Prepaid Subscriptions: Benefits, Best Practices, and Real-World Use Cases

You’ve perfected the product, gained subscribers, and are seeing steady growth. But what’s next for the company looking to accelerate while deepening customer loyalty and engagement? The answer lies in prepaid subscriptions. Prepayment opens up new opportunities for businesses and customers alike to access a higher value subscription– delivering better cash flow for the company and steeper discounts for the customer. 

Historically, prepaid subscriptions presented logistical challenges for both sides. However, with new features, like those recently launched from Smartrr, businesses can attract more prepaid subscribers who are more engaged and less likely to churn.

Luckily, we’re here to help you overcome the obstacles of outdated prepaid models and deliver best-in-class subscription offerings to your current and prospective customers. 

What are Prepaid Subscriptions?

Let’s start with the basics. Prepaid subscriptions are exactly as described! Customers have the option to pay the total cost of the subscription upfront, rather than over a set amount of billing cycles. In exchange for this prepayment, customers often receive a discounted rate on the products or services. 

The Benefits

• Upfront cashflow: With prepaid subscriptions, businesses have access to the funds sooner rather than spread out over the duration of the subscription. This is especially supportive for growing businesses without readily available capital. Businesses can promptly leverage these funds by investing back into their company to drive progress toward their goals. 

• ‍Predictable revenue and easier modeling: Prepaid subscriptions come with the added benefit of predictable revenue, making it easier to forecast and plan financial models. This steady stream of guaranteed revenue is important for a growing business, providing more accuracy and predictability. With this more assured modeling, businesses can feel confident reinvesting this revenue back into their key areas of growth.‍

• ‍Inventory management: Prepaid subscriptions give businesses a clearer insight into what level of stock they’ll need and when. With payments made in advance, companies can guarantee minimum stock values needed in the upcoming months. This simplifies inventory management, reducing the risk of both overstocks and shortages. This also provides businesses with extra time to plan for these guaranteed orders, improving logistics and operational efficiency over time. 

• Increased customer retention and loyalty: When customers commit to a longer prepaid term at a discount, businesses have a buffer against their churn during those months. This extended period provides companies with an opportunity to engage and familiarize customers with the product, building stronger loyalty. Additionally, the prepaid subscribers form a highly engaged audience for targeted marketing initiatives to build trust and encourage further product adoption. These efforts prepare customers for the end of the prepaid period, increasing the likelihood of renewal. A prepaid subscription with a loyalty rewards program sweetens the pot even further. 

• Deeper discounts: To incentivize customers to opt into a prepaid subscription, merchants typically offer steeper discounts. Customers benefit from what is often the lowest price available per product or service. Despite the short term investment, the long term benefits of the discount are clear and customers are more likely to opt-in for the longer term, extending their customer lifetime value. 

• Lock in pricing for longer periods of time: This deeper discount is locked in for prepaid subscribers further incentivizing them to pay ahead. Customers feel protected from any price increases or change-ups while enjoying the products or services at a lower price. 

• Less transactions: For businesses, less transactions from customers prevents the dreaded “passive churn” from expired or outdated payment methods. This locks customers in for the long subscription with less risk of losing them. And for the customer, although they make a larger payment at the start, they benefit from fewer transactions cluttering their statements over time. This makes it easier for the budgeter to predict costs and protect their bottom line. Plus they enjoy the convenience of “set it and forget it” while still indulging themselves– almost like receiving a gift from a benevolent past self. 

The Challenges

‍Providing flexibility for customers during prepaid periods

‍Once customers are locked into a set, prepaid subscription it can be frustrating for customers to be unable to make changes. It can also be logistically tough for merchants to allow for changes. Luckily now, with the right technology, there are solutions to provide flexibility to the customer while the merchant maintains the control and reaps the benefits of the prepaid subscription.

Keeping gift reciepts engaged

When a prepaid subscription is purchased by a customer as a gift for another, it can be complicated to get the recipient of the gift acclimated to your brand. But consider the purchase as a gift to you, the business, as well! Your company now has a locked-in subscriber about to try your product for multiple cycles. Presented with this opportunity, consider marketing tactics to engage the new customers, like an introductory marketing email series. Try to use the “subscribed” time wisely to build loyalty with the new customer. This will reduce churn when the prepaid period is up. Upon expiration date, businesses can also offer the giftee an additional incentive to stay and sign up for themselves. But don’t forget about the customer who purchased the gift! Keep them engaged with marketing for further conversion. You received two customers for the cost of only one. Keep them both engaged with topical, well-timed marketing. 

Use Cases

Prepaid clubs (i.e. box of the month)

In a prepaid club subscription, customers pay upfront for a set duration and receive monthly deliveries. Customers have the option to choose, swap, or opt for a curated selection of products from the brand each month. This model builds anticipation each month as customers eagerly await their personalized or curated box, driving higher engagement and deepening brand loyalty. 

The sense of belonging to an exclusive “club” fosters a unique connection with the brand, enhancing customer retention and reduced churn. Additionally, the opportunity for “surprise and delight” moments in a “box of the month” format can create buzz, increasing awareness and even sparkling virality as customers share excitement about “what’s next” with others. 

Here’s a great prepaid club example:

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Giftable subscriptions

Giftable subscriptions are a game-changer, doubling your customer base with the cost of just one acquisition. The approach broadens your reach by introducing a new customer and also creating a unique customer engagement opportunity. Gifters can tailor the present by selecting both the product and subscription length to suit their budget, making it the perfect present. Gifted subscriptions are also the perfect, last-minute e-gift that can be delivered virtually, but then later in-person adding an extra layer to the experience. 

Especially during the holiday season, giftable subscriptions are increasingly impactful. Everyone loves one less gift to be wrapped and shipped. Plus, the gift of a subscription adds an element of experience where the giftee can have freedom to select, swap, or be surprised with each month’s delivery. This experience continues past the holidays strengthening the value of the gift.

Check out what Trade Coffee is doing in their giftable, fresh coffee subscription sourced from curated roasters. 

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Deeper discounts / BOGO

Prepaid subscriptions offer an option for the cost-conscious consumer to activate a subscription with the deepest discount. This is the strongest way merchants incentivize shoppers to sign up for a longer period. This is a win-win for both brand and customer, extending cashflow and time to build brand loyalty. Brands don’t have to only focus on the percentage-off model, instead they can offer a Buy One Get One (BOGO) incentive or even access to an exclusive gift-set or product. 

Lovevery, a popular child development toy company, knows that parents have a lot of new expenses. 

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Seasonal subscriptions

Stay on trend by offering prepaid subscriptions aligned with the changing seasons, giving customers access to exclusive discounts on seasonal products or limited-time flavors. Potential subscribers can be enticed by the idea of treating themselves during a busy or relaxing season, making it a perfect self-gift. Highlighting limited-time offers or early access to popular items can create urgency and drive interest. Seasonal subscriptions also tap into the excitement of timely products, helping boost customer engagements and reducing churn. Don’t underestimate the power of pumpkin-spice. 

Urban Stems knows their product can vary widely by season and that consumers enjoy seeing the flower colors change over the year. 

A brand is also not limited by traditional seasons. They can offer prepaid subscriptions focused on a “transformational season” where customers invest in six months of products and receive specific, goal-oriented benefits.  For example, a self-care brand could create “a self-care season” subscription, promoting a year long journey to relaxation and rejuvenation. During that time, the brand can build loyalty and satisfaction, increasing the likelihood of extending the subscription beyond the “season’s” end.  

Best Practices

Discounting

To incentivize customers, try to offer the steepest discount to your prepaid subscribers. They’ll reward your generosity with selecting a longer term that could payout in the long run. To select the discount most appropriate for your product, consider the savings of the prepayment– maybe it’s fewer administrative costs, bulk savings with your suppliers, lower processing fees, or consolidated marketing efforts. 

Ability to change items in subscription

After customers are willing to lock-in both a price and a set-time with your company, give them the flexibility within their purchase agreement. Customers who feel less restricted are more satisfied with the experience. And thanks to Smartrr’s flexible set swapping, customers have many options to swap or select different products within the boundaries set by your company. For example, Smartrr empowers the flexibility to allow swapping for each order and selecting items that match their current preference. These structures maintain the convenience of a subscription still with the freedom of choice… or surprise!

Gifting best practices

Gifted subscriptions, especially during the holiday season, offer a unique way to combine thoughtfulness and flexibility for gift givers. By allowing the recipient to choose their preferred products within the subscription, you remove the stress of selecting the “perfect” gift, while enhancing the satisfaction of the recipient. A best practice is to offer “discovery” or “introduction” sets, which help new customers explore your brand and feel more confident in their choices. Additionally, consider incentivizing the gifter with a discount or gift card for a future purchase, encouraging them to return to your brand. 

Conclusions

In conclusion, prepaid subscriptions offer tremendous opportunity for both businesses and customers, offering financial predictability, higher engagement, and a unique value. The upfront commitment from customers not only strengthens their relationship with your brand, but also opens the door to greater loyalty and trust over time. Advances in technology have now addressed limitations of the past that made prepaid subscriptions feel rigid and complicated for both customer and company. The new prepaid subscription features from Smartrr provide the customer with options to tailor their subscription experience– whether through flexible set swapping, custom build-a-boxes, or monthly option choice subscriptions.

‍Learn more about how to make the prepaid model more appealing for your customers and watch it take off. 

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