How to Set Up Recurring Payments for Subscription-Based Businesses

Recurring payments are crucial for subscription-based businesses. They ensure a constant cash flow and make businesses’ revenue predictable. 

From a customer’s standpoint, recurring payments are also beneficial in terms of convenience, and flexibility. 

What’s more, such payments can lead to a higher customer retention rate and loyalty. Think about services like Netflix and Spotify, both using the model of repeat payments. 

“Recurring payments are at the heart of subscription businesses, ensuring a steady revenue stream and allowing for predictable growth and scale.”

– Tomas Slimas, Co-Founder of Oberlo, Former Shopify Director

Do you know how to set up recurring payments? If not, make sure to keep reading as we find out all about recurring payments.

How to Set Up Recurring Billing: Step-by-Step Setup and Automation

1. Choose a Payment Gateway
2. Integrate the Gateway Into Your Platform
3. Specify Billing Cycles and Pricing Plans
4. Allow Self-Management Options
5. Monitor Billing Metrics and Optimize Over Time
6. Comply With Security Standards

1. Choose a Payment Gateway

You have to select a payment gateway that supports automated recurring payments. Additionally, you need to make sure that the gateway can integrate with your existing business software. 

Additionally, it should support key features like customizable customer billing cycles and secure customer data storage.

2. Integrate the Gateway Into Your Platform

Once you’ve settled on a gateway for your business, you need to integrate it into the platform you are using. More often than not, eCommerce and subscription-based businesses use Shopify, WooCommerce, or ReCharge.

Such platforms typically have straightforward plugins for integrations. However, keep in mind that some custom implementations may require coding and API documentation from the payment provider, especially if advanced features are required.

3. Specify Billing Cycles and Pricing Plans

Setting up recurring payments also involves choosing the frequency of billing (monthly, quarterly, annually) and creating various pricing tiers, if that is something you want to do.

Don’t forget that flexible billing cycles and different pricing tiers will provide customers with the opportunity to choose what’s best for them, which will enhance their overall user experience.

4. Allow Self-Management Options

Giving your customers the option to manage their own profile – reduces your workload and improves their satisfaction. Create a customer profile where they can update payment information, change subscription tiers, and view their billing history.

5. Monitor Billing Metrics and Optimize Over Time

Of course, you should never stop trying to optimize your recurring payment process. Monitor your metrics, like Monthly Recurring Revenue (MRR), Customer Lifetime Value (CLV), and Churn Rate, and try to make improvements over time.

Use this data to make adjustments to your pricing strategy, billing cycles, and customer retention tactics.

“Key metrics like MRR and churn tell the story of your business. A deep understanding of these numbers is essential for making informed decisions and growing sustainably.” 

– David Skok, General Partner at Matrix Partners.

6. Comply With Security Standards

Last but not least, don’t forget that it is crucial to comply with security standards, like PCI DSS. It goes without saying, but make sure your payment gateway provider is PCI-compliant and uses secure methods, such as tokenization and encryption.

Protecting sensitive customer data is not only mandatory but it will also increase your trustworthiness, and customer loyalty.

What Are the Common Challenges for Subscription-Based Businesses?

1. Payment Failures
2. Customer Churn
3. Lack of Transparency
4. Compliance and Security Issues
5. Lack of Self-Management Options

1. Payment Failures

Naturally, one of the most common problems subscription businesses face is non-payment. Most often, this is caused by expired credit/debit cards, insufficient funds, or technical issues.

Whatever the reason, though, it can lead to a negative user experience and potentially to users leaving your platform. 

The best solution to prevent this is to implement dunning management, which is a process that automatically retries unsuccessful payments and notifies customers when their payment method needs to be updated.

“Dunning management should be standard for any subscription business. Automated retries and friendly reminders go a long way in retaining customers who might otherwise churn due to preventable issues.” 

– Rob Walling, Founder of MicroConf

2. Customer Churn

A high customer churn rate is another major issue for any business. Inflexible billing options, in particular, can lead to an increase in the churn rate. This happens because customers may prefer to pay monthly, instead of annually, or the other way around.

In short, if you don’t offer enough flexibility, you risk losing a lot of customers. “Flexibility in billing cycles can greatly enhance customer retention by catering to individual needs.”, as Lincoln Murphy, Customer Success Consultant, puts it.

3. Lack of Transparency

Insufficient transparency in your billing statements could potentially deter a significant number of individuals from engaging with your business. After all, when customers receive unexpected or unclear charges, they may feel distrustful of your service.

Thankfully, the solution is simple. Be sure to provide clear information. Use a transparent invoicing system that outlines the services billed, discounts applied, and payment due dates.

4. Compliance and Security Issues

Since you are in charge of storing sensitive information about your clients, you need to take extra steps to protect it.

This includes compliance with PCI-DSS, using advanced encryption, and tokenization, and regularly reviewing security protocols.

5. Lack of Self-Management Options

As we mentioned earlier, self-management is an important part of customer satisfaction. Give your clients the freedom to use a self-service portal so they can change their payment options and billing cycles, upgrade plans, as well as view their payment history.

This will give your clients a sense of ownership, and will reduce the workload of your customer support team. “Self-service tools are essential in any scalable subscription model,” – Dharmesh Shah, CTO of HubSpot.

Choose Electronic Transfer

If you wonder how to set up recurring payments – a well-optimized recurring payment setup is crucial to customer satisfaction and steady growth in subscription-based businesses. 

Electronic Transfer, Inc. offers payment processing services that can help subscription-based businesses make recurring payments more efficient and secure.

We believe that your subscription payment platform can go a long way, and we are here to support you in reaching your goals. If you need a hand, ETI is just a phone call away (800-757-5453), so don’t hesitate to contact us.