Subscriptions, auto-renewals, and payment clauses explain to a consumer how these features work and how you expect remittance for them.
This article will teach you what these clauses are, where to place them, and what type of information they usually contain. We will also provide examples of these clauses in real-life legal agreements.
These clauses cover a legal agreement between a business and a consumer to obtain payments in the foreseeable future.
In essence, you, the business owner, and the client agree that the client will pay you a certain amount of money in exchange for services or goods for a stipulated period. The period can be weekly, monthly, after six months, or yearly, depending on the type of service or goods you provide. Such exchanges usually happen frequently until the client, or the company ends the agreement.
These clauses cover a gap that basic, traditional contracts, which mainly focus on a single monetary exchange, can't meet.
Most business owners cannot achieve and maintain cnsistent revenue. Which in turn means fluctuating profits and slow business growth.
Subscription, Auto-Renewal, and Payment clauses allow you to capture a consumer and turn them into a lifetime customer.
Your company will have achieved recurring revenue and consequently stable profits when you do so.
It takes less effort to establish a long-term relationship with a buyer that regularly returns to your shop than with new customers who walk in. By having Subscription and Auto-Renewal clauses, you save on time previously spent acquiring new customers.
These clauses also foster a sense of belonging among your customers. Allowing them to feel they are an integral part of your business. Which, in actuality, they are.
Without a doubt, businesses that have Subscription, Auto-Renewal, and Payment clauses retain customers longer than those without such clauses.
Why is that so? It mainly has to do with the fact that the customers will interact with the company's service or product longer. The extended interaction period allows the business to foster a relationship with the client by providing personalized subscriptions. All of these features make customers stick around longer.
A consumer's lifetime value (LTV) is of utmost importance for companies operating eCommerce stores. Once you achieve recurring revenue using Subscriptions, Auto-Renewal, and Payment clauses, you'll notice the LTV rise. That's because the autorenewals ensure the customer continues obtaining goods or services from you.
Companies having these clauses in their contracts increase a customer's LTV by up to 200%.
Marketing efforts are time-consuming and expensive. Therefore, you must choose the right campaign to enhance your visibility. However, even well-planned and properly executed marketing strategies which attract new customers are costlier than customer retention strategies. You avoid spending resources on customer acquisition by having Subscription, Auto-Renewal, and Payment clauses.
Thanks to the Auto-Renewal clause, your business will have a consistent flow of revenue.
In addition, you will have an easier time setting financial targets since you will have many regular paying customers.
Subscription, Auto-Renewal, and Payment clauses are ideal for businesses seeking recurring income. For example, you can use these clauses if your company:
Traditionally, these clauses usually start with an introduction period offered by the business at a discounted price or free.
If the consumer doesn't cancel the subscription after the end of the "trial" period, the company can continue providing its services or goods at the regular price.
You should include Subscriptions, Auto-Renewals, and Payment Clauses in:
We recommend following specific guidelines when including Subscriptions, Auto-Renewals, and Payment Clauses. These guidelines help to build trust and ensure the customers don't feel ripped off:
Depending on the business you are running, below are the primary points to address in these clauses.
Explain to your potential customer how often and when you will require fees for the goods or services. This is also known as the renewal date and cost.
You can even include particular dates for more clarity. Remember to state what will happen if the customer fails to pay for the subscription. You can see how allGym does this perfectly:
Furthermore, you will have to explain if the cost of future payments will remain constant or if you will increase it. Also, describe how you will inform your customer about the price increase.
Showmax explains that it has the right to increase payments once yearly and will let the client know 30 days prior:
Grammarly aims to be transparent with its customers by elaborating on when and how they will get notifications of price increments:
You need a well-written and transparent policy that states when and if you will send reminders about a future renewal payment. The policy should also include the method you will use to send the reminder.
Sending reminders will help you confirm with the client whether you have the correct contact details, for example the name of the client and credit card information. You should send the reminder a few days before the specified renewal date so your customer has a chance to cancel the transaction and avoid future remittance.
The above step is of utmost importance, especially if you have a minimum notice timeline. By covering all these aspects in your renewal clause, you will be bound by them legally. However, this is fine for many ethical businesses.
Inform your customers how they can practice their right to terminate the agreement and avoid future charges. The explanation should encompass how they can reach you and what the customer should say.
To reduce the chances of a court declaring your clause null and void or unfair, make it simple for the consumer to terminate the agreement. For instance, stating that the client has to personally submit a cancellation request or call a pricey phone line isn't ideal. It may cause legal issues.
You will also have to outline the effects of a consumer canceling the agreement. For instance, inform the client if they can access your service or goods until the following payment date or if it will end immediately after cancellation.
The Financial Times provides information on how and when a consumer can cancel the agreement. It also states that it will refund all the payments made before the cancellation:
Include a clause explaining whether you can make any changes to the services or products you provide. Also, explain if the changes made will necessitate an increase in the price and by how much.
Remember to add the right to terminate the agreement and discontinue supplying the service or product.
You should also explain scenarios that may lead to you terminating the contract. Hulu states its rights and reasons it may have to suspend or terminate a customer's subscription:
Now that you understand how to write Subscriptions, Auto-Renewal, and Payment Clauses, let's look at the legal aspects.
There are plenty of laws all over the globe that give guidelines on how a business uses subscriptions, auto-renewals, and payment clauses. Some of these laws also state the type of information you should provide to potential customers.
In the United States, many courts will consider such stipulations legally binding, provided you write them in clear and straightforward language. On the other hand, some states have laws detailing specific elements that must be present in these clauses.
For instance, California laws state that the information should be conspicuous and unmistakable. Placed next to the signature line and made visible using a color different from the surrounding text or a bigger font size.
The state of New York has a similar "conspicuous and unambiguous "requirement. However, it goes further, stating that companies or businesses should notify consumers 15 to 30 days before the renewal date.
In the United Kingdom, consumer contracts considered unfair or exploitative are unenforceable. It explains that renewal terms are only fair if they provide uncomplicated information explaining how renewal occurs and how to cancel it.
The contract should also bind the seller to send the client a reminder for future renewal. Courts consider "unfair" terms to be:
In Australia, the laws state that Subscription, Auto-Renewal, and Payment clauses are legally binding, provided they don't cause an imbalance between customer and the supplier.
What you include in your clauses isn't only about following the laws. Providing well-written, comprehensive, and easy-to-understand information in all your agreements will build trust among your customers. You will also gain more customers as the clients share their positive experiences with their friends.
Most countries are strict with their consumer laws policies because some businesses depend on a lack of clarity and confusion to obtain money from clients. Therefore, such laws are put in place to protect unsuspecting customers.
Most people assume privacy data laws don't have a connection with auto-renewal and subscription clauses. That's because the clauses are more about the commercial exchange of goods and services, not personal data.
The two are directly connected. You will require personal data to process renewal payment or subscription such as a customer's:
All this information is critical since numerous personal data laws depend on a customer's awareness or consent to make processing legally acceptable.
If a business owner can clearly show that the consumer was anticipating an auto-renewal, it will be easier to prove they agreed to provide their data.
Below are some laws where such issues may arise.
CCPA, which encompasses numerous businesses providing goods and services to California residents, doesn't need prior consent to process personal information. Even so, it establishes and enforces a right for customers to know that a business will process its data.
Therefore, your Software License Agreements or other similar documents must clearly state that you may use a customer's personal information to process future payments. You will also have to include when such payments happen.
Most Canadian businesses fall under the PIPEDA act. The law requires a company to acquire a user's consent before processing personal data. In simple terms, the customer should understand the consequences of providing consent.
GDPR, which directs data processing in European Union countries, states you should have legitimate reasons to process information. The regulation further explains that the customer must allow and expect you to process information in a specific way. Such won't be possible if the client never consented to future payment processing.
The VCDPA states that businesses providing goods and services in Virginia must explain to consumers how they will process their data.
Let's go over what you need to understand concerning Subscriptions, Auto-Renewal, and Payment clauses.
When writing these clauses, remember to include:
Always present the clauses: