Expanded Billing Options Increase Sales
In today’s consumer driven market not only does the price need to be right, so does the billing model. At DigiPay we support a range of billing options from one-time straight sales to recurring, SAAS, and more. This article explores a variety of billing options and best practices to improve customer satisfaction and lower chargebacks. If you have questions or want advice on which billing models are best suited to your business we are here to help.
Also known as “straight sale,” this is the traditional and straight forward one-time purchase model. In this scenario the customer pays a set price once and receives an agreed upon product or service in return. Higher risk merchants using a straight sale model will have more banks willing to accept their business than those using trial and/or continuity offers.
Benefits of Straight Sale:
- • Higher Approval Rates for Merchant Accounts
- • Application Process Streamlined
- • Expedited Approval
- • Fewer Chargebacks
- • Lower Risk
Subscription billing models vary widely and can be customized to accommodate customers preferences. The most common fixed recurring subscriptions are rebilled monthly, bi-monthly, quarterly, or annually. Some merchants, such as Sirius XM, offer a sizeable discount for prepaying a year in advance. If the fixed amount changes, as is commonly the case with annual subscriptions, it is important to notify the customer in advance to avoid chargebacks.
Subscription billing models have multiple benefits. One of these includes increased cash flow. Because of this, revenue predictability is another benefit you can expect. If your customers enjoy the product, then you will also see increased lifetime value of customers. All of this leads to better cash flow management and higher customer retention as well.
A fixed monthly recurring subscription is when the customer pays a fixed amount every billing cycle and receives a specific product or service each billing cycle. The rebills can either be for a set period of time, or continuous (recurring) until the customer decides to cancel. This is the most common subscription billing model.
Free Trial + Fixed Recurring Subscription
When it comes to free trials, customers enroll using their credit card to pay for shipping & handling in exchange for a product or service they receive for free for a certain amount of time. Once that time period is over, if the customer fails to cancel they will be automatically enrolled to receive a recurring subscription. This is commonly referred to as a negative option trial offer. Many companies including Amazon Prime, Sirius Radio, Netflix, and LinkedIn offer negative option free trials. With free trial offers merchants are required to provide customers with the following:
- • Clearly and Prominently Disclosed Terms and Conditions
- • Length of the Free Trial
- • Cancellation Policy
Pro Practice: Send your customers a reminder that they will be charged for goods or services before their free trial is over. If you do not do so, your customers may be unhappy as people are often forgetful. Even if you warned them that they would be charged at the initial sign-up, they may still become frustrated because they forgot they signed up for the service.
There are several benefits to offering your customers a free trial. One of these benefits is that it entices customers to gain first-hand experience with your product. By offering your customers a way to experience your product before they buy, they will become familiar with your product and how it works. This allows them to see whether or not they enjoy your product. If they do, it is likely that they will allow their subscription to continue once the free trial period ends. Not having a free trial available may cause customers to find a different product that does offer free trials to test it out and see if it fulfills their needs instead of yours. A free trial also makes it easier to get marketing leads and lowers the friction of converting. When people go to the store, they can test out their products and get a feel for them. Online, this experience is nearly impossible to replicate. The uncertainty that the customer feels may cause friction between the consumer and purchasing a product. Offering a free trial helps to ease this friction. A free trial allows people to see what it is exactly they are getting into before officially committing. By creating a personalized experience with a product, they feel more comfortable about making an informed decision.
One-Time + Recurring Subscription
This is also known as a hybrid model, a straight sale and continuity, or straight sale and subscription model. With this model, a company will sell a product in a one-time purchase and then combine it with a subscription product. Customers then have the option to sign up for the additional subscription service at the time of purchase. Even if customers choose not to opt-in to the subscription service, companies can still entice them to buy the subscription after purchasing the product depending on how successful their marketing strategy is.
A good example of this billing model is Amanda who is purchasing a jar of skin cream for $50. At the checkout page, she is offered the option to sign up for an automatic refill every month for $40 per delivery, a savings of 20%. Because she likes the convenience and the savings Amanda opts-in for the subscription service.
There are many benefits to the hybrid model. After making a straight sale, you can continue to earn profits with the subscription model that comes after it. This includes the benefit of having a sale in the first place as well as the benefits that come with the subscription model as well.
This model is based on the idea that it’s cheaper to buy and sell in bulk rather than buying one product at a time. Volume based pricing offers competitive rates to customers who choose to buy a larger amount of a product at once, or who choose to buy additional months of a service in one purchase.
Example A: Ethan buys power bars online. One box of four bars is $15. However, Ethan also has the option to buy three boxes of them for $36 which comes out to $12 per pack. Because he is planning to buy them again in the future, he chooses the bulk option.
Example B: When Ethan isn’t working out, he does free-lance web design. He can pay $30 for a Graphicspro software license valid for this month only or he can pay a one-time fee of $240 for a software license that is valid all year. The second option breaks down to less than $20 per month. Since he wishes to use Graphicspro for over a year, he opts for the one-year license.
The benefit of volume-based pricing is that customers will purchase more items than they intended to originally buy. This also offers competitive rates to customers which means more sales for your company!
Bundling is another model that offers customers the option to buy more items at a better value. In this case, customers are offered the option to buy an item related to the product that’s already in their cart for a lower price than they could buy the item for if they were to pay for it individually. This way, companies can encourage the customer to buy an additional item now instead of coming back for it in the future.
Bundling often overlaps with the concept of upselling. Upselling is when a company offers an additional product or upgrade to a customer in order to increase the total value of their order.
For example, Kelly is buying shampoo online, she is also offered hair conditioner at 30% off the regular price.
The benefit of bundling is that you encourage your customers to buy more items than they originally intended to purchase. Bundling also helps to increase profits on individual sales over time and increase efficiency.
For particularly expensive products, businesses can offer their customers a payment plan, the option to pay off a single purchase in regular installments instead of in one lump sum. This makes it easier for customers to buy higher ticket items.
Some benefits of a payment plan include the fact that people who cannot afford your product in one lump sum can now purchase the product through several small payments per month. You get your sale and the customer can purchase their desired product. It’s a win-win situation for everyone involved!
One example of how this works is to consider a company selling high-end home fitness systems and a customer named Tom. Tom visits the website and watches the video promotion. He wants to make the purchase and get in shape now, but he doesn’t have an extra $2,000 of disposable income. However, when Tom is offered the option of a payment plan he realizes he can afford $400 over the next 5 months. Tom makes the purchase and the business makes a sale it would have lost.
Discounts are every customer’s favorite pricing model. Sales and discounts can apply to single purchases or to subscription models. They also come in various different forms. There could be a percentage off a product category, a coupon for a dollar amount off a particular item, gift with purchase, and many more. Discounts are a wonderful way to reward and incentivize your customers to buy products post haste.
The benefit of a discount is that customers are enticed to purchase more than they normally would. While customers are paying for your product at a discounted price, you are still likely to see an increase in sales which will make up for the price difference. Discounts can also encourage customers on the fence about your product to buy it if they know they will be receiving it for less. A decreased price can lead to an increase in sales!
The world of eCommerce is highly customizable and so are the payment options you can offer customers. Something as simple as changing your pricing structure can often result in a big change for your business.