Hiring passionate employees, updating your product catalog, and amplifying your presence on social media are all terrific ways to grow your retail store. But did you know that one of the best-kept secrets to advancing your business involves expanding the ways your customers can pay? When you set up recurring transactions, you and your customers alike will reap the benefits.

The recurring payments model explained.

The name pretty much says it all. Recurring payments happen on an ongoing basis and are charged to customers with their prior permission. Typically, sellers use this model to charge people for their continued membership on a platform or to a fitness center, for access to software or for delivery of goods or services that happen regularly over time.

There are two major types of recurring payments.

• Regular or fixed payments. Customers pay a consistent, flat amount throughout the duration of the subscription, agreement or service. Common examples of this model include gym memberships, software subscriptions, and insurance premiums.
• Irregular or variable payments. Charges change from one payment cycle to the next, often dependent on the customer’s usage of a product or service. Utility bills and some usage-based software subscription plans are the most common examples. Some of these plans are also quantity-based, with what a customer pays fluctuating according to how much of a product they order during a set payment cycle.

Which type of recurring option a business chooses to use depends on its sales model and the products or services involved.

How recurring payments work.

Once you talk to your retail payment processor about establishing recurring payments, you and your customers will have a straightforward experience with the following major steps.

• Your customer agrees to your terms and conditions. Together you decide on the transaction amount (what the customer will pay during each billing period), payment intervals (how often the customer will be charged), billing dates (when the payment is due), expiration date (when the agreement will end), and any terms or interest rates that may apply.
• The customer provides payment details. This includes everything you need in order to submit an authorization request with the issuer, including information such as bank account details, card number, expiration date, billing address, and security code.
• At the time of purchase, the customer’s account or card will be immediately charged for the first installment. In the case of a free trial, the details will be securely stored in your payment processor’s gateway system for future use when the trial has ended.
• Ongoing payments are automatically processed according to the agreed-upon terms. This goes on until the arrangement is fulfilled or the customer cancels.

In general, the recurring model works well for most businesses. The three most successful recurring payments models include the following. 

• Curation. The customer receives a selection of products based on their preferences.
• Replenishment. The customer receives regular replacements of products they commonly use.
• Access. This enables customers to use an exclusive shopper service, often including discounts and free products as incentives.

Implementing one of these models into your marketing strategy can maximize the appeal of your current product catalog and even help you to broaden your commercial scope.

The benefits of offering recurring payments to your customers.

When you extend your business by improving the flexibility of the payment structure you provide to buyers, everyone wins. Here are the main advantages that recurring billing will bring to you and your patrons.

• Maximize your customer retention. There is an old adage that it is cheaper to keep an existing customer than it is to attract a new one, and this remains the case today. The fact is that people who are billed on an ongoing basis have made a long-term investment in your company. You can boost their commitment even more when you incentivize them to continually engage with your store even beyond their automatic withdrawals.
• Increase customer happiness. Most late payments are not deliberate; they occur for no reason other than that the customer forgot to resolve the bill. When the money is withdrawn painlessly from an account or credit card, consumers no longer need to take that extra step of providing a payment and can simply enjoy their product or service. This helps to enhance your overall relationship with your regular buyers.
• Make your cash flow predictable. Seasons change and revenue varies. But when you have incorporated recurring payments into your business, you can count on getting a predictable influx of funds each month from this collective pool of customers. As a result, there is a base revenue that you can depend on when making forecasts, paying down debt, or growing your retail store.
• Increase your customer lifetime value (CLV). This figure represents the total revenue brought in by an individual customer minus acquisition costs, operating expenses and any goods or services you provide to the person throughout their tenure with you. The bigger the CLV, the more revenue someone has brought into your store. The longer someone is in a relationship with you and makes consistent payments, the more money you make and the less overall that you spent on acquiring them as a customer.

There is another more subtle benefit that you may discover after setting up recurring payments. Customers will perceive you as more committed than some of your competitors to offering them choices and convenience in the payment process. Whether buyers recognize this consciously or not, this feeling will have a positive effect on your relationship with the buyer.

Disadvantages of recurring payments.

No arrangement comes without its downside, and this is true of recurring billing. The following are the chief disadvantages.

• Can be time-consuming, especially when there are errors in billing that must be corrected after the transaction has gone through. This failure can lead to potential cancellations and chargebacks.
• A customer’s closed account or insufficient funds can interrupt service, leading to extra work for you and unhappiness for your customer.
• The recurring payments model is heavily regulated in order to protect the consumer. If you fail to adhere to these rules, your merchant account could be closed.
• Your merchant provider could categorize your business as high-risk, resulting in higher fees and the need to maintain a rolling reserve account.

Although these disadvantages can be significant, there are steps you can take to mitigate them. Most importantly, be transparent and thorough in all interactions with your recurring payments customers. Follow all rules and regulations, and regularly analyze your sales data to determine the origins of and reasons for chargebacks.

Providing customers with the ability to pay for your products and services over time represents positive benefits across the board. Added predictability, a stable cash flow, increased retention and boosted buyer satisfaction are just some of the most compelling justifications for changing your business to encompass this highly popular model.