Auto-renewing is an efficient way to collect funds owed to you from customers when they’re regularly using one of your subscription services. It is cost effective as it limits the amount of administrative tasks that you have to complete and lowers the chance your customers won’t pay on time. Both of these make it easier to predict your monthly cash flow.
However, it is not always the best option to set up customers on an auto-renew system immediately. Sometimes they might only want a taste of your services before committing or perhaps they only need your services for a short period of time.
Placing them an auto-renewal billing system might then annoy them and probably reduce the time they will use your services.
So when is it best to sign up to customers for an auto-renew? What should the criteria be when it comes to signing them up.
1. Regular Costs
One of the best measures is to check that your customers are on a regular payment plan. If you have a service like a membership site or a software program, which has a set price for usage, then your customers might be suited for auto-renew billing. This helps to prevent customers gaining access to your services when they haven’t paid.
It is also easier for your customers. If they know there is a regular fee, due on a specific date, then they can be prepared for the payment in plenty of time. However, to make this more effective, there are several best practices for your accounting system:
- Send out a reminder to your customers seven to fourteen days prior to payment is required. This is to ensure they can find the funds to pay and makes it easier for you and them.
- Don’t raise the price without informing your customers with at least one or two payments notice. This will give your customers chance to decide whether the value of your service is worth the price increase.
- Don’t increase the prices too often. This can annoy your customers significantly and can result in an exodus of customers.
2. Set Product Amount
If you are offering a specific amount during each payment period, then an auto-renewal is normally acceptable. For instance, if you are an online accounting software provider, the customer has set expectations and you likely have a regular subscription price.
However, if you are an energy company or a food service, where your customers’ consumption will differ throughout the year, auto-renewal might not be the best option.
3. Period Of Renewal
One of the best advantages of having your customers on an auto-renewal system is that it saves you and them administrative time. If the period of your renewal is short, like once a week or month, then it would take a significant amount of time for you to administer manual payments – especially if you have numerous customers. This makes auto-renewal cost effective.
However, if your renewal time is once a year; you should ask your customers when it comes to their renewal whether they want to continue, instead of assuming it. This is because 12 months is a long time; your customers might change their mind and no longer feel that your services are valuable enough to justify the subscription fee.
Using an auto-renewal subscription system is one of the best ways you can manage your subscribers and ensure your customers regularly pay and receive your services. However, not all subscription services are suitable for auto-renewal billing and you need to check whether using auto-renewal is suitable for your business and customers.