A steady and predictable income is the goal of any business owner, and the ever-growing popularity of subscription services has helped many ecommerce merchants achieve this stability. It’s easy to know how much revenue you’ll bring in during any given month when you have a roster of subscribers who have already committed to future purchases.
Recurring payment processing makes these purchases — and subscription products in general — possible. Whether you’re planning to launch a new subscription business or introduce subscription offerings to your ecommerce store, you’ll need to learn how this technology works.
You likely already understand the consumer side of recurring payments — even if you’re not one for monthly subscription boxes, recurring payments are also widely adopted among businesses including utilities and insurance companies. Here’s what you need to know about implementing them as an ecommerce merchant.
Companies that use a recurring payment model charge customers at regular intervals for a product or service. Customers sign up for a subscription by authorizing the merchant to bill them a certain amount every billing period.
Merchants need a recurring payment processing flow to initiate these charges so they can receive the funds subscribers have agreed to pay them.
Any business that wants to offer ongoing goods or services to customers can benefit from recurring payment processing. Business types include:
The shape of your recurring payment processing setup will depend on which of the above business models you use. This blog focuses mainly on what subscription ecommerce merchants need to know before getting started.
Merchants can only offer the convenience of subscriptions by taking on the work of recurring payment processing. We broke the process down into the four major steps a business will need to perform.
Most subscription enrollment today happens online. It’s never been simpler; many sites just require customers to press a button or tick a checkbox to start a new subscription. Customers must fill out their payment details, shipping information and a confirmation that they consent to repeated charges. Then, they complete their checkout and the subscription begins.
After a customer signs up for a subscription, sellers must track their payment information and subscription settings (including billing frequency and amount). Most merchants invest in a tool that stores this information and will either alert them when it’s time to charge each customer or do so for them.
Processing each customer’s payment is a multi-part operation:
The beauty of modern recurring payment technologies is that this entire process can be automated. Even the simplest recurring payment processing tools can perform the above workflow for you.
After a customer is charged, it’s the merchant’s responsibility to inform the subscriber. Typically, merchants create workflows within their subscription management software to automatically send email receipts. You may also enclose printed receipts in your shipments and/or display your transaction records within customers’ online accounts.
A merchant who receives a successful customer payment then fulfills the subscription. This may mean granting customers another month of access to an online app or shipping out a subscription box full of goodies. Some ecommerce companies allow subscribers to customize each month’s subscription shipments, but others cater to subscribers’ love of convenience by regularly delivering pre-selected products without requiring any input.
Due to the number of steps involved in recurring payment processing, most companies automate as much of the process as possible. Payment gateways and subscription management platforms are both necessities for ecommerce merchants.
Payment gateways allow merchants to accept non-cash payments, including debit or credit cards, ACH (bank payments) or digital wallets. Ecommerce subscription sellers need at least one payment gateway to process sales, so these tools are often the first choice for a merchant who wants to set up recurring payment processing.
PayPal, Stripe and Square are three major payment gateways that include tools for subscription merchants. Their capabilities are limited, but they work well for low-volume sellers or those with only one or two subscription offerings.
All three of these gateways charge per-transaction fees on recurring payments; PayPal adds an additional flat monthly fee for access to its recurring payment capabilities.
Subscription management tools — like sticky.io — are designed to help your company set up subscription ecommerce workflows as you process recurring payments.
When you invest in one, you’ll be able to integrate it seamlessly with your storefront to create subscription offerings and catalog signups. Each billing cycle, the tool handles the billing logic of each transaction, then passes the information on to payment gateways.
The best subscription management platforms make it easy for buyers to edit their subscription information and settings. They also create sales reports to show your team how different subscription products are performing.
These platforms typically charge a monthly fee for access. You’ll have to pay this fee plus the transaction fees for each payment gateway you use, but you’ll also get access to a much more comprehensive suite of capabilities than if you just use a gateway.
The increased revenue you stand to earn from subscription payments is just one benefit of implementing recurring payments for your business. Once you’ve found the right recurring revenue model, you can start fostering a loyal community of customers.
Subscription payments combined with an excellent customer experience makes a strong, sustainable brand. Once customers become subscribers, you’ll earn more revenue to improve your brand experience further — leading to even greater retention.
Building this positive loop takes time, but you'll find that the effort pays off once customers start investing in long-term subscriptions. A company with a self-sustaining subscription program can reallocate much of its advertising budget to retention-focused measures. Keeping customers around longer, and thereby increasing your average customer lifetime value, will set you up for sustainable growth.