The hidden costs of subscription platforms - and how to avoid them
Subscription services have become so ubiquitous that we almost take them for granted. Today, you can easily equip your home or business with anything you might possibly need - all via a regular subscription plan. And this explosion in subscription services over the last 8-10 years was enabled by one key component: the accessibility of new billing technologies via the cloud.
Complicated subscription billing structures were no longer limited big companies with large development teams, or business owners willing to do a lot of manual work. Now, anyone with a subscription service to sell can choose from one of many platforms offering a cloud subscription model. The subscription platform’s monthly fee gives businesses access to a variable number of subscription bills per month.
However, what many would-be subscription service providers may not know is this: in addition to a monthly fee to access subscription billing, many subscription platforms charge a per-transaction fee. This per transaction fee can run anywhere between 1 and 2 percent.
An extra 1 or 2 percent may not seem like much, but it adds up quickly. Let’s say a business bills $50,000 per month in subscriptions. First, they pay their own subscription fee to the subscription platform. Monthly fees vary based on the size of the organization and the number of transactions. For this example, we’ll say it’s $99 per month.
On top of that monthly fee, the business must pay per transaction fees of 1 to 2 percent. That’s $500 to $1,000 calculated based on $50,000 per month in subscriptions. And what’s more: that doesn’t include the fees the business is already paying to their payment processor, which are generally between 2 and 3 percent. With those payment processor fees, the business can expect to pay between $1,000 and $1,500.
So what can business owners do to reduce the fees associated with subscriptions?
Do your research.
Before you settle on a given subscription platform, make sure you have information on all associated fees. In many cases, this information is easily available on the provider’s website, under “pricing” details. If it isn’t, contact the provider directly for a detailed fee schedule.
There are a few platforms on the market (including Invoiced) that offer subscription billing with zero transaction fees. Be on the lookout for those platforms as well, and confirm upfront that the provider doesn’t charge transaction fees.
In addition to reviewing all associated fees, look at functionality as well. One platform may have a higher monthly cost, but it includes more capabilities than another - or lower per-transaction fees. Take that into account when making your decision.
Negotiate with providers.
If you find that the subscription platform you prefer does have per-transaction fees, contact the provider directly to see if fees are negotiable. A quick explanation of your monthly transaction volume, or a longer-than-normal contract commitment may help your case. Ask to either waive the fees totally or drastically reduce the percentage. You’ll never know what the provider might offer - unless you ask.
Look for other avenues.
If you’re having trouble finding a subscription platform that fits a tight budget, take a look at your payment gateways. They may offer some subscription service functionality that’s included in the existing per-transaction fee that you’re already paying. Some might require extra development work to customize the subscription workflow, so that’s worth considering as well.
Related: Invoiced Payment Gateways
Subscription services are a great way to provide a consistent revenue stream for your business. Make sure you keep as much revenue as you can by reducing per transaction fees wherever possible. Want to learn how Invoiced’s subscription module can help you do just that? Check out our subscriptions page for more details, and contact us with any questions.