DirectPayNet

Category: E-COMMERCE

  • Is Your PayPal Account Frozen? Here’s What You Need to Do to Get Your Funds

    Is Your PayPal Account Frozen? Here’s What You Need to Do to Get Your Funds

    There’s no doubt that PayPal is a convenient choice for businesses and shoppes, alike. The ability to store a mix of payment methods allows buyers to spend from any source, making the checkout process that much faster. And for businesses, it almost seems like a sure-fire way to receive payment. If a customer’s bank is empty, then PayPal simply uses another debit card, credit card, or bank account. And if that doesn’t cover it, the PayPal balance surely will. PayPal users get automated spending and businesses get funds.

    However, what happens when you grow your business, , revenue is high and sales are, too, but then one day you open up your backend shop page only to see that PayPal froze your account? As quickly as the service can build you up, they can tear you down. Here’s how to unfreeze your PayPal account as a merchant and recover your online store.

    PayPal Is NOT the Small Business Savior You Thought

    At the onset of its efforts to support small businesses and local sellers, PayPal seemed like the perfect solution. And for many businesses, it still is. If you can meet PayPal’s strict terms of use which limit transaction volume and available merchant categories, then it really might be a perfect solution for you. But for many sellers—especially those in high-risk industries—the service’s terms and conditions are no way to continue doing business.

    Why did PayPal freeze my account?

    Similar to Stripe, PayPal plays it safe when it comes to providing payment solutions to businesses. It isn’t a processor, it’s an aggregator. If you are curious about the details, go ahead and click this link to read more about processors versus aggregators. In short, PayPal does not provide you with a merchant account (or the freedom that comes with one). Instead, they allow you to operate under their own umbrella or master merchant account by giving you a sub-account.

    With that in mind, PayPal has to limit what they can offer to businesses operating under their umbrella account. They are restricted by their own agreements with the processors they work with, which means you suffer from those same restrictions.

    Specifically, the most common reasons PayPal freezes accounts because you:

    • Have an increase in transaction volume
    • Received a customer dispute
    • Received too many chargebacks or refund requests
    • Content on your site is against their user agreement
    • Violate PayPal’s usage terms
    • Account is unverified
    • Have low credit
    • Fraudulent activity is detected
    • You are too high of a risk

    And that last one is the real kicker. You’re too high of a risk to operate with PayPal. Some industries are associated with high chargeback ratios and fraud, which makes them high risk. Others simply see turbulent fluctuations in sales, where you see incredibly high sales over a few days with no sales in the following week. Or maybe you’re selling too much and hitting the invisible sales volume limit.

    There are also a slew of other reasons, including using multiple IP addresses to log into your account or having a large amount of money in your balance.

    Whatever the case may be, you are a risk to PayPal, so they act in seconds to shut you down to limit or halt that potential of risk.

    How do I know if PayPal froze my account?

    You’ll receive an email when PayPal decides to do its damage stating simply that your account is frozen with little to no detail. However, we all know there are infinite spam emails that comes from fake PayPals, so the real message might end up in your “junk” folder. If that’s the case, you won’t know your account is frozen until the next time you log into your account. Hopefully you do that often enough so sales aren’t affected too much.

    How long will my PayPal account be frozen for?

    180 days is the official period of time for which your account can be frozen, though it could easily be extended if PayPal wishes it so. That means if you do nothing, your funds will be stuck for 6 months.

    Steps to Unfreeze a Frozen PayPal Account

    There’s only one real way to unfreeze your account, but there are a couple options, thankfully, to keep your business operating. And to note, when PayPal freezes your account in the first place, it’s an automated algorithm that flags you, not a person.

    How do I unfreeze my PayPal account?

    When you open up PayPal and your account is frozen, you’ll be directed to the Resolution Center. On this page, the steps for reinstating your account are present. The most common steps include:

    • Proof of business – tax license and documents, utility bills, bank account information, DBA registration, etc.
    • Proof of shipping
    • Proof of identity – driver’s license, social security, passport, official state ID, etc.
    • Proof of product – name of your supplier and their contact information

    Send over the requested documentation they’ve requested and wait for the response; usually they at least inform you of receipt of documentation the following business day. Then, in the next days or so, you’ll be notified of their decision: either your account is reinstated, or it isn’t.

    If your account remains frozen, PayPal will tell you to wait 180 days to get your funds back. That is forever when it comes to doing business and will most likely see your store shut down for good. If this happens, you can call the PayPal customer support phone number and speak to a representative. It most likely won’t get your account back in order, but you might be able to provide additional documentation that will help your case. Be kind to the rep (it’s not their fault), and see where the conversation leads you. Unfortunately, not every business will get their funds back before that 6-month period.

    How can I continue doing business if my PayPal account is frozen?

    Great question. You absolutely can continue doing business in a few different ways.

    First, you can simply open up another PayPal account. As you know from opening the first one, there’s no underwriting process involved, so you can simply open another one up and avoid making the same “mistakes” as with the first account. This method is great in the short-term, but there’s a good chance you’ll get frozen again eventually. Use PayPal at your own risk.

    Second, you can open an account with another payment aggregator like Stripe or Square. They all work similarly, so applying is easy and you can get your shop running again within 24 hours. Again, this is short-term. If your business is getting flagged for something, you’re likely a high-risk seller and need a more permanent solution.

    Third, open a high-risk merchant account. Getting your own account allows you to operate freely, without invisible transaction volume caps or sudden account freezes. In fact, there are many benefits to getting a merchant account that you simply cannot get with a payment aggregator. The trade-off is that it takes about a week to open a merchant account, but it’s a long-term solution that actually works with your business type, not hinders it with account limitations.

    What do I do to get my money back from PayPal?

    So let’s say you take our advice and open up another account. While your store is running again and sales are possible, it doesn’t help the situation with the funds stuck in your previous account.

    Unfortunately, you’ll have to wait out the 180 days to get your money back. You can continue to call PayPal and speak with them about releasing the funds. A possible solution you can request is to have the funds released in installments. PayPal is keeping those funds on hold because of the risk of chargebacks and refunds that they would have to cover on your behalf if there were no funds in your account. So, what you can do is ask PayPal to release a portion of the funds each month until the balance is $0. You’ll eventually get your money back, PayPal will have the reserve they so desperately need, and in 6-months time you’ll never have to look at PayPal again after putting you through such hardship.

    Get a Long-Term Solution for Your Store’s Payment Processing Needs with a High-Risk Merchant Account

    Opening up a merchant account is the only undeniable way to keep your business running without the daily concern of having your account frozen or funds withheld. While it might be convenient to open up a PayPal account, very few businesses actually benefit from their terms and rates.

    Contact DirectPayNet to speak with one of our high-risk merchant account service reps to get the ultimate solution for your small business needs or to get help with your current PayPal predicament.

  • Why Consumer Data is Valuable to Both Businesses and Consumers

    Why Consumer Data is Valuable to Both Businesses and Consumers

    Data has become synonymous with breaches of privacy in recent years. The fear consumers have of their personal data being shared, used, and sold across the world is unappealing. It doesn’t help that so many big tech, and big data, companies like Microsoft and Amazon have exposed customer information in one way or another.

    Consumer data doesn’t necessarily mean it’s being sold or shared. Not every service provider does this. In fact, most businesses store user data internally to benefit both their brand and their customers. Today, we’re going to go over ways data can benefit both consumers and businesses without risking privacy or selling that data. And as a business, you can use this information to better position your privacy policy and terms of use to help consumers understand what their data is used for.

    Defining What the Value of Consumer Data Is

    Data comes in a wide variety of formats, holding information both unique to each consumer and broad.

    Marketing data, also known as marketing research or consumer insight, is any kind of information/data collection from current customers or potential customers. It can be as simple as how many visitors came to your website this month or as complex as a customer’s lifetime value (LTV). Marketing data comes from a number of sources, including surveys, social media monitoring, and customer relationship management (CRM) tools.

    The most important aspect of marketing data is that it can predict future outcomes. What you want to do with this data is up to you. You could use it to understand your existing customers better or find potential customers based on their demographics or interests. You could even use it to predict trends and anticipate what will happen in the future for your industry.

    Customer data can also help you improve your marketing strategy. If you know where your target audience lives, for example, you may want to tailor your message to appeal to them. You could also use profiling data to create more personalized offers and convert more visitors into customers.

    Why Consumers Are Concerned About Their Data

    Consumers are concerned about their data, and for a simple reason: they don’t understand what it is being used for. The value of data comes from its potential to help solve other problems. But consumers’ understanding of data’s value does not match up with its actual value, because the problems it could be used for are too complicated to easily explain.

    The result is that there are lots of ways to use data that don’t produce much value for consumers, but the consumers don’t know which uses produce value and which do not. They can’t tell which uses are important to know about, so they have to learn about everything.

    The solution is to have companies be more transparent in how they use data, so that consumers can better assess how much it is worth to them for companies to use their data in different ways.

    How You Can Obtain Consumer Data without Privacy Backlash

    Data doesn’t need to leave your business or even your CRM, depending on what type of data it is. If the biggest concern for consumers is having their valuable data sold or not knowing what it’s used for in a digestible sense, then that’s what businesses need to clarify.

    Build Personalized Customer Experiences

    Consumers want it both ways: customized services yet little data sharing. If they understand that you’re using their data to better the experience, then they might be more willing to share it. But that’s too generic of a phrase. “Building a personalized experience” or something like it is blasted over every website on cookie agreement popups. No one knows what that means.

    The solution is to clarify it. What does building a personalized experience for your brand mean? How can you notify customers in a clear, concise way? Here’s an example: say you run a CBD shop. When someone visits that shop, you can notify them that “hey, we want to build a custom experience for you but we need you to share some information with us to do so. You’ll share general location data (not specific addresses or streets), age, gender, product browsing history specific to our site only. With this, we can suggest products we know you’ll love.” Something like this that tells the customer they’re data isn’t so personal that they need a restraining order to feel safe.

    Personalized experiences are even more possible once a customer makes an account with you. You can track their browsing and purchase history as well as request feedback to not only improve their experience but improve your product as well.

    It’s all about the customer. Make them feel safe and they’ll hand over more data than they knew existed.

    Improve Products and Services

    Data is the new oil. Everyone is rushing to get as much of it as possible because they know that whoever has it will be able to make better decisions and beat the competition.

    Data is information that you can’t make better decisions without. And this isn’t just about large companies; all businesses, even small ones, need data to make better decisions and improve their products.

    The sources of data are everywhere: from apps on our phones to sensor-enabled devices in our homes and offices, from social media interactions to sales records, from online search results to GPS tracking. The key is figuring out how to collect that data and turn it into useful information that can guide better business decisions.

    Insightful decision making requires a combination of two things: data and analysis. Data by itself doesn’t do anything for a business. It’s just a collection of facts and figures—raw material for analysis. Analysis by itself doesn’t mean anything either; it’s simply a way of looking at things in a different way or putting two unrelated pieces of information together in a new way.

    But when you put the two together, you get something magical: insights that lead directly to business growth. By collecting the right data, you can offer more targeted products to your actual consumer base and improve the services you already offer. It’s no longer a game of hit-or-miss, it’s collection and analysis.

    Understand Consumer Behavior

    In the early 2000s, online retailers were looking for better ways to predict what books or DVDs or computers their customers would buy. They had a lot of data about what people had bought. But it wasn’t clear how to use that data to figure out what people would buy next.

    Some researchers decided to try a different approach. Instead of trying to infer which purchases a person might make in the future, they looked at how often a person browsed without buying anything. This was less precise than knowing what they had actually purchased, but it worked better. And it had an unexpected bonus: if you combine browsing and buying patterns with information from similar consumers, you can identify new segments of consumers who have similar tastes but different buying habits from your existing customers.

    The point is that sometimes you may have data that you don’t know what to do with or how to read. Try looking at it from a different point of view and you’ll gain invaluable insight into the habits of your customers.

    Share Data with Customers

    The more data businesses share with customers, the more value customers create for themselves. Businesses then have an incentive to share more of that value with customers in the form of lower prices, better products, or more personalized services.

    The latter is particularly important. If customers can create new value by at least viewing a business’ data, then businesses will want to make their data as accessible as possible to customers.

    The long-term trend is headed toward businesses using more open business models. We see this in the rise in popularity of transparency reports. But if data is locked up inside a company, customers don’t benefit from it and there’s less connection between customer and brand.

    New privacy laws and regulatory movements, like the California Consumer Privacy Act (CCPA) and GDPR, aim to keep individual consumers safe by protecting consumers’ personal information and enforcing data privacy. We’ve heard a lot of groans from businesses, especially tech companies, about this. But general data protection regulation is a good thing for both your business and your customers. If your goal was never to sell that data, then this is your opportunity to use these privacy regulations to your advantage and build a rapport with your users. With proper data management, you’ll see your business flourish.

    Are You Gaining Valuable Consumer Data from Your Shopping Cart?

    Data is the fuel that allows businesses to reach people in new, more meaningful ways. It benefits both consumers and brands, though consumers need more incentive to share it. And that incentive comes from privacy assurance alongside personalized experiences.

    But that means nothing if you aren’t obtaining data from your shopping cart.

    DirectPayNet will set you up with a shopping cart and payment gateway so you can better analyze the data flowing through your site at (and just before) checkout. This data is invaluable to the growth of your business. Contact us today to get set up.

  • When Stripe Becomes a Liability – The Limits of Processing Transactions

    When Stripe Becomes a Liability – The Limits of Processing Transactions

    Stripe is easily one of the world’s go-to solutions for online payments. Customers know the payment gateway, merchant’s get a simple signup and fast activation, and both sides can benefit from Stripe’s security. But there’s a downside to using Stripe: payment processing limits.

    Depending on your industry and how much you process, you could fall victim to Stripe’s strict shutdown measures that sees online businesses close at the snap of a finger with little to no notice. Follow along for guidance around this issue, whether you want to continue using Stripe or find another service altogether.

    Clarifying the Confusion Around Stripe’s Processing Limits

    Taking a look at Stripe’s payment doc, their official minimum and maximum in USD are $0.50 and $999,999.99, respectively. But we certainly know they won’t be accepting a near-million-dollar single transaction. So what will they accept, and why does their official documentation give that exact number?

    The stated maximum is basically a technical limitation. It’s not meant to imply people are purchasing products at that price. Rather, it’s that they can purchase products at that price if the payment processor allows it. And I know what you’re thinking: “isn’t Stripe the payment processor?”

    Stripe is a payment aggregator, not a payment processor. It basically allows businesses to operate within its own MID and rearranges them as they grow, connecting them to payment processors that can handle their transaction volume. Stripe aggregates several payment processors, just like how you can use several payment processors for your business.

    Stripe doesn’t outright set a volume limit, but there is one that hovers around $25k per month. However, for some businesses that limit might be $10k and others might be $50k or $100k. If you’re a new business like a startup or someone who’s just getting started with Stripe, the limit is lower. If you’ve been using Stripe.com for a while and can back up your trustworthiness as merchant (i.e., operate at a low risk), then your transaction limit will be higher. Everyone in between is around $25k.

    To answer the question of, “Does Stripe allow merchants to process an unlimited amount per month?”, the answer is no. That’s true for monetary volume and for transaction volume or line items. Higher-ticket transactions are high risk, but a lot of low-ticket items can also be high risk.

    What Happens When You Breach the Processing Limit

    When you go over the Stripe processing limit, of which they won’t tell you until you’ve breached it, a lot of not-good processes start taking effect. You lose sales and customers, funds are withheld, and accounts are frozen or even terminated. Refunds, payouts, and processing fees are also a bane for merchants using the Stripe API.

    Businesses Affected Most by the Limit

    Some businesses are inherently labeled “high risk”. Those include startups, dropshippers, subscription sellers, supplement stores, digital download merchants, and more. With these business types, there are pros and cons about using Stripe. The pro comes down to ease-of-use—new customers can sign up and start processing almost instantly without going through the underwriting process. The con is that once you do start making money, Stripe notices you and shuts down you store because they don’t allow high-risk businesses to operate using their service. That’s the importance of $25k, because at that value Stripe will start to notice you.

    How You Know When You’ve Passed the Limit

    All merchants, whether high-risk or not, are negatively affected by the processing limitation. Once any small business passes the limit set for their sub-merchant account, the owner gets an email. That email will tell you that credit card processing (on all networks–Visa, Mastercard, etc.) is halted for the next business day (maybe 3 days).

    There is no warning that it’s about to happen, it’s a notification that it did happen. Many merchants who use Stripe or any other aggregator like PayPal and Square name this as their #1 complaint.

    What Really Happens When You Go Over Stripe’s Processing Limit

    Keep in mind that the above is for one transaction over the limit. So when Stripe reinstates your processing ability, there’s nothing stopping a customer from making a purchase which will, of course, push you further over the limit. Here, there are two paths that you can go down (both decided by Stripe).

    The first path is that your funds are held and frozen for up to 9 months. Yes, nine months. Usually, account termination follows with no notice and it’s a process in-and-of itself to get those funds back. They can instantly decide not to approve your business, even if you’ve been operating safely for months. This is because you haven’t actually been approved when you signed up in the first place, which leads into the second path.

    The second path can be viewed as either good or bad, depending on your own perspective and how badly you want to work with Stripe. Once you reach the $25k cap, Stripe can start the underwriting process if they decide to support your business.

    Something to note: Stripe has regular reviews as your business scales which they use to suspend processing until they decide to accept your business.

    Okay, going through this process sounds like a good thing because you haven’t been shut down. And on the surface, it is. If you really want to continue using Stripe and you feel it’s the best, most convenient service for you and your customers, then that’s great. Keep going. But the underwriting processing is the same as what’s required when you apply for a merchant account.

    When applying for a merchant account, you can negotiate bank account and processor rates, eventually getting terms that really benefit you. With Stripe, you just get the same flat rate and monthly fees you’ve been operating with since the beginning with no added benefits and no guarantee that they won’t shut you down in the future. Again, Stripe has regular reviews and can suspend your account as they please.

    Ticket Sizes That Get a Red Flag

    You may know by now that Stripe doesn’t like high-ticket items. Maybe you read it in one of our posts or you’ve had an encounter with Stripe that solidifies the fact. Stripe also doesn’t explicitly mention what singular price is bad for one item.

    From our own experiences with clients, and research, anything above $500 for a single product is considered high-ticket on Stripe. But that also doesn’t mean that you’ll instantly get frozen if you sell something at $500. It depends on your business, processing history, and how much you’ve scaled over the months or years on their platform.

    What is a definitely “no” is $2500. Feel free to explore pricing for products and packages, but if you see that you’re approaching $2500, then consider breaking that package up into smaller ticket items so you don’t run into trouble.

    The Best Way to Use Stripe, Considering Processing Limits

    There are two solid ways to use Stripe, whether you want to keep them as a permanent payment solution or temporary.

    Scale Slowly

    You can’t instantly do $100k per month, but you could reach that volume eventually. Stripe makes money when you sell things, so of course they want merchants to sell more so they can make more. But diving in head-first with $100k in sales is not going to fly well. It’s way too risky. Instead, scale slowly. Contact Stripe’s customer service representatives about your account and let them know your goals and how you’d like to process more without being flagged. Follow their rules and you’ll get to a point where Stripe supports you no matter how large your business gets.

    Use Stripe as a Backup

    The best real solution for merchants is to use Stripe as a backup or to gain transaction history when they’re just starting up, have bad credit, or a recent merchant account termination. Stripe is incredibly easy to start using because they don’t underwrite you until you reach a certain point. If you stay under the radar and keep transactions below the cap, then you can gather a few months of transaction history to use in your favor when applying for a merchant account. And when you do apply for a merchant account outside of Stripe, you don’t have to terminate the Stripe account. Instead, keep it and use it as a backup option just in case. It doesn’t cost you anything and can easily be switched over to if push comes to shove.

    You can configure merchant accounts to provide customers with more payment options than Stripe. You can accept credit card payments, debit card transactions, ACH payments, and other payment methods that fit you and your customers’ needs. Payment aggregators typically promote their customer-friendly card readers, but merchant account providers can also give businesses POS devices that operate in the same way. Many of Stripe’s benefits can be met by other solutions.

    Avoid the Limitations of Stripe. Get a Merchant Account That Scales with You.

    Merchant accounts are a long-term solution for any serious e-commerce business owner who’s looking to scale, slow or fast. DirectPayNet’s expert account service reps are on the line and ready to get your business up and running with API that provides a user-friendly shopping cart, payment gateway, chargeback protection, and processor whose terms you can get on board with.

    Contact us today to start doing business without hidden volume caps, transaction fees, and risk of termination.

  • Company Valuations Part 1: What Makes a Subscription Business Sellable

    Company Valuations Part 1: What Makes a Subscription Business Sellable

    At some point in every business owner’s life, they’ll want to sell their business. Whatever the reason is, each proprietor comes to this conclusion eventually. It’s good practice to know what makes a business sellable, especially a business is your vertical, long before you reach the point of sale. This way, you can prepare yourself for who to contact, what metrics to use, and how to position your business in the most attractive light possible.

    We sat down with Lane Gordon for a chat about company valuations. He owns the company 733 Park, which is based out of Boston and handles mergers and acquisitions within the fintech, SaaS companies (software as a service), and payments industries. Basically, recurring subscription revenue industries, and there’s a good chance your own business fits in here quite well. Read on, watch the stream, or listen to the podcast for insight into selling your business and getting the right valuation for it.

    The Purpose of Company Valuations

    There are many reasons why a company would want to receive a value assessment, so before we get into the Q&A, let’s go over quickly what those reasons might include.

    One of the most popular reasons a business owner gets a value assessment is because they want to sell their business, but it isn’t the only reason. You can use the information from the assessment to make your business more sellable, sure. But you can also use it to gain further investments and grow. It doesn’t have to be part of your exit strategy. The information you gain can help you get to know your business from another perspective so you can achieve the goal you’re reaching for. Growth, sale, transfer, repositioning. It’s all a possibility.

    How Brick-and-Mortar Businesses Differ from eCommerce Businesses from a Valuation Perspective

    It’s commonly misconstrued that online businesses get a higher valuation or that they have additional value. We like to imagine this to be true because the world is increasingly becoming digitized. It makes sense to think that if a business operates in the cloud, then it has more value than one on the ground. Instead, it depends much more on recurring revenue.

    Recurring Revenue for Brick-and-Mortar Versus Online

    Online, annual recurring revenue is easy to visualize. Subscription business models are almost synonymous with internet-based products like Microsoft Office, Adobe Creative Cloud, SaaS platforms, media streaming, and even subscription-based personal care. It’s also easy to think brick-and-mortar stores don’t have this type of revenue because people can simply stop going to a store to buy a particular product.

    However, the recurring aspect of a brick-and-mortar store is not in the products, itself. Instead, it’s in consistent growth of year-over-year (YoY) in both top-line revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization). Consumers also inherently trust a store on the ground more than one online. They can actually see the value. If a store owner pays the rent, sells the products, and organizes a storefront, then it’s more than likely a real store.

    Contrarily, consumers need to be convinced that an online store is trustworthy and valuable. Online businesses can do that by maintaining positive reviews, not a lot of complaints, and consistency in products and services (including delivery). There’s no sales rep welcoming them inside the store and offering assistance. There’s no other customer around giving them security. In some ways, e-commerce businesses have a harder time gaining high valuations. But online stores can better differentiate their pricing structure, offering pricing tiers, and more easily upselling, cross-selling, and utilizing an updatable customer experience to their advantage.

    What Is EBITDA

    We mentioned EBITDA in the previous section and would like to clarify what that is. EBITDA is a measure of profitability that is designed to remove the effects of taxes, debt, and unusual expenses in order to evaluate financial performance.

    EBITDA isn’t what you report to the IRS or tax authority of your country/region because the objective of those numbers is to net down as much profit as possible. Instead, EBITDA measure core profit trends by eliminating extraneous factors which allows you to estimate cash flow.

    What A Business Owner Should Look for to Ensure Future Salability

    First and foremost, when looking to sell a business, it should be viewed as an asset. Every business also has a monthly income stream (or it should, at least). That stream is an asset. It’s difficult for a lot of people to detach themselves from their businesses, especially when that business stems from a passion project. But to get a proper company valuation, you need to make that separation. You are a business owner and your business is an asset; that’s where it starts and ends.

    Buyers are looking to obtain your asset, so you need to understand how valuable it is currently and maybe try to increase its value before the sale. Potential buyers will want to see where your company’s stream of income is originating through two things: growth and churn.

    Growth

    Where is your growth coming from? What’s supporting it? Is it by word-of-mouth, pay-per-click, or something else?

    Each of these pathways has its own value that could appeal more to one buyer over another. Some buyers might prefer a simple handover of your ad space manager, essentially taking the reins of your PPC revenue stream. Others might view that as too risky, since if there’s a problem with the handover, then it can all drop down to zero. Growth also involves how many new customers you obtain.

    Growth also looks at your average revenue. In the subscription economy, growth rates might suffer due to your industry, but they could also soar. Subscription pricing is appealing to a lot of people. And that’s partly due to the idea of being tied down to one company for an indefinitely period of time. You might hover around a certain number of customers due to your business model, and that’s okay. Some services are more appealing as a subscription. Streaming services like Netflix, meal kits, and SaaS products are all great for charging on a regular basis.

    As long as revenue and customer base sees some type of growth and you know where it’s coming from, then your business will be appealing to buyers.

    Churn

    Take a look at your client base. How often is it changing? What’s going on with your customer retention? Customer churn can be represented by growth and replacement. Both views are be attractive.

    Buyers will likely view churn from two standpoints: by how many clients have dropped off over the past year (or some amount of time), and by how many clients you have in total. It’s difficult to definitively say what will be attractive to a buyer because you could have a smaller pool of clients who are in it for the long haul or you could have a large number of clients who come and go.

    That leads into the next factor: how your clients are bound to your business. You could have a low churn rate, but your clients are signing multi-year contracts. That’s appealing to buyers because it shows the value of your business. If a customer is willing to sign on for years, then you must have a good service going.

    Counterpoint: if a business doesn’t have long-term contracts—or any contracts—with clients but also doesn’t lose any of them YoY, then that can be equally appealing.

    How Buyers Judge Different Kinds of Businesses, Namely B2B and B2C

    The business valuation process differs for every business, just like how a buyer views can change depending on the type of business they’re looking at. Some buyers are drawn to B2C, others are drawn to B2B.

    Here are a few examples to give you a better picture:

    • For supplement sellers (B2C), it’s normal to have clients stick around for 6 months or so, so churn rates are more likely higher in this industry. The customer lifetime value comes from the product as opposed to the store. The same can be said for course sellers or crypto businesses, where customers hop from one shop to the next quickly.
    • For SaaS merchants (B2B), it’s abnormal for clients to leave before 6 months because that implies there’s something intrinsically wrong with the service. The brand is the service and is meant to have maybe a small number of clients but ones who subscribe for long periods of time.

    B2C businesses that grow YoY can have a great valuation, even without monthly subscription boxes, subscription services or a higher churn. However, B2C will need a much larger customer base to offset the churn percentage.

    B2B businesses have monthly recurring revenue models that often safeguard their service, but that doesn’t always mean they’ll receive a higher valuation. It, too, depends on churn rate.

    There’s also the factor of customer acquisition costs. If you churn rate is acceptable but the cost of acquiring a new customer is high, then how does that affect profit? For some businesses, it’s better to maintain good customer relationships and try to keep existing customers on rather than put all the effort into obtaining new customers.

    Let’s say there’s a business with 10,000 customers. If that business is B2C, the company will be viewed by buyers as valuable if they can maintain that number or increase it, even if customers come and go. Here, it’s based more on maintaining profit because each customer carries similar weight. If that business is B2B, then the buyer will want to ensure the risk is spread across many of those customers. If only 100 customers carry 80% of the revenue, then it doesn’t bode well if one of them leaves. Churn and revenue need to be stabilized across the board before selling the business.

    Interested in More About Company Valuation?

    Stay tuned for Part 2 of our interview with Lane Gordon as we leave you on this cliffhanger. Next, we’ll cover when the best time to sell is, how company valuation works for high-risk businesses, and how a business owner can get an idea of their company’s worth. Predictability is a key factor in forecasting predictable revenue, pricing models, and how successful subscription companies or any B2B/B2C company will perform in terms of valuation.

    DirectPayNet is here to help you grow and scale, whether you’re looking to sell or expand. Speak with us today about our merchant services and we’ll help your company get the valuation it deserves.