[Video] The 8 dimensions of recurring payments: A framework for a better payment strategy
Last editedJul 20215 min read
How do you measure and optimise the return from your recurring payment strategy? And how can you compare the strengths and weaknesses of different payment methods?
To answer both these questions, we devised the 8 dimensions of recurring payments.
In this video, we’ll take you through the entire framework. From the customer acquisition funnel to payment operations, learn how all 8 dimensions combine into one model for payment-led growth and efficiency. We’ll also show you some key benchmarks, so you can see how your business compares to the competition.
Hi, I'm Siamac Rezezaideh, and I'm the Head of Product Marketing here at GoCardless. Today, I'm going to show you the framework that we use to help businesses optimise their recurring payment strategies.
And we call it the 8 dimensions of recurring payments because it looks at the 8 key dimensions that come together to make up a successful recurring payment strategy.
But why would you even care about our framework?
Well, I think that there are two key reasons.
Number one, every business that collects payments on a recurring basis think subscription businesses, repeat invoices, those that take instalments, can use this framework to grow their business quicker, as well as find hidden efficiencies within their payment operations.
And number two, the framework can also be used to compare how different payment methods actually stack up when it comes to recurring payment collection.
And a lot of businesses think of payments as simply a box to tick. The 8 dimensions framework proves that it's actually a strategic imperative.
So, let's take a look at the framework and see how everything comes together. And most importantly, I'll show you some important payment benchmarks your business should pay close attention to.
Step 1: Customer acquisition funnel
Now, as you can see, the framework is split into three broad areas. We'll start with customer acquisition.
These dimensions are all about how quickly and effectively you can get your customers into your payment funnel. Our customer acquisition has three dimensions that are important: coverage, preference and conversion.
The first dimension is coverage. Now, this is pretty simple. It's the sum of how many payers you can reach with one or all of your payment methods.
The thing to think about here is how many countries are payment method covers and multiply that by the penetration in that country.
As you can see, the next dimension is preference, which, as you can see, is a slightly smaller funnel than the number of payers that you could, in theory, reach.
Preference is the number of payers that choose a payment method when it's an option to them.
And preference is really important. You could have a high performing payment method, but if nobody chooses it, it's effectively irrelevant.
And preference changes from country to country. GoCardless and YouGov recently surveyed consumers and businesses around the world about their preference, and we found that businesses in the UK and in Australia were more likely to pay with bank debit. However, in the US there is still a clear preference for credit cards.
The final part of customer acquisition is conversion. This is simply the percentage of payers, when presented with a payment page, successfully put in their payment details and actually become a payer.
The overall idea here is that the better your coverage, the more preferred your payment methods and the better converting your payment pages are, the better your customer acquisition.
Step 2: Recurring payment operations
Moving into the second stage recurring payment operations. We have another three dimensions.
The first is success. Now, this is defined as what percentage of your payments are successfully collected and retained. And remember, retaining them is an important part of this.
Success is a key dimension because different payment methods have really different success rates.
Comparing just two of these, the payment success rate for subscription businesses collecting by credit cards will be around 90-93%, meaning 7-10% of all payments will actually fail.
On the other hand, GoCardless, which is powered by bank debit, will have a failure rate of around 2.9%. And in fact, in Q3 of 2020, the failure rate was just 2.1%.
Now the reason for these differences is interesting, but also quite obvious. Cards actually expire, issuing banks can block transactions, whereas payment methods based directly on the bank account have fewer reasons to go wrong.
And that's only the success rate at the first time of acting. With Success+ from GoCardless, you can actually recover up to 76% of failed payments. That means the resulting failure rate is as low as about 0.5%.
Another aspect of your operations is visibility. How long does it take to get actionable payment information or actionable payment insights?
Visibility is a fundamental part of the framework. Do you find out if something goes wrong immediately or does it take a few days? And how much info do you get? Do you find out that payment has simply failed or do you find out exactly why it's failed?
The final part of payment operations is the total cost of ownership.
How much does it cost to administer your payment method?
Remember, it's not just about transaction fees; it's the platform cost, it's the cost of recovery, the cost of the revenue you’re not actually getting and the number of staff that are actually needed to manage the payment collection process.
And we did some research with IDC that demonstrates that about ⅔ of your payment costs is actually down to staff time.
So, the idea is if you have better success rates, better visibility and better cost metrics, you'll have better recurring payment operations, keeping more payers paying for your product.
Step 3: Recurring payment impact
This leads to two final outcomes: cashflow and churn, which are driven by the success of the three dimensions and the recurring payment operations section.
Cashflow is the number of days that it takes to actually settle a payment from the point that it becomes a receivable. How long does that actually take you to get the money?
And we've done a lot of research on this, most recently with Forrester. The DSO, basically the number of days it takes to receive a payment from medium and large businesses around the world is about 21-30 days for 80% of those businesses. With GoCardless.
Many of our customers actually have a DSOof as low as 3.5 days.
The final dimension is churn. Churn is interesting because customers or subscribers can churn for many reasons. Two big drivers are failed payments, I mean, 20-40% of customers churn due to failed payments and subsequently the customer experience after a payment fails.
How do you actually handle that retry process? That can improve or worsen the churn. And those are the 8 dimensions of recurring payments.
Now, obviously, payments have an even broader impact affecting business growth, profit and loss, cashflow statements and your balance sheet. But these 8 dimensions are the core ecosystem of your recurring payment strategy.
Real-world case studies
When I say we use this framework to help our customers, I mean it. We've helped 55,000 businesses improve their recurring payment collection. And I wanted to talk about two in particular.
First up is Yorkshire Energy. Earlier, I made the bold-sounding claim that we can reduce payment failures to just 0.5%. Yorkshire Energy, as you can see from this quote by their FD, use GoCardless to reduce theirs to just 0.4%.
And then there's Autotask. Their experience with GoCardless shows that optimising one dimension has a knock-on effect on all of the other dimensions.
So, Autotask works with GoCardless to reduce that failure rates to less than 1%. This then got their DSO down to just 3.5 days. And optimising those dimensions meant that they wasted less time and less money chasing up payments and so saved up to $100,000 every single year.
Now, I hope you found this useful. I'd advise you to go and look at your own payment operations and see how your metrics compare to the benchmarks that we've discussed.
Most businesses that take payment operations seriously will probably have a good handle on a number of these dimensions. But there's almost always a few dimensions where further optimisation can help growth and the bottom line.
If you want to discuss your payment challenges in more detail and find out exactly how GoCardless can help, why not have a quick chat with us?
Thanks for watching.
The business value of taking recurring payments with GoCardless (IDC)
Forrester Consulting: Rethink your payment strategy to save your customers and bottom line
Payment preferences for recurring purchases: The consumer payer 2019