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19
SEP
Benefits of Direct Debits for Renewals
19 SEP 2011 | Posted in business value, membership organisation | Author Alex McLachlan |
1 Comment
Membership organisations often debate whether to offer Direct Debits for paying renewals. But, Direct Debits give significant benefits for retention, which outweigh the administrative costs.
The advantages of Direct Debits (DD) come from psychology, which turns out to be all about time and laziness:
- Once a DD is set up, it takes effort to stop it, so less people bother
- If it take effort to renew (filling in a form, sending a cheque, phoning up, even on-line self service) some people won’t get round to it
Yes, it does take some administrative effort to use DDs, but I strongly believe it is worth it because of the costs of lapsing members and recruiting replacement new members outweigh the admin costs:
The costs of DD admin are:
- Processing new DD applications (these costs are less if online DD registration is used)
- Generating the monthly/annual DD claim files
- Dealing with payment denied returns, changes of bank account, etc
The benefits of using DDs are:
- Higher retention, particularly if membership is not a requirement for the specialism. The statistics from one of our clients are that just 3% of members who pay by direct debit lapse their membership every year. This compares with a 7% lapse rate for those who pay by other methods.
- The financial element of this is the lost revenue for members who lapse and the marketing costs of recruiting replacement new members.
- The administrative costs associated with reminders for members paying by other methods also needs to be taken into account.
WHAT WE'RE SAYING
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MAY
We have recently changed our website privacy policy to comply with the EU Directive that will be in force in the UK from 26th May.
However, a significant proportion of organisations haven't made the necessary updates including many Government websites according to the BBC.
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Comments
26 Sep 2011 22:48
One area where evidence can be found in support of your argument is the marketing activity of many reputable organisations for example Which and LoveFilm. These firms offer initial incentives for example free consumer publications or free DVDs for a month, but on the condition that one supplied a direct debit at the point of application.
replyThe firms are of course playing on the chance that there is at least a good chance that the effort required to cancel the direct debit, coupled with the inherent value in the product will result in the direct debit being left in place.
It is reasonable to assume that given the frequent use of this marketing method that it works and is commercially viable. There is no reason to assume this would not translate into an argument that supports the adoption of direct debit in membership organisations.
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