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The Benefits Of Recurring Payments For Ecommerce Merchants


Recurring payments and recurring billing are the cornerstones of the ecommerce subscription business model. 

For customers, the ability to input their checkout details one time for a recurring shipment is highly convenient and beneficial. You have probably been prompted for a credit card at checkout and then had to track down where your wallet or purse is hiding.

From the merchant side, consider how many people abandoned checkouts are avoided because customers vault their payment information with your store. Merchants also gain the tremendous benefits of recurring payments, like predictable revenue and inventory planning, multiple touch points to build rapport and brand loyalty with consumers, and a higher average order value (33% on average)

Consumer readiness for recurring payments

Consumers have been familiar with recurring payments since long before the internet. For decades, Magazine subscriptions and weekly newspaper deliveries have habitually shown consumers that they can be charged at regular intervals and receive products and services regularly.

Then with the advent of the internet and the boom of ecommerce merchants, consumers, especially those in the Millennial and Gen Z demographics, have grown very comfortable with recurring payments. When the value of a product or service is demonstrated, for example, a $8-a-month Netflix subscription, the barrier to entry is relatively low, and adoption can spread quickly.

recurring payments is critical in any DTC subscription business.

The convenience factor of a recurring payment

Automated recurring payments allow customers to “set it and forget it.”  And then, with regular reminders of their upcoming shipments or credit card billing, customers stay informed and in control of their subscriptions without having to go through the checkout process every time.

With monthly subscription boxes, products are delivered directly to a customer's doorstep, creating the long-term relationship many companies strive for. Offering options like various regular intervals to receive a shipment or one-time purchases give customers the flexibility and autonomy to customize the payment schedule. An excellent example of this functionality is in Blume’s product checkout. They allow their customers to purchase a one-time product or save on a subscription and select their payment schedule.

cancel. Active churn, where customers choose to compensate for various reasons within their control, can occasionally be presented as options to reactivate the subscription. However, passive churn, or dunning, can occur when there’s an issue, such as insufficient funds in their bank account or billing errors. Having recurring billing automated allows you to notify customers when there has been an issue so they can remedy the situation.

According to Zachary Jarvinen, Vice President of Exact Payments“Recurring payments work for customers because they are tailored to provide them with the most convenient experience possible. By allowing subscribers to feel empowered in their purchases, you give them the control they crave while maintaining a regular payment schedule.

What are the types of recurring payments?

There are two main types of recurring payments, fixed and variable. Fixed regular payments are repeatable amounts that do not change regardless of the services rendered that month. A great example is Dutch, a pet care company specializing in television and prescriptions for a fixed monthly payment. As part of their customer’s monthly membership fee, they provide all services and medication for the pet, regardless of changes to their needs.

Dutch charges a fixed monthly rate for customers to get veterinary care for their pets regardless of services that month.

Variable payments are those that can ebb and flow with the changing needs of the customer. An example of a variable recurring payment is typically in a usage-based environment, like SaaS tools or web-based applications. These payments shift depending on the user or customer's consumption in a given timeframe.

Merchant benefits from recurring billing

Consumers are typically very comfortable with recurring billing, and merchants benefit significantly from a subscription-type business model. Recurring billing allows merchants to have advanced knowledge of how much revenue they will be bringing in in a given period, allowing for future planning. The predictability of incoming revenue can take the pressure off acquiring new customers and shift the focus to retaining existing customers.

The billing cycle should be when outlined clearly for customers and remain consistent. Raddish, a cooking club designed for kids, is an example of the clear communication needed. They explain the entire subscription process on their website, from what the customer needs to do, and what they will receive.

transactional SMS, the customer portal, or via email— empowers them to stay on top of their subscriptions. You can increase their lifetime value from 15% to 32% by increasing engagement! Additionally, a customer who is involved in their purchases every month is less likely to experience both active and passive churn. This level of communication is a huge opportunity for customer retention and results in fewer missed payments.

Subscription billing also requires an appropriate payment processor that can automatically charge customers for the goods or services they are receiving. For example, Recharge accepts automatic payments for both credit and debit cards during the checkout process. A customer’s payment information must only be entered once during the initial purchase, making it highly convenient for them.

As illustrated with the Blume example, subscriptions can have various intervals that work within a customer’s needs, whether every month, yearly intervals, or somewhere in between. Many subscriptions also result in cost savings for the customer,

Payment details for subscription payments

Whether you choose fixed or variable payment terms for your subscription service depends on the type of subscription business model you choose.

Subscriptions allow for both recurring payments from customers and recurring revenue for merchants.

Access, or membership-based, businesses charge customers a monthly or yearly fee for unique benefits. Many connected fitness brands choose this route, as exercise equipment is typically a one-time purchase. Customers are instead paying for access to things like specialized content or classes.

Replenishment businesses became ever-popular during the pandemic in that they act as a refill of commonly used products. Often found in household items like laundry detergent or toilet paper, replenishment subscription brands have been researched to understand exactly when a customer is about to run out of their product, only to have a new shipment arriving on their doorstep.

Curation businesses, the most popular subscription model, are often used in specialty boxes. From fashion and apparel to beauty brands, curated subscription boxes focus on the “surprise and delight” factor with their customers. They create an experience that keeps customers coming back in hopes they’ll get to try something new.

The payments accepted for these three types of subscriptions are generally the same, utilizing a checkout that allows customers to choose to subscribe to a particular product. The details of the payments for consumers can live on a dedicated subscription landing page, linked right from the checkout page. This gives new subscribers the information they need to decide whether or not to subscribe to your brand’s goods or services.

How do I accept a recurring payment?

It’s imperative to find an application to help automate the recurring billing for your brand so you can reap the benefits of having predictable revenue. You can think of an application like this as a periodic payment system that allows for a seamless checkout process for your subscribers without reinventing the wheel. So how do you accept regular payments for your goods and services?

Implementing a subscription payments solution like Recharge takes most of the guesswork out of setting up a subscription-focused checkout. Instead, it lets you focus on building solid relationships with your subscribers. These solutions are designed to simplify the complex in a recurring payment model.

Special thanks to our friends at ReCharge Payments for their insights on this topic.
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