiple tiers, you could assess how long a subscriber stays with you in each tier. You could experiment with ways of motivating an upgrade, such as tailored marketing campaigns and incentives like discounts. Ultimately, you want to lower your CAC while increasing your LTV. The key to doing that is understanding your customers. And the key to understanding them is the data at the point of sale.
Conclusion For Recurring Payments
Each business will have its own payment challenges. That’s why it’s important to work with a payment processor that can take the time to get to know you and your industry. From the Sale to the payment experience, everything should be smooth including friendly upcoming payment reminders. Analytics can help you understand big-picture trends for revenue optimization: how and when can you upsell products or target new and returning customers.
Learn more about how ECS can facilitate recurring payments. Let’s connect to discuss your unique business needs and set up a demo to showcase the robust features ECS can offer.
