Lessons Learned from 10 Years of Selling Subscriptions
We first launched a website selling subscriptions in 2007. In the five years since then, we’ve sold subscriptions to tens of thousands of people. During those years, we’ve learned a lot of tough lessons about subscriptions.
What’s the most important lesson we’ve learned? Selling subscriptions is really, really hard.
The idea of selling subscription sites is great … sit back and earn automatic, recurring revenue while you sleep. The truth is that this is one of the hardest ways to earn a living in e-commerce.
Dealing with customers and keeping them interested over the long haul is part of the problem, but there are also technical hurdles.
Because many of our students want to sell subscriptions, I’ve sat down to write the best advice I have for setting up the technical side of your subscription site.
Note: clairification for some people who were asking … this advice only applies to renewing subscriptions. One-off subscriptions are no different from regular e-commerce and need to special treatment.
Lesson #1: Avoid Most Payment Processors
I’ve a good number of friends and colleagues who sell subscriptions and I constantly hear stories like this:
Our payment processor gave out $5000 of free subscriptions to people whose cards had expired.”
And also like this:
“Our processor’s API stopped working for 10 days and no-one was renewed.”
The vast majority of payment processors are set up for traditional e-commerce and can’t handle subscriptions successfully. Many make serious errors like the one above. One culprit is worse than all the others …
Lesson #2: Do not use PayPal Directly
Using PayPal is the number one most common mistake that companies make when they try to sell subscriptions. What’s wrong with using them directly for subscriptions?
- Subscriptions have no flexibility. You can’t upgrade, downgrade or change anything about the subscriptions.
- The API is buggy and often fails to connect correctly.
- The PayPal website. Whole parts of PayPal.com will just break for months on end. Late last year, the option to download a list of current subscribers broke and has only just been fixed.
Over the last five years, I’ve had the chance to look at a lot of other subscription sites. I wish I had a dollar for every time I’d seen the messages “Sorry, we don’t accept PayPal any more” or “Sorry, PayPal subscriptions are currently unavailable”.
There are some subscription services which allow you to use PayPal indirectly. They’ve spent much time and effort to circumvent all the problems listed above.
Lesson #3: Look for Data Portability
I was reading the biography of Steve Jobs last month, and it included a story about Apple trying to entice major magazine publishers to join the App Store. One of the publishers’ major concerns was that Apple would own the customer data and not the publisher. So, if they sold magazine subscriptions through the App Store, not only were they doing it blindly, but thet would also be giving Apple a 30% cut, which could be increased at any time.
The same is true with most payment gateways. If you send a customer directly to PayPal or Authorize.net, that becomes their customer, not yours. PayPal will never, ever let you move to a different gateway. Authorize.net will very occasionally let you leave, if you pay a high price and wrestle with them for months.
We believe in open source because it avoids vendor lock-in. After 5 years of subscription billing, we also believe in open data. When it comes to subscriptions that means Data Portability.
Data Portability means your payment gateway doesn’t try to lock you into their service. If your payment gateway provides bad service or suddenly raises their prices, you need to have the option to leave.
A great resource on Data Portability is PortabilityStandard.org. One company that has really taken the lead on this is Braintree. They describe their policy here.
Lesson #4: Use a Dedicated Subscription Service
There’s a great Russian phrase:
I’m not rich enough to be able to use something cheap”
The phrase is true for our company and probably yours. Go with a dedicated service that specializes in subscriptions. If you don’t, you’ll probably end up spending far more money on fixing mistakes and building workarounds for missing features. Still, it is important to at least check the price of each service, and BillingSavvy.com is a useful comparison tool for this.
Here are some reliable subscription services to investigate:
What solutions do we use after 10 years?
- Our subscription service is Recurly. They’re not perfect, but they’re really pretty good. They have a solid customer base and plenty of investment, so they should be around for the long-haul. We have some quibbles with them. Their statistics are not great, and getting data out of the system is not easy. However, all in all, we strongly recommend them.
- Our payment gateways are Braintree and PayPal, processed using Recurly as the middleman. All the gateways we use still have pain points but using a reliable intermediary like Recurly really has made things easier.
Thanks Steve for sharing your wisdom with us! I have learned a lot from this article.
You’ve opened my eyes to an issue that I was not even aware of. Thanks for sharing your knowledge and your own experience.
Thanks for the tips – from the coalface so to speak. A client recently asked me to build a subs based website, & I’ll be referring hime to this timely article.
Great article, and something I had not looked very far into yet. Would you still recommend a gateway If your subscription management is handled directly by your site, for example upgrades, downgrades, refunds, coupons, free, etc. are all controlled by the web site membership and subscription application directly and only the payment itself is being processed through PayPal, [url=http://Authorize.net]Authorize.net[/url], and a few other options. Since the membership app is already configured, I’m wondering about the work involved to use a subscription service.
Hi Marni. I’d look into how flexible that subscription management actually is. My guess is that at least upgrades and downgrades and not flexible at all.
Refunds and coupons should be fine.
Why do you use three separate Payment gateways? Using PayPal and Authorize you also must have extremely high per month up front costs, regardless of sales. I don’t see the advantage in this. Can you provide some insight?
Hi John. Providing multiple payment options is just good e-commerce practice nowadays. It’s the PayPal +1 model …
50% of people love using PayPal and won’t use anything else. The other 50% of people hate using PayPal and won’t go anywhere near your site without another option.
Thank you for the tips Steve! I run a subscription based business and I wish I would have heard some of these warnings a year or two ago. We now use Chargify to manage our subscriptions and have been very happy with them.
You’re welcome, Charles. Yes, subscriptions are their own, entirely unique can-of-worms. I’m glad things are working well with Chargify.
Thank you for sharing these great experiences with us. Very useful informations.
Thank you so much for this article! Exactly what I needed. I’m just beginning my research but do you have any experience with ClickBank? I was looking into them as a possible option….thanks again!
This may be mildly off topic, but as the publisher of a small niche magazine with probably a subscription base of around 100, do you have any platform suggestions that I can use to keep track of payments etc, or even what to use to process payments? I was thinking I could just use an excel sheet with the customer’s details and then have them pay for a 12 month subscription and just keep an eye on the excel sheet?
Hi Fa. We use [url=http://simplerenew.com]http://simplerenew.com[/url] and [url=http://Recurly.com]Recurly.com[/url], although that might be overkill with only 100 subscriptions.
I’d say that Stripe is probably your best bet.
Brilliant, thanks so much! Stripe it is!
Braintree is a subsidiary of PayPal. Just an interesting footnote.
Thanks Jonah, yes that’s true. Apparently it may be easier these days to get out of PayPal, because you can ask to be imported into Braintree.