Ben Agnew on Subscription Businesses and the Cost of Living Crisis

We spoke to Ben Agnew, Chief Executive Officer of The Payments Association about how subscription businesses fit into the UK's business landscape and how the cost of living crisis could affect them.

1. Why are subscription businesses so popular in the UK, for both customers and merchants?

There have always been subscription businesses – magazines for instance – but modern payment technology has made them much easier for customers and merchants alike. Because of this, merchants can experiment with new types of business, which is why we’ve seen new types of subscriptions for everything from meals to flowers to razors. Perhaps the most important aspect of subscription businesses is the predictability of income – merchants can be assured that they should be getting a certain amount every month, factoring in ‘churn’. Customers will know that once a subscription is set up they’ll always get the products or services that they need, often with incentivised savings, and because of new payments technology they receive a seamless customer experience.

2. With the upcoming cost of living crisis and recession is it likely that subscription businesses will be hit hard?

My view is that in challenging periods or times of trading volatility, there is perhaps an even greater need for businesses to network and come together, or get support & insights for navigating through a turbulent phase.?As such, as a trade association and community of payments businesses, we’ve actually seen a 40% increase in memberships over the last year.

I think the key is to have a strong enough value proposition and product that means it’s clear as to why you matter, what need you serve, and irrespective of a squeeze on budgets why your service should be protected, prioritised and still required.

Achieving strong rates of conversion, retention and loyalty is key to any subscription or membership business, so adapting to any change in user behaviours and requirements is crucial, particularly in tougher market conditions.?

3. Our data shows that late payments have been going up since the start of the pandemic – why would you say this is and what can be done to stop it?

It’s often a smaller company that is late on membership or subscription fees, and usually that’s due to challenged cash flows or the stability of the company.?When a business is so hand-to-mouth in meeting it’s operating costs, a marketing expense or supplier invoice can sometimes be pushed further down the queue.?Beyond subsidising our fees for scale-up businesses to become a member of our community – thus making it more affordable initially whilst their business grows and matures – we also only release certain benefits upon payment of fees.?That ensures that if the service is important and valuable enough, the member will still prioritise payment being made to safeguard the opportunity, be that access to events, content or learning products.

4. What can companies do to keep their cash flow healthy?

Keep a big focus on building your client base and new business, make sure you have effective order-to-cash processes, and good account management & communication practices for all existing clients.