About twenty months ago, while sitting on a couch in Auckland, New Zealand, my team and I flipped the switch to enable automatic renewals for AffiliateWP. Two months later we did the same thing for Easy Digital Downloads and Restrict Content Pro. This was a move that we had been working towards for nearly a year and it’s one that we believed would fundamentally change the position of the company over the next one to two years. Now that it has been twenty months, maybe we can answer the question: were we right? Did it make a significant impact for us or was it all futile hopes?

Historically we, like many other online product companies, have struggled with low renewal rates. All of our products are sold with annual licenses that should be renewed each year so long as the products are in continued use. Renewal revenue is a critically important part of growing any online business because it reduces the expensive process of customer acquisition. Your revenue isn’t purely a factor of how many new customers you obtain, it’s a combination of your new customer acquisition and your existing customer retention. If you have great customer retention, you can grow your annual revenue year after year without having to rely on increasing the number of new customers acquired year over year.

Our goal with implementing automatic renewals was three-fold:

  1. Reduce friction and effort for customers. Easy systems == happier customers.
  2. Increase renewal revenue by reducing the number of “forgotten” renewals.
  3. Provide a predictable revenue stream we could rely on and adequately forecast against.

Let’s start determining if we were successful by looking at some previous year stats.

Easy Digital Downloads

Here are some quick stats on our previous years with Easy Digital Downloads:

  • Total revenue in 2014: $474,622.54
  • Total revenue in 2015: $561,269.06
  • Renewal revenue 2015: $80,799.26
  • Total revenue 2016: $597,352.61
  • Renewal revenue 2016: $139,850.03

In 2015 we brought in $80,799.26 in renewal revenue. That’s revenue from existing customers that renewed their license keys. This number means only 14.4% of our total revenue in 2015 came from renewals. Ouch. While $80,000 isn’t a small number and is a nice addition to our annual income, it’s abysmally small when you recognize how few customers were coming back and purchasing renewals.

Our 2016 renewal revenue was higher at $139,850.03 but still only accounted for 23.41% of our total revenue that year.

AffiliateWP

For AffiliateWP, we have pretty similar patterns between 2014 and 2016.

  • Total revenue in 2014: $119,651.50
  • Total revenue in 2015: $379,078.36
  • Renewal revenue 2015: $19,774.60
  • Total revenue 2016: $491,890.90
  • Renewal revenue 2016: $62,827.80

For 2015, our renewal revenue accounted for only 5.22% of our total annual income. This is super drastic, though it does look worse on the surface before realizing part of the reason the renewal revenue was so low was because 2015 saw incredible growth for AffiliateWP. We more than tripled our 2014 revenue by bringing in a lot of new customers so our new customer acquisition was rapidly out pacing our existing customer base from 2014.

In 2016, we saw $62,827.80 in income from renewals, accounting for 12.77% of our revenue that year.

Restrict Content Pro

Again, Restrict Content Pro shows pretty similar patterns of abysmally low renewal income ratios.

  • Total revenue in 2014: $67,211.75
  • Total revenue in 2015: $83,806.60
  • Renewal revenue 2015: $10,460.30
  • Total revenue 2016: $157,486.89
  • Renewal revenue 2016: $21,706.60

In 2015, we brought in $10,460.30 from renewals, accounting for 12.48% of the year’s revenue. And in 2016 we saw $21,706.60 in renewals, or 13.78% of the total revenue that year.

Easy Digital Downloads in 2017

Automatic renewals for Easy Digital Downloads were enabled on March 30, 2016, which means the first payments to be processed by the resulting subscriptions would occur on March 30, 2017. This is important because it means the first three months of 2017 had the same manual renewals as previous years. Based on speculations, automatic renewals should dramatically increase the amount of revenue that comes from renewals.

Did it?

  • Total revenue so far in 2017, January 1 to August 1: $463,835.92
  • Renewal revenue so far in 2017, January 1 to August 1: $166,716.98
  • Revenue from auto renewals in 2017, March 30 to August 1: $90,297.20

Thus far, 35.94% of our Easy Digital Downloads revenue has come from renewals. That’s 12.53% more than in 2016, so a really good sign that automatic renewals are having a significant effect.

Of the $166,716.98 in renewal revenue, $90,297.20 of it was from automatic renewal payments processed with subscriptions. So 19.47% of our total revenue in 2017 has come from automatic renewals. That’s pretty good on the surface, but actually it’s really good. Why? Simple: automatic renewals didn’t start processing until the beginning of the second quarter of 2017 and yet it has already accounted for nearly 20% of our total yearly revenue.

If we look at March 30 to August 1, the time period that automatic renewals have been processing, we see that renewal revenue accounted for 38.72% of our revenue.

Here’s a graph that shows monthly license renewals for 2017. Can you see the point when automatic renewals began processing?

AffiliateWP in 2017

Automatic renewals for AffiliateWP began processing on January 21, 2017, so most of 2017 has included automatic renewals, unlike Easy Digital Downloads and Restrict Content Pro.

  • Total revenue so far in 2017, January 1 to August 1: $443,996.90
  • Renewal revenue so far in 2017, January 1 to August 1: $101,453.35
  • Revenue from auto renewals in 2017, January 21 to August 1: $89,686.40

22.85% of our 2017 revenue has come from renewals, and 20.2% was from automatic renewals. Just 2.65% came from manual renewals.

In 2017 we have had $101,453.35 in renewal revenue. In 2016 we had just $62,827.80. We’ve nearly doubled our renewal revenue and there are still four complete months left in 2017. Obviously some of that increase is due to natural growth, which we’ve continued to see for AffiliateWP, but it’s still a significant increase that I believe is largely attributed to automatic renewals.

If we exclude the first 20 days of January, we find that renewals have accounted for 24.20% of our revenue in 2017.

Here’s a graph showing license key renewals over time for AffiliateWP:

I don’t think I need to point out when automatic renewals were enabled.

Restrict Content Pro in 2017

The numbers for Restrict Content Pro in 2017 do share similarities with the other two products but it has one significant difference that needs to be noted. Throughout 2016 and 2017, one of our primary focuses has been to revitalize Restrict Content Pro and bring it back to a strong position within our product portfolio. I’ve written about these efforts and the results so far previously. I mention this because much of the growth Restrict Content Pro has seen in the last 20 months can be attributed to automatic renewals and extensive revitalization work.

  • Total revenue so far in 2017, January 1 to August 1: $184,686.45
  • Renewal revenue so far in 2017, January 1 to August 1: $28,503.85
  • Revenue from auto renewals in 2017,  March 30 to August 1: $16,165.80

In 2017, 15.43% of our revenue has come from renewals. 8.75% of that was from automatic renewals. This is an increase over previous years but not too terribly drastic. It is, however, still significant when we recognize that automatic renewals did not begin processing until the beginning of the first quarter of 2017.

If we look at March 30 to August 1, the time period that automatic renewals have been processing, we see that renewal revenue accounted for 19.22% of our revenue.

The graph below shows the growth of license renewals overtime. There is a pretty distinct increase in April that continues through the end of July. That increase is the result of automatic renewals.

Wrap up

I think the numbers mostly speak for themselves and really show that automatic renewals are having a significant impact on the financial state of the company. I look forward to seeing whole-year numbers after we’ve had automatic renewals processing for more than just a few months.

Restrict Content Pro’s 2017 revenue has already passed that of 2016, AffiliateWP is less than a month away from beating 2016, and Easy Digital Downloads is two months away from surpassing 2016. There are still four complete months left in 2017 and one of those includes our historically best month: November.

We need to make an important note here regarding the price increase we did at the end of 2016 and early 2017. The price increase did not affect any existing subscriptions, so the majority of the renewals we’ve seen so far in 2017 have been at the previous, lower price. So even though our renewal revenue is mostly at a lower price point than new sales, the percentage of the total that renewals account for is still significantly higher that it was previously. Once we are seeing the majority of renewals come in at the new, higher price, we’ll see even more significant results.

There are a number of really excellent effects automatic renewals have contributed to, but there are two in particular that I would like to highlight.

First is the ability to reliably forecast our expected revenue month-to-month. We now have a reliable data set that provides us with much more accurate predictions for future revenue, and that is incredibly valuable, especially when making decisions about company investments and weighing risks.

Second is our profit margin. One of downsides to increasing revenue through new customer acquisition is the added support and development burden that entails. The burden of adding $10,000 per month from new customers is not minimal at all. In fact it can be a real challenge. One of the reasons companies hire new employees is to help meet the demand brought on by the new customers. This often creates an endless cycle of growing your expenses as quickly as your revenue. Adding $10,000 to your monthly income doesn’t make much difference if you also add $10,000 in new expenses each month simply to help manage that new $10,000 you brought in.

Renewal revenue, however, doesn’t require the same maintenance that new revenue does. In other words, if we earn $100 from a new customer, it is likely that we will have to spend $80 helping that customer. If, however, we earn $80 in renewal revenue from an existing customer, we most likely won’t spend more than $20-30 helping them, if that. The reasoning is simple: renewing customers cost significantly less because the maintenance for them has already been done.

Existing customers are so much cheaper than new customers, so it only makes sense that we should do the very best we possibly can to increase the revenue generated from those existing customers. If we do that, our profit margins will get better and better, and that is precisely what we have seen.

Our previous years have all been profitable in the end, sometimes not very profitable but profitable nonetheless. 2017, however, has seen a completely new trend. We are not only showing profit every month, we are showing monthly profit that is greater than all previous annual profits, and we’re seeing it every single month but one so far. Which month didn’t see that level of profit? January, right before automatic renewals began taking place. Coincidence? Absolutely not.

I’ve previously mentioned that I believed transitioning to automatic renewals would likely be one of the best things we ever did. Today I’m more confident of that prediction than ever.

  1. Scott Paterson

    Nice! I started selling yearly license subscriptions in March 2016 using EDD and the results have already been huge. So many more automatic renewal payments vs manually renewing, and it has not increased my return rate very much either.

  2. Eli Overbey

    Great post! Congrats on the success!

    When you switched to recurring annual payments, did you have an issue with delinquents or % requesting a refund because they had forgotten the charge would occur?

    Based on the impact of renewing annual payments, what are your thoughts about going MRR?

    • Pippin

      When we first enabled them we chose not to setup courtesy reminders that would let customers know their renewal was going to be processed before actually processing it, we simply emailed them at the time the charge was made. We knew this would likely result in a higher-than-previous number of refunds but we also speculated that emailing people in advance would result in too many cancellations.

      In the end we found the refund request rate and the number of chargebacks filed (from people that didn’t remember or recognize the renewal) was higher than we liked, so did end up turning on courtesy reminders that get sent a week before charges go through. This has worked well and significantly reduced the number of refund requests. Even with these courtesy reminders, however, we still see a large number of people that request refunds because they forgot the charge was going to happen.

      MRR can be really great but it’s not suitable for all kinds of online products. For example, it wouldn’t work well for us (I don’t think) because we’re not a service that stops working if the subscription lapses. Services tend to be better than products for MRR.

  3. lakewood

    It will be interesting to see how this increases revenue over a 5 year period. I have to admit that auto renewals are handy.

  4. From a business/financial standpoint, it’s hard to argue with those numbers. But what about the customers? How do they respond to automatic renewals? I don’t use WordPress so don’t have experience with your products either… do customers opt-in for the auto renewal or is that just something that happens on all purchases?

    • Pippin

      Customers that have given us feedback have either said they really like them as it removes a hassle for them (manually renewing keys each year) or that they don’t like them because they prefer not to have automatic subscriptions. For the customers that don’t want automatic subscriptions, they can cancel them at any time, even immediately after purchase, so the subscriptions are entirely optional.

      Our products are all sold with a mandatory subscription during purchase but the subscription can be cancelled immediately after purchase if desired.

  5. Collins Agbonghama

    Quick question. Do you send email reminder to customers prior to the due date of their automatic renewal?

    • Pippin

      We didn’t for the first few months that auto renewals were processed but then, after seeing a significant increase in refunds and disputes, we enabled courtesy notifications.

  6. Jon Loveless

    It’s too bad you can’t track the people who were hit with automatic renewals even though they stopped using a product. I used to use automatic renewals as a trigger to revue my use of a product. If I was using it and happy I kept on. If not, I often cancelled (albeit after the renewal came out). That is really sloppy on my part, but so be it. As a consumer, Automatic Renewals are both a blessing and a curse, depending on the product.

  7. slickremix

    As you said the numbers speak for themselves, congratulations! Thanks for sharing!

  8. Matt Whiteley

    Love these financial posts. It’s always very interesting to read.

    One feature with regards to the automated reminder emails for renewals would be to offer this on a per-product basis. I have monthly recurring subscriptions that don’t need a reminder that they will be charged, but it would be nice to enable a reminder email specifically for products or services that are billed annually (ie. annual hosting over monthly hosting).

    The monthly customers are used to the charge, but as noted in the comments, the annual ones are likely to forget and wonder what the charge is for.

    Keep up the amazing work!

    Cheers,

    Matt

  9. Griffin Stewart

    Awesome Pippin and team! Love it and very helpful for other small business owners to be invited and allowed to see behind the curtain. Thanks so much for sharing so openly about this experiences and the results so far and keep up the awesome work!

  10. Mark Zahra

    Great to see it being a success for you, Pippin. We implemented subscriptions On March 1st of this year, can’t wait to see the results next year. We already have the one week reminder email in place, so I’m glad to see that it helped you too.

    Out of curiosity, you have a refund period of 30 days… “No refunds will be granted after the first 30 days of the original purchase whatsoever.” – Does this also apply to your automatic renewals, or just the original purchase? So if a customer has his license renewed automatically, but realises after 30 days of the renewal payment going through (somehow!), is he eligible for a refund if he requests one?

    We have it planned for the same refund period to apply to renewals, but I’m curious to see how others handle this and why.

    • Pippin Williamson

      Our 30 refund policy applies to renewals as well. Customers have 30 days from the day their renewal is processed to request a refund and we typically grant it with no questions asked.

  11. Chad Warner

    Thanks for such a detailed post! It’s interesting to see the data, then the insights you gathered.

  12. Doug Smith

    Have you noticed any impact on support because of subscriptions? It would seem that more subscribers would mean more users with up to date software, and therefore fewer support requests for bugs that have already been fixed.

    • Pippin

      The number of support tickets we handle per dollar earned has decreased substantially, though it’s hard to say if that’s primarily due to the subscriptions, our price increase, improvements all around, or simply everything combined.

      Reducing support tickets has been one of our number one goals in the last year and we’ve made great strides. Recurring subscriptions definitely helped but we cannot measure exactly how much it helped.

  13. Steven Gliebe

    Thanks for sharing the results so far. This is very encouraging.

  14. paolo

    Thanks for the informative post Pippin!

    Our situation is very similar. However we started with auto renewing subscription since the very beginning. The only difference is that we also offer 4 months subscription and 6 months subscriptions for our bundle.

    While we know that some members take advantage of the cheaper 4 months subscription, buying it once per year just to update. We also know that during the remaining 8 months they stop getting support, so it’s cheaper for us too.

    With shorter plans, we managed to attract members that wouldn’t buy a membership @ $199 for 12 months, but are ok buying @ $99 for 4 months or @ $129 for 6 months.

    For example, all those that are building a website that will be online for a limited time, or those that don’t need any support from us.

    Renewals represent 52.7% of our revenues. 30.4% from license renewals and 22.3% from subscriptions.

    • Pippin

      Thank you for sharing!

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