“Try one month for just $1!”
We’ve all seen these types of offers. Some of us have signed up for them ourselves. The benefit trial & continuity merchants offer is clear and concise: Try this product at a deep discount.
It’s a tempting offer — and an effective one. Many merchants offer free or $1 trial options to allow consumers a chance to try their subscription products at a lower risk. It’s a tried and true marketing tactic that has helped many businesses catapult their recurring revenue to new levels.
Unfortunately, “trial & continuity” merchants are part of the high risk segment.
With trial & continuity merchants, customers that sign up are agreeing to an automatic recurring subscription to goods or services. That means they must pay for the subscription service or proactively decline it before billing.
Having the ability to accept and process recurring credit card transactions is life blood to a business operating under the trial & continuity model. Because of the nature of the opt-in, this business model is also prone to increased chargebacks.
The very nature of this billing model and the accompanying terms and conditions for late cancellations make buyer’s remorse a tangible reality for these merchants. Buyer’s remorse leads to friendly fraud chargebacks, where a customers calls their issuing bank to claim they did not authorize the charge. In turn, a chargeback is initiated and the merchant ends up paying a steep price in fines, fees, and penalties.
Too many chargebacks can land a merchant on the card association’s chargeback monitoring programs, which come with additional fines and penalties. Beyond that, a merchant can easily have its merchant account terminated.
This type of billing model has been around for awhile, and many merchant banks and processors have lost their taste for it; some won’t even extend a merchant account to merchants that operate in this way.
So what is trial & continuity merchant to do?
Focus on the Future of the Subscription Business Model
Subscription-based businesses are only gaining momentum, and we all have millennials to thank for that. According to a recent survey by Vantiv and Socratic Technologies, 92% of millennials have active subscriptions. It makes sense, considering this generation was raised with the Internet in-hand. On-demand products are a crux of everyday life, and merchants have jumped on-board to serve this market with everything from food (30% of subscriptions), personal grooming (34% of subscriptions), and household items (29%). That doesn’t even account for service subscriptions like online dating, music, gym membership, and online video content.
While subscriptions make consumers’ lives easier and more convenient, the subscription-based billing model has ample benefits for merchants, too:
- Increased Customer Lifetime Value: The subscription-based billing model has consumer loyalty built-in. The customer simply clicks the “buy” button once, and they are opted in to receive their product monthly or quarterly with no additional action needed. As a regular customer, these consumers are easier to up- and cross-sell. The $1 free trial sweetens the deal and expands a merchants market so more people can try the goods at a discounted rate. Happy customers will pass word along to their friends.
- Savings Equals Expanded Customer Base: Offering a $1 trial option is a tremendous way to get more eyes on your product and more fingers on the “buy” button. But subscription services often offer unit discounts as part of the subscription package. This is enticing to consumers of all age ranges. Additionally, the ability to space out payments over time makes the cost more palatable for some. It’s easier to pay $50/month rather than $600 for the entire year. Marketing is integral to accurately communicating these benefits to consumers in a compelling way.
- Predictable Revenue: Subscription billing models mean recurring revenue and recurring revenue means predictable revenue. A regular cash flow helps small businesses and startups stay afloat and actually compete against their well-established counterparts.
Naturally, the next question is: “How do I streamline subscription payments for my $1 or free trial product?
The Holy Grail of Payment Processors for Trial & Continuity Merchants
First and foremost, trial & continuity merchants should find a payment processor that specializes in high risk merchant accounts. Beyond that, merchants should consider the following:
- Does the processor offer an intuitive dashboard to track subscriptions (including upsells, downgrades, and cancellations)?
- Does the gateway integrate easily with your sales system?
- Will they help you manage true and friendly fraud chargebacks and advise on strategy to minimize chargebacks?
- Are they able to minimize card declines and help reduce churn?
- Are they a cost-effective partner? Can you opt into customized processing fees based on a time-period (monthly/quarterly/annual) rather than per transaction?
- Can they help you manage and streamline multichannel payments (mobile, desktop, app)?
- Will they aid and respond promptly to any issues arising out of “$1 trials” including card declines and chargebacks?
- Do they offer next-day funding? Cash flow is king, so be sure you understand how funds will be transferred to your account.
Beyond customer relationship management, recurring billing capabilities, and multichannel payment acceptance, merchants should find a payment processor they trust. Working with a processor that also serves as an advisor can boost the bottom line.
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