The nature of business means that most people do not divulge exactly how their website or service makes money. This is why I always find it interesting when someone talks about the ins and outs of their business and share information that other website owners and entrepreneurs will find useful.
Within the WordPress community, automatic renewal of subscriptions is becoming popular, so there is no secrecy about this sales technique; however James went further and shared specifics about how he managed to increase renewals of his contact form plugin Ninja Forms by switching to automatic renewals.
What are Automatic Subscription Renewals?
The market for premium WordPress products is healthy. You will find thousands upon thousands of great WordPress themes and plugins that are sold for a fee.
The de facto standard sales policy is to charge a set fee for a product for one year of support and updates. For example, you could purchase a premium image gallery WordPress plugin for $99 and get one year of support and updates. After 12 months have passed, you can continue to use the WordPress plugin, but if you want to keep receiving support and updates you need to renew your subscription.
Generally speaking, a small discount is offered to customers to entice them to renew. For example, when my subscription with Gravity Forms expired a few years ago I was emailed multiple times about renewing at a reduced rate. I was told many times that if I did not renew within the grace period, I would have to pay full price if I chose to renew later.
Automatic renewals of subscriptions do exactly what the name suggests. Rather than paying a one-off fee, a customer is asked to agree to automatic renewals at the very beginning. Renewals therefore become opt-out rather than opt-in.
How Effective are Automatic Subscription Renewals?
From a customer point of view, I am not always a fan of automatic renewals. I use the word “Always” because it depends on how important the product is to me and how much I will be charged. The more expensive a product is, the more cautious I will be about buying it if automatic renewal is enabled. I have no doubt others feel the same way.
From a business point of view, there is no denying that automatic renewals are effective.
James has only implemented automatic renewals for Ninja Forms for around one month and a half, but during that time he has seen subscription renewal rates increase from 19.93% to 79.73%. That means he has effectively retained four times as many customers that he would normally have lost if had continued charging on a one-off fee basis that asked people to opt-in at renewal.
He also noticed that refund requests increased by 2.3 times during the same period. This is to be expected when automatic renewals are enabled and does not significantly reduce their overall jump in profit.
James took a number of steps in order to get such an effective renewal rate.
He sent emails 30 days before the renewal date and another 2 days before the renewal date. These emails explained to customers that they would be charged at the renewal date, gave information about updating payment details, and showed them how to cancel the renewal if they did not want to proceed with the renewal.
One of the key incentives that customers had for renewing Ninja Forms was that automatic renewals are processed with a 50% discount. If users decide not to renew, they will later be charged at the full price if they change their mind.
Baiting the customers with a good deal is a vital part of making automatic renewals work. You need to give them a reason to renew.
Should You Adopt This Pricing Policy?
If you sell premium products and services online, you may want to explore the possibility of introducing an automatic renewal policy for customers.
James illustrated how effective automatic renewals can be, but I don't think that one size fits all. You need to look at your own setup and see whether this is something that would work or not.
Years ago I launched Rise Forums as a premium internet marketing community. Users could opt to pay a one off fee for a membership or save money and buy a yearly membership that renewed automatically at a reduced rate.
Being the terrible businessman that I am, I never took advantage of members. I found that a lot of people paid their membership automatically had not been active on the forums for months, therefore I manually cancelled their membership and processed a refund. It just didn't sit right with me that people were paying for something that they were not using.
Unfortunately, when you adopt automatic renewals there will be a number of customers who renew automatically that may not have wanted to. This issue is negated somewhat by sending out reminder notices before the renewal date, but it does not elimate the problem completely.
What is your opinion of automatic renewals from a customer point of view and from a business point of view? I would love to hear what your thoughts on this topic are.