Ecommerce Subscription Chargebacks And How To Prevent Them

Business models that offer ease of shopping in a recurring way and promise consistent revenue to the brand are increasing. One such model is eCommerce subscriptions. But it comes with its own set of problems.

Subscription chargebacks are an issue that any business should prepare for. It's an unfortunate reality of eCommerce that customers sometimes try to get what they paid for through illegitimate means.

Chargebacks are bad news for any merchant, but they're especially troubling for subscription businesses because they can lead to fines and penalties from your processor or acquirer. Chargebacks are just one part of managing customer service at scale. This post covers everything from how they work to how you prevent them and what happens when they happen anyway.

What are eCommerce subscriptions?

Subscription eCommerce is a growing sector of the eCommerce industry, and it's not going anywhere anytime soon. Subscriptions are a great way for companies to build recurring revenue streams and keep customers returning for more.

Ecommerce subscriptions are recurring payments that are processed directly to your bank account. They're an increasingly popular way for consumers to pay for products, services, and other offerings they need at regular intervals. Subscriptions can be paid monthly, annually, or even on a daily basis.

The rise of eCommerce subscriptions

In 2020, eCommerce subscription sales crossed over $23 billion in the US. By 2023, eCommerce subscriptions will produce over $38 billion in revenue.

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In the past year, around 15% of online shoppers have subscribed to an eCommerce subscription service. And over 50% of eCommerce service subscribers claim that they have more than one active subscription.

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Subscription boxes have long been a favorite of beauty consumers. Now, more brands are considering whether they should offer their products in the subscription form.
Subscription boxes are a hit with customers because they allow them to try out new products without committing to a full-size version. And once customers find something that works for them, they're unlikely to switch, according to industry experts.

SaaS companies like Salesforce and Workday have used subscription models to grow their businesses by providing their customers with access to software products. These products are typically viewed as tools that help companies run better, so it makes sense that they would be willing to pay a monthly fee to use them.

Ecommerce subscription models have also become increasingly popular over the past few years as companies like Netflix and Spotify have proven that people are willing to pay for access to content instead of owning it outright.

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Here are just a few of the benefits of eCommerce subscriptions -

  • Make more money per sale
  • Increase the customer lifetime value
  • Reduce customer acquisition costs
  • Increase repeat orders
  • Build customer loyalty

Here are some of the benefits of eCommerce subscriptions for customers -

  • Reduce or eliminate the risk of buying something without knowing whether it's any good
  • Reduce or eliminate the risk of buying something that doesn't work
  • Get access to new features and products over time as they're released
  • Timely replenishments without having to fret about it

Rise of chargebacks for subscription model businesses

The subscription model is growing in popularity, but it can be risky for eCommerce merchants. A subscription chargeback is when a customer disputes their credit card bill, claiming that they did not agree to make recurring payments on the product or service they received from your company. If this happens enough times in a short period of time, it can damage your company's reputation, lose you money and even put you out of business altogether.

When it comes to subscription businesses, chargebacks are a big problem.

Did you know that the rate of chargebacks for subscription models offering digital goods is around 3.25% and 2.25% for tangible products?

To put this into perspective, if your business were to generate a revenue of $1 million yearly in subscription sales, you could lose an average of $325,000 to chargebacks. And then there are additional administration expenses and any payments to merchant affiliates or handlers.

Payment processors see merchants with the subscription business model as high-risk businesses. Why? The answer lies in how the subscription model works. When a customer pays for a subscription, they're committing to paying for a regular delivery of goods or services over a period of time. Because of this, it's easier for cardholders to forget about their subscriptions and be late on their payments.

To make matters worse, many merchants don't provide their customers with any kind of notification when their subscription payments are due. This means that if cardholders don't check their statements regularly and see that they have an overdue payment due on their account, they might not realize they need to pay it until after it has already been charged back to you as a loss by your processor.

And consumers who don't like their product or service can dispute their subscription charge as a way of getting out of paying for something they don't want anymore.
Another reason why so many payment processors are wary of this type of business is because they see it as an opportunity for fraudsters to abuse the system and get away with it.

Another cause of the high risk of chargebacks for a subscription business is processing transactions that consumers already canceled. It’s important that merchants only accept charges from customers who have not already canceled their subscriptions. This can be difficult because some credit card processors don’t offer this feature with their payment gateway services.

How to tackle them subscription chargebacks?

Sync order tracking info in real-time

Chargebacks are often initiated by customers who have failed to receive their products or who have not been able to use them because of some kind of technical issue. To avoid these situations, you need to be able to track all your orders in real-time and ensure that any problems are resolved quickly.

This will ensure that customers aren’t left without access to their products and will help prevent potential chargebacks from being filed against your business. This gives you a clear view of when orders are placed and when they've been shipped, allowing you to spot any suspicious activity. If there's an issue with an order, you can contact the customer immediately and resolve it before the chargeback record is created.

However, manual solutions will not help you achieve this as they may cause delays and result in errors. Instead, you can leverage powerful tools like TrackiPal to cover all ground - especially if you’re using PayPal to take orders.

Proactively communicate with subscription buyers

One of the best ways to reduce chargebacks is by proactively communicating with your subscribers. This applies to both new subscribers and existing ones. For example, you can send out welcome emails that include helpful tips on how they can get the most out of their subscription service. You could also add a FAQ section to your website that answers common questions about subscriptions.

You should also send regular emails letting customers know what's new in your business or what promotions you're running each month or quarter. You could even include fun facts about your company or its employees in these emails as well — anything that makes customers feel like they're part of a community rather than simply being sold something every month.

It's also important to communicate with customers about any changes or updates to your subscriptions. If you're changing prices or offering new features, let them know. This will help prevent cancellations and keep customers happy — which is crucial for reducing chargebacks later on.

Order status alerts

Chargebacks can happen at any point in the lifecycle of an order, but there are some specific times when they're more likely to occur: when customers receive their first shipment; when they receive an invoice; after they've received multiple shipments; and if there are issues with the product itself (like damaged items).
It's important that customers know what to expect when they sign up so they aren't surprised by unexpected charges on their credit card statements later on down the road.

Automate this process by sending an email, SMS, or WhatsApp message whenever someone places an order, for instance; even if it's just one person each month, this can help reduce unnecessary disputes.

Additionally, make sure that your sales team is well alerted to any missing orders or payments, so they can reach out to customers before a dispute occurs. If you have a customer service chatbot, make sure it alerts support staff when there’s an issue with an order, or even automatically resolves minor issues without human intervention.

Post-delivery follow-up

After you deliver your product or service, don't let up on customer communication and follow-up.
You should send a follow-up email after the customer has received their order, asking how they felt about their purchase. Also, check in with them again a few weeks later. This will help you identify any issues before they become a problem and give you an opportunity to fix them before they escalate into a chargeback situation.

It also helps build loyalty by showing customers that you care about their experience with your business.

Offer proactive customer support

When it comes to dealing with chargebacks, the first step is always to reach out to the customer and try to resolve the issue before it becomes an unnecessary headache. Subscription-based businesses should offer proactive customer support so customers can reach them easily if they have any questions or problems with their subscription at any time during the billing cycle (or even after). This includes while the order is getting prepared, when shipped, and even after delivery.

Responding quickly to complaints is another important step toward preventing chargebacks. A customer who knows that they can get a response quickly is less likely to file a chargeback than one who feels ignored or ignored by the business as a whole.

Conclusion

Starting an eCommerce subscription business is a very different thing from most consumer eCommerce businesses.

As more consumers become accustomed to this new way of shopping online, there will be a demand for other regular subscriptions to be offered. Whether it's with glasses or coffee, the subscription-based model is changing the landscape of eCommerce. It's up to you use to choose if you will be a part of that change or not.

However, this type of eCommerce model comes with its own setbacks. Chargebacks are both confusing and frustrating. And at the end of the day, chargebacks will happen, but the way you handle them can have a huge impact on the future health of your business.

And these chargebacks can soon turn something meant to get you stable, recurring revenue into something totally unpredictable.

Ready to tackle chargebacks from the get-go? Install the TrackiPal app today.

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