Subscription marketing is everywhere and has taken on a life of its own! From online streaming services to skincare to subscription box companies, recurring billing remains a big revenue source for high-risk merchants. However, recent legislation enacted July 1 in the state of California has caused concern for some merchants new to subscription marketing.
It’s important to be aware of challenges recurring billing can initially present to your business if not launched and managed properly. In this blog we’ll provide insight on how to scale with subscription marketing and simultaneously be compliant with California or any similar state laws
California Senate Bill No. 313
The new California Senate Bill No. 313 went into effect July 1 and cites rules for subscription merchants to be compliant. If you have worked with DirectPayNet, you have probably already received guidance on this type of compliance from our team. If you’re a newcomer here’s some important information.
The bill cites that merchants must explicitly outline the terms and conditions of an offer before any sale or recurring billing takes place on the checkout page. Show this information as explicitly as possible on your website, in addition to refund and cancellation policies. You must get consent from customers prior to charging for the product or service. So do not force continuity on your customers!
Merchants must make it simple to opt out of an offer by providing contact information in the form of a toll-free phone number, valid email and physical mailing address.
What is the difference between subscription marketing and continuity marketing?
Sometimes you may hear the terms subscription and continuity marketing used interchangeably. That’s because they are exactly the same thing: convincing a potential buyer to sign up for products or services that are auto-shipped (e.g. weekly, monthly, etc.). When customers subscribe to your offer, they are automatically billed for the product/service each week or month until cancelled. This type of transaction may begin with something as simple as a free trial or a discounted sample purchase.
What type of merchant’s use subscription marketing?
Many merchants incorporate subscription marketing into their business. Online fitness coaches may offer weekly workout videos or monthly meal plans. Content streaming, online dating or video gaming merchants might allow one free month subscription before billing customers every 30 days for access to unlimited or limited entertainment.
There are also subscription businesses that physically mail you a box every month. The items in the box are so varied these days that they could be socks, teeth whitening kits, skincare samples, nail polish, sweet or savoury snacks, or even pet treats. Really, the possibilities are endless!
Making more money through subscription marketing
Merchants love subscription marketing, because it creates ongoing revenue. Single offers are just that, a single purchase. If a customer only buys one time there’s no opportunity for recurring income. A monthly product or service expands your revenue stream for a longer period of time from the same customer.
Online personal trainers usually don’t scale if they’re only selling a single one-time meal plan or workout program. However, they can increase their revenue stream by offering a special 6-month HIIT membership online or a monthly subscription of weight loss supplements (from a trusted brand of course).
Merchants that offer online content can achieve the same sales tactic. Instead of allowing customers to view a single video or course, they might offer content packages (e.g. $19.99 for 20 hours per month, $39.99 for unlimited access, etc.). You can provide great content and a user-friendly members area with login access to keep the customer coming back for more every month!
Many merchants like to offer an upsell immediately to customers after their initial purchase. This is a great way to increase your revenue immediately, but there are rules and guidelines to follow to ensure you are compliant with the bank’s regulations and avoid excess chargebacks. Charging a customer multiple times in the same day might cause buyer’s remorse when they get their credit card bill, which can result in higher chargebacks down the road.
Additionally, without solid processing history, upsells may make getting an approval for your merchant account application more difficult. It’s best to get some experience selling your product before using this sales tactic. Using your mailing list to market additional products is an additional way to make more money. Get a strong copywriter to write your message, and don’t spam or email your customers too often!
Subscription marketing can spike chargeback disputes
High chargeback rates and fraud are the biggest downside to subscription marketing. Customers sometimes forget they agreed to a purchase. They also genuinely may not recognize the charge on their credit card, resulting in reporting an unauthorized order to the bank. There are also customers with the intention of cancelling your offer after many months of subscribing and never actually get around to it.
Finally, there’s the case of double refunds when customers call for a reimbursement or to cancel the product/service. In most cases if money isn’t refunded fast enough, the buyer will initiate a chargeback with their bank. Additionally some high-risk merchants experience friendly fraud when customers subscribe, receive the product or service, then issue a chargeback claiming they never authorized the purchase.
Combatting the risk
Reducing chargebacks and risk overall begins on your checkout page. This is why it’s important to be as transparent as possible before your customers press the subscribe button. Here are three tips to help you kick things off:
- Include your billing descriptor so that buyers recognize that the charge to their credit card is coming from your brand. If possible, make sure it includes your customer support number.
- Always link to a terms and conditions agreement via your checkout page so the customer knows what they’re buying before they click a buy button.
- Always have a refund and cancellation policy clearly displayed on your checkout page. There’s no better place than the footer of your website.
- Ensure you have a checkbox (confirming price and terms of sale) that can be checked off before the buy button is clicked.
The tips above are just a start and are aligned with California Senate Bill No. 313. For more tips on how to enhance your checkout process, go to the blog post 10 Tips To Build A Kick-Ass Checkout Page That REALLY Counts.
Customer support also helps reduce risk to subscription merchants
Your customer support team plays a big part in reducing your risk of chargebacks on continuity. We’ve highlighted this before on the DirectPayNet blog.
Customer service can make or break your business. It can also affect your chargeback and refund ratios. Are you outsourcing your customer support team? Is the quality of service a good reflection of your company? Do the hours of operation allow your customers to reach you during reasonable or extended parts of the day? You and your team should address all of these questions while setting up your high-risk merchant account.
Many merchants spend tons of time perfecting their marketing and business practices to achieve high volume sales. Unfortunately, they neglect the potential losses that can incur when unsatisfied customers ask for refunds or even worse, contact their bank and issue a chargeback. Acquiring banks charge a chargeback fee so you’re actually losing even more money. Worse, you may lose extra revenue lost from referred sales that became a chargeback if it came from an affiliate to whom you paid commission.
To read more advice on using customer support to the advantage of your business, go directly to this blog post.
How subscription marketing affects merchant accounts
Initially, many of our high-risk merchants get excited about adding continuity marketing to their business. But they soon learn it’s more challenging than anticipated! If you have already been approved for a merchant account make sure that your acquiring bank allows recurring billing. You probably aren’t aware, but subscription marketing is given its own specific merchant category code (MCC). Therefore, if your account is assigned an MCC it doesn’t automatically mean adding continuity to your offer is permitted.
Do you have a merchant account for a business selling a single offer? Even if your acquiring bank permits recurring orders you should consult your merchant service provider to help integrate continuity into your checkout and gateway. Your provider should assist in ensuring your website is compliant. Adding continuity to a single offer without your acquiring bank’s approval could be a violation leading to account closure.
DirectPayNet can guide you to your next merchant account
As you can see, subscription marketing has evolved significantly since the days of Columbia Record Club. Today’s Netflix-style companies thankfully aren’t the only subscription brands around. There are plenty of merchants with legitimate businesses who are using the subscription model to their advantage. However, there are challenges at the checkout and after the buy button is clicked.
Do you have a recurring billing model and aren’t getting necessary help from your current provider? Need a merchant account for your subscription business?