What is Recurring Billing?

Recurring billing is effectively subscription modelling for businesses transacting online. You automate charging customers for a product or service at a predefined cost and schedule. There are two key factors involved in planning recurring billing.

1. The time span between charges that affects how you retain and acquire custom.
2. The access model - usually different price plans, options and possibly a freemium service, which offsets the cost of giving away a limited but free service against the profits of more likely upgrades.

Why is recurring billing good for my business?

A business relying on one-off transactions may initially bring in more revenue but will most likely struggle to retain the customer over a long period of time. Recurring billing usually results in a higher Average Customer Lifecycle Value (ACLV), a predictable income stream (Monthly Recurring Revenue - MRR) due to a combination of customer inertia and commitment as the relationship shifts from a purchase to opt-out decision and has more potential for up and cross sell as you have good reason to be in regular contact with your users.

In terms of valuing a business these patterns of predictable recurring revenue are hugely attractive to investors and purchasers as they can see genuine opportunities to scale and mitigate risk.

What the potential pitfalls?

The two major areas of difficulty revolve around the security of the sensitive information you acquire and the technical systems you need to put in place to automate these processes.

Security
Storing sensitive financial data about your customers presents you with massive security risk and plenty of legislative red tape to boot. Your servers must be PCI-DSS (Payment Card Industry Data Security Standard) compliant which is costly and complex to achieve.

In addition to that you may be more susceptible to direct fraud as criminals often use free trial offers to verify stolen credit information.

You might remember the Sony PlayStation scandal in April this year when its systems were breached and the personal data of 75 million customers including some credit information and passwords were compromised. It brought the network down for several weeks and caused a public relations furore. Their systems were not fully restored until June and the trust of their customers was severely damaged. The whole episode is believed to have cost Sony £105 million. A security breach is not something to be taken lightly.

Technology
Building a recursive billing system quickly mounts up to be a considerable technical challenge (and therefore requires time and investment). Here is a quick brain dump of functions you will need to deal with:

• Daily invoice generation and account management
• Sending emails and dealing with spam filters, bounce backs etc.
• Multiple prices plans
• Credit card fails and re-attempts to bill
• Discount coupons and free trials
• Upgrades and downgrades
• Expiring cards
• Different currencies (potentially)
• Tax implications of multiple geographic regions (potentially)

A complex system like this is inevitably going to have errors and bugs in it at launch. Every system does. Will your early adopters tolerate this whilst you fix the problems?

On top of that you will have a system running that needs to be continuously up, processing data, being maintained and scaling in order to keep the engine alive and up to date. And of course you need to make sure it is secure! For an engineer’s perspective check out this blog from Freshbooks.

What recursive business model should you adopt?

Broadly speaking the model splits into Annual or Monthly billing cycles with free trials or “freemium” no cost limited accounts as a popular extension.

Annual payments give you more cash upfront, guarantee customer retention for at least one year and reduce invoicing and collection costs. However monthly payments are less risky for the customer who may not be keen on such a long upfront commitment or high cost. Monthly therefore creates a lower barrier to entry so you could see an increase in customer acquisition. Your sales process should shorten, as the proposition is less risky and more cost effective.

I think for most online businesses the monthly billing cycle is better for the reasons outlined above but also as it provides you with an opportunity to talk more frequently with your customers, make sure they are still using your service to it’s fullest potential, up or cross selling and reminding them you are here and happy to help.

With annual payments you run the risk that your customers may have completely forgotten who you are, or moved on from their jobs or decided to seek an alternative. There is also a legal implication (in the US at least) that if you bill on anything over 60 days you must send ample warning of the renewal, at least 30 days. This gives the customer more time to consider cancelling or shopping around. On a monthly billing cycle you can bill and email them the same day but as they should be used to receiving the emails this shouldn’t be too great a shock.

You could also consider a combo deal that has a monthly plan as well as a reduced annual option for those customers that know they will stick with your service and are happy to just to pay in one go and save some money. These customers are less likely to fall into the annual payment traps above.

A few golden rules for emailing your bill:

1. Always explain the charge. Remind them of the service they are getting and that it has been previously authorised. “You have been charged $XXX” does not cut it!
2. Don’t miss the opportunity to upsell or add value with marketing copy. A slight discount on the next product tier could be all it takes to bring more revenue in. Likewise a gift or a simple thank you could seriously impact your retention and reduce “bill shock”.
3. Make it super simple for the customer to access your customer service team. Preferably by simply replying to the email or with a clear phone number. This is really the point at which you want to be talking to them and cementing/saving your relationship.

What technology is out there to help me?

Over the last few years several companies have been launched to help alleviate the issues around recurring billing. These guys sit above payment providers such as Sagepay and do all the hard work so you don’t have to.

Chargify, CheddarGetter, Recurly, Spreedly and Zuora (more of an enterprise offering) are the major players in the space. Sadly most of them have quite poor UK payment gateway support so we plumped for Recurly for our apps who have been excellent. Spreedly also have good UK support and hopefully the others will catch up soon so you get a greater degree of choice.

Paypal have a recurring billing option but I would highly advise avoiding them despite the fact that getting setup is relatively painless. My reason? Poor support, random behaviour, tricky deep integration methods with a lack of features and customisation.

What you should be looking for in your billing partners, aside from price

• PCI-DSS Level 1 Compliant service - which makes verifying your own business’ compliance easy
• Support for your favoured currency(ies) and payment gateway
• “Grandfathering” of costs - a pledge to honour the deal you sign up to if costs change in the future
• Adherence for the Data Portability Standard to ensure you own your customer credit data
• A complimentary feature set or flexibility for custom elements to fit with how you want to run the accounts of your business
• Developer friendly tools such as well documented APIs and relevant code integration examples for your tech team’s preferred language

Phew, that was a longer article than I had planned! If you have any thoughts or questions on this please leave a comment below. Happy billing!

Ever heard of Groupon?

If you haven’t you soon will. Groupon offers one discount coupon deal per day in cities around the world. The trick is that the deal only kicks in if enough people buy it. The site heavily utilises major social networks to help and incentivise bargain hunters to share the good news with their friends in the hope that the deal is triggered - "collective buying power".

Since launching in late 2008 it has taken off in the US and has inspired a large number of lookalike companies and campaigns in the space as well as creating a market for unredeemed coupon trades. Speculation has recently been mounting that a big number takeover bid from Yahoo, Google, Amazon or eBay is imminent.

The business is also growing internationally through acquisition and natural growth and recently ran its first nationwide campaign for Gap across America.

But was it successful or not?

The $11 million Gap day was timed to coincide with the back-to-school rush. 445,000 shoppers bought a $25 voucher for $50 worth of Gap clothing, a move that sparked a huge amount of buzz online (well, before they decided to muck about with their logo).

This buzz would have boosted Groupon’s subscriber base enormously as well as make them a decent amount of money, Groupon normally take 50% of the coupon price. However marketers are divided over the value of the campaign.

"All in favour say I"

The average purchase of a Gap customer once in the store is likely to be a lot higher than $50, especially around the back-to-school period when the majority of stock is at full-price.

The offer expires after 3 months. After that, Groupon buyers can exchange their voucher for a $25 gift card instead of the $50 credit. Those that do not redeem at all are simply lining the pockets of Groupon and Gap.

Gap may have negotiated a better split than the normal 50% due to the value they bring to Groupon in terms of new subscribers. Gap running on Groupon also enhances their image considerably and the word of mouth spread was highly effective. There is also a brand building element as users that don’t buy are still hearing about the business and its latest messaging.

Marketers have compared this multi-million dollar marketing spend to the effectiveness of a magazine or TV ad which instills less reason for the customer to come in through the door. A Groupon customer has already spent the money, valuable cash in the bank until the customer redeems it, and a far greater incentive to follow up.

"I just don’t buy it"

The economics don’t work for most businesses. It’s nearly impossible to make a profit when you are giving away 75% of the initial purchase (50% to the consumer and 25% to Groupon) unless your new customers return regularly. In effect the $11 million in revenue is also potentially $11 million in losses, not taking anyone else’s cut into account.

“Breakage” - the theory of a certain percentage of people forgetting to redeem is not a stable business model. Groupon also sends reminders to its users near the expiration date and remember the user has already purchased, they are likely to redeem!

It caters to the psychology of the bargain hunter who may have never had any intention of shopping at Gap except for this one offer. Arguably they are now only happy to shop at Gap at this value level and no higher. Assuming you need repeat purchases or large basket sizes for the campaign to make sense does this really target the right consumer mindset? Effectively this is a traffic buying exercise resulting in fickle new customers, loyal to deals, not the brand.

This is not the start of a beautiful relationship. Promotions are supposed to help you reach new audiences and develop rapport. In this case the giver of the discount is Groupon, not Gap. The loyalty is not really to the one suffering the margin shortfall.

You are at the mercy of the 50% off culture that has arisen on Groupon. Comparatively a 15% or 25% offer would look stingy but not every business has the same margins that they can afford to play with.

So should we do it?

I have put a stronger case for reasons not to commence a Social Coupon campaign because I think the reasons in favour are fairly obvious. A recent study from Rice University concluded that 66% of the 150 merchants interviewed found Groupon profitable, 32% making no money. In total 40% said they would not participate again.

So, like a proper History graduate I am going to say “Yes, Groupon is worth investigating, but…”
Here are a few tips:

• Do your numbers – there are a huge amount of financial factors to be considered when putting the case for Social Coupons forward. It’s not a straight forward algorithm and you need to be honest with yourself about the stickiness of your full price proposition.
• Quantity does not guarantee profit and in fact could even sink you! Be prepared with a bucket when Groupon turns the tap on - they don't cap the deal at x number of sales, build that into your equation.
• Make the execution of your offer watertight – this is going to cost you and the experience a new Groupon customer gets is crucial. Your entire client facing staff need to be up to speed on the deal and also well trained in upselling or ensuring repeat business.
• Make the terms of your Groupon deal totally clear to your customers - you want them coming back but not at a 50% loss to you each time.
• Beware that you can’t necessarily determine the day your Groupon runs. You need to be careful when negotiating it around a time of year that ideally suits your business. For example a gym would be targeting New Year when health and fitness is most on the mind.
• Groupon users are mostly young. 68% are aged 18 to 34 and they are particularly strong on certain demographic groups such as females. Make sure their audience overlaps with yours!

Some final thoughts on Social Shopping

Typically brands that gain the greatest purchase results through Social Media tend to go one of two ways - either through offering coupons or discounts, or by making noise during sales or special event periods. A survey by Morpace found that 37% of Facebook users joined fan pages for special offers.

eMarketer senior analyst Debra Aho Williamson says, "Coupons remain a leading driver of brand interactions in social networks. At the same time, they can be one of the trickiest social media tactics to pull off. The discount offer must print or download easily and must work as promised. And the retail store or distribution channel must be prepared for demand."

Is there a less scary way?

Maybe you should consider a location based promotion (like Starbucks and L’Oreal) or checkin discount instead? Gap did that as well! The penetration is not quite there yet but Facebook Places is going to change that. The quality of customer is higher and it oozes user evangelism, which is what you are ultimately after.

You can read more about it here. I’m off for some discount booze and food down my local pub.

We all get to that point, two or three years after launching our ecommerce website, sales growth isn't want it used to be, new customer acquisition is faltering, the site has lost its "magic". Yet we're all terribly busy maintaining it. How did this happen? How did our wonderful source of revenue become well, stagnant?

Don't fear Stagnation

Stagnation is a natural part of any system lifecycle. After the initial jump in growth you experience after implementing a new ecommerce offering, your ability to sustain it is limited. The features and quick wins that you achieved are already out there, you focus on ensuring the visitors are catered for and most of your effort goes into the day-to-day operations of running your site. Coming up with the Next Big Thing is increasingly hard. Frequently more money is pumped into Marketing, vastly increasing your cost per acquisition because your site simply isn't converting like it once was.

However, when you realise your site has stagnated, this becomes a wonderful opportunity for change.

Featuritis

Featuritis is a symptom, rather than a cause of Stagnation. Featuritis is a term coined by Kathy Sierra, a prominent blogger on User Experience, to describe what happens to software when new features are continually added.

Thanks Kathy for allowing re-use of your work

She describes the point of the Happy User Peak, the point when there is just enough functionality to please the user, without leaving them wanting more, or conversely, reaching for the instruction manual.

However, after the initial stage of growth, it's very easy to get into the mindset of adding new features, sections and functionality to your site to help maintain the growth you've achieved.

Without pragmatism, not just from you but your Board, and quite importantly, your Helpdesk, you can easily find yourself responding to users' demands through continuous developments. Multiple exotic payment options, unnecessary wishlist & comparison pages, complicated delivery options and "me too" social media integration are just a few of the ways to add complexity that can frustrate a large percentage of your audience.

Operational vs Strategic

After successfully running an ecommerce operation for a year or so, it's easy to get stuck in the day-to-day operational tasks. Content creation (certainly for smaller shops), catalogue management, helpdesk management, can all make you lose site of the vision of your ecommerce store.

Econsultancy, back in the day, created an incredibly useful map of the tasks that need to be undertaken to run an ecommerce store. Taking the ACRA model - Acquisition, Conversion, Retention & Analytics - these can easily be carved into a series of remits for you and your team.

If you find yourself consistently working on the Operational side of the business, with no time to work on the Strategy & Planning, then we have a problem. Not only are you not keeping an analytical eye on your competitors, you are also unable to focus on your vision and drive innovation - a quick route to stagnation.

Don't be reactionary

So, you've sat down with your Board, and said "I think our site has stagnated". My aren't you brave! There's often a compelling urge to scrap everything and start again, to rebuild from scratch and let's do it better this time.

However this is not only costly, but unnecessary and dangerous. Within larger organisations a considerable amount has been invested in integration, certainly with fulfillment and CRM.

Remember when you conducted Stakeholder Interviews at the start of your project? Do it again with your Board. Find out what the current perceived failings are - these won't just be quantifiable like sales and average transaction value, but emotional failings as well. Once you know this, then you can work on how to improve it.

A platform's just a platform

I'm not sure if everyone will agree with me on this!

Ultimately, a platform is just a way of skipping over building a database, business logic and an API yourself. If you've chosen a platform, then you were probably sold on features, but the real issues such as cost, integration, administrative overhead and scalability were why you bought it.

But do your customers care one jot what platform you use? Does your platform choice directly affect the experience that they have? Of course not. Which is why in most cases, a few pragmatic steps is all that it takes to get you back on track.

1) Understand what matters

Why do people actually visit your website? Do you know? We'd love to think that they're there to Buy Buy Buy! but often that simply isn't the case. What's going through their minds? What's their motivation? Are you catering for this, not only in your site content but in your marketing?

If you'd like to read more about this, here's a post on user-psychology I wrote for Econsultancy.

Just as we measure Conversion Rate, we can also measure how often users are able to do what they came to your site to do - a "Task Completion Rate". Remember that not every visitor comes to your site to shop. Just as we do when we enclose a Checkout, when your visitor knows what they want to achieve, your site should get out of the way and let them do it.

There are a number of tools to let you measure Task Completion Rate - predominantly based around user surveys. The most popular is called 4Q from iPerceptions and takes the form of a pop-under survey.

You can then measure your Task Completion Rate amongst a sample of your visitors and see in which areas you can improve. You may of course, have a site that doesn't cater to your users' needs. They may be looking for a store finder, or an offers section, or something that isn't currently in your strategy. In which case...

2) Go back to your IA

During the information architecture process, you should have come up with 3-4 user personas, with needs and wants and clear goals and motivations. However, if your site is failing, then either a) the personas are incorrect (which can certainly happen when these aren't based on user research) or b) the personas aren't being catered for. Either way, when visitors use your site "in anger", they will become frustrated and leave.

Once you have catalogued the objectives and motivations of your user personas, you need to see how well your site fits these. If you don't feel that the site fits, or your personas are wrong, then you should conduct a new round of user research. I always recommend doing this in the user's homes, so you can see the environment in which they interact with you, and the discussion becomes more of a "chat" than a survey, but this isn't always possible.

3) Simplification

Once you have a newly defined set of goals and objectives, you can simplify your site design to cater to these. John Maeda has a wonderful book called the Laws of Simplicity in which he states 10 (well, 9) laws that you can apply to any design or process to make it simpler. For example, whilst you can't remove elements that some users may find useful, you can Hide or Shrink them in the design. You can use this process to not only rationalise your product taxonomy, but also rationalise your language.

A case in point here, on a site I once worked on we had 12 different methods of getting help, none of which were labelled "Help".

4) Take time out

Pause, breathe and have a sit down.

As I said before, when you hit this point, it's very easy to run around, firing & hiring agencies and switching platforms in an urge to have something new. You can do this, sure, but it's not very Strategic is it? You need to take a little time out.

5) Visit some aliens

Go and visit another ecommerce operation, that has nothing to do with your business. You'll see that they have the same processes as any other business, a helpdesk, customer returns, a CRM strategy - but by doing this you can not only gather ideas, but share skills and see how their success can be adapted for you use.

6) Think strategically

Work out what makes you money. Start from "we receive money from our customers by" and work backwards from there. Look at your net margin, and what's actually driving value. See how you can align this with your customer's objectives, simplifying the process and creating an engaging experience, and you're onto a winner.

Congratulations! You have just convinced a potential customer to click through from your HTML Email, Google Ad, Banner, Social Network message (the list goes on) you have their attention and they are ready to read, buy or subscribe. So where next?

Sadly in many cases marketers are happy to link hot leads like this through to their home or product page in the hope the user will work it out for themselves. Where is the context? Is this what the user was expecting to see? Is the language consistent? Is that special offer you mentioned clearly visible? Probably not. Welcome to the world of landing pages.

Whilst good landing pages adhere to the core principles of user centred design such as strong usability, clear information layout and simple navigation they are also single minded in their push to convert, not generally inform, the user.

Here are a few golden rules:

Be consistent
It is really crucial to maintain a consistent tone of voice from the source of the click through. You could even consider having the same headline on your landing page as your upstream ad. Sure, it's repetition, but at least the user feels like they are in the right place.

If users are landing from a wide variety of sources then you should probably segment the messaging rather than trying to please everyone with boring catch all copy. The same rules should also be applied to visuals if relevant.

Grab attention and don't waffle
Keep the page to a single point and use minimal text to explain it. Then ask yourself "Does my copy answer immediate, obvious questions or concerns?"

Remove unnecessary navigation and keep refining the content as much a you can. Every item on the page needs to justify its existence. If you want to quickly test your page use the '5 second rule'. Show the page to someone fresh for 5 seconds and then ask them to explain what it was all about. If they can't or mention too many differing messages get back to the drawing board!

If you need a bit more help along the sales process and words, visuals and competitive pricing are not enough then sometimes giving away a limited free account, trial or sample can be effective conversion aids.

Learn to point
It is still quite important to keep your primary call to action (CTA) above the fold (no vertical scrolling) or to repeat the CTA throughout the page if it must be long. Arrows or oversized buttons are the usual visual metaphors for action online. Arrows can also be useful for breaking out of the standard grid lines of your design which will inevitably attract the eye.

If your design features people, face them in the direction of your CTA although resist the urge to be cheesy, authenticity is important.

Colour needs to be considered on CTAs. Red can evoke a strong emotional response although it does also represent "stop". Orange equates to an enthusiastic get-it-done attitude whilst blue is the default web colour for a link.

Use video!
Users are far more likely to watch a well crafted short video or screencast than read a long piece of text.

Only ask for the information you really need
As handy as it would be to know the age, gender and occupation of the user it is not always essential. The more you ask for, the less you will get. If you really do need to know personal information then turn it into a unique selling point e.g. "Tell us your birthday and we will send you a little present on the big day!"

Build trust
If the user clicking through is not already familiar with your brand then official accreditation or affiliation to organisational bodies, logos of well known brands you are partnered with or working for and testimonials (preferably not anonymous!) will support you in your endeavours to convert.

Don't stop the conversation!
Thank you pages are so often overlooked but why should we stop there? This is the ideal place to offer further incentives such as free ebook download or links to more information. A surprise bonus will leave the user feeling very good about the experience.

Likewise you have just converted your lead - well done! They are probably feeling at their most in love with your message at this point so add some social sharing functions here so they can tell their own community about this great product or service and help spread the word for you.

Track your results properly
If you can track the user journey you give yourself a fighting chance of learning from your mistakes as well as knowing what your conversion rate, bounce/abandonment rate and form completion rates are. How else can you tell if the campaign was worth while?

If you would like more information on tracking have a read of our blog article "Five Google Analytics tips you need to know"

I hope you have found this useful and please do leave any comments or other tips below. Also, I could not have written this article without some of the fantastic advice on http://unbounce.com/blog/