It’s easy to overlook important costs when comparing in-house and outsourced subscription billing solutions. In order to determine your true costs, you need a full cost breakdown and clear visibility into everything that global subscription billing entails.
So that’s what we did. We found that all of the everyday tasks and expenses involved with managing a solution in-house can prevent growth into new markets and can stunt ongoing optimization efforts.
Let’s Break It Down
Evaluating the costs associated with managing an in-house subscription billing solution is a major task, and involves looking at every aspect of your business. In this post, we look at three key areas: localization and front-end design, tax collection and remittance, and global data and legal compliance. These are only some of the areas a subscription business will need to manage, either on their own or with partners. But even without accounting for back-end development, accounting, IT administration and security, subscription management, fraud prevention and customer support, the costs of developing a home-grown solution quickly begin to spiral out of control.
Localization and Front-End Design
Optimizing your subscription pages and purchase process for new and existing regions involves significant localization resources. This includes translating text, accommodating double-byte characters, and displaying relevant form fields in the right sequence. Displaying localized pricing, payment methods and currencies will inspire customer confidence and increase conversions.
Continuous Testing and Quality Assessment (QA)
Testing the design and layout of your online sales process is key to optimizing conversions. You also need to keep up with evolving design trends, customer demands, frameworks and features and test these regularly. QA is an integral part of launching redesigned or reconfigured subscription pages or purchase processes. If you’re testing internally, you’ll need a good six to nine months of user data before you can draw any real conclusions.
Customers expect a seamless experience regardless of whether they’re using their PC, tablet or phone, so you need to invest in resources for delivering responsive design across devices.
The time and resources needed to effectively manage a presence in multiple regions on your own are significant. A subscription billing provider can rapidly deliver a customized, responsive customer experience — including design (fonts, colors, etc.), build-out and quality assessment. The QA period will be considerably shorter because your provider has market research (derived from working with multiple clients) on which configurations will attract and retain subscribers in each region.
Learn more about localizing for a global subscriber base with our illustrated ebook 7 Tips for Growing Your Global Subscriber Base
Tax Collection and Remittance
Value-Added Tax (VAT)
The EU first started charging VAT on digital transactions that occur within the EU in 2003. Since then, VAT structure and standards have been continually evolving, and companies often have a hard time staying compliant. For example, prior to 2015, VAT assessment was based on where your business was located; now VAT rate is contingent on destination (that is, where your customer is located). If you have customers in the EU, it’s critical that you understand and comply with VAT regulations by collecting and remitting tax to the proper authorities. By not complying, intentionally or otherwise, you risk major fines. Your global revenue will take a hit, too, since prices without VAT factored in are not properly optimized for profit.
Tax Laws Based on Subscription Type
There are different tax implications depending on the type of subscription being sold (physical, digital, on premise software, etc.). Logic for calculating this kind of tax needs to be built into your subscription billing platform.
Regional Tax Laws
Tax laws vary from region to region and are subject to change. For instance, a new set of regulations in South Korea states that electronic services sold to South Korean customers are subject to a VAT of 10 percent. Laws like this go into effect immediately, and it’s mandatory that your business complies.
In the United States, tax must be collected on all taxable sales, and tax rates vary from state-to-state. Collecting sales tax can be an enormous chore for online businesses because any customer in any state can conceivably purchase anything online. Sure, you can apply for individual seller’s permits in each state, calculate state tax on a per-customer basis and keep track of tax you collect — but that will take up significant internal resources.
Staying up-to-date on changes to global sales tax and VAT regulations is a task in and of itself. Actually calculating and remitting tax correctly is another. But you can rely on your subscription billing provider for both. Also, they’ll automatically factor your customer’s location and your company’s tax nexus into every transaction, and maximize recurring revenue in each region through optimized pricing.
Payment Card Industry Data Security Standard (PCI DSS)
Strict PCI DSS compliance is required for any business accepting credit card payments. Recurring auditing fees hinge on a variety of factors — company size, number of transactions processed annually, existing infrastructure, credit card data scope, etc. — and initial implementation is quite costly. Fines for non-compliance, however, can be catastrophic for your business: up to $90 fine per cardholder data compromised, suspension of credit card acceptance, loss of brand reputation, the cost of a PCI Qualified Forensic Investigator ($130-200 per hour for a one to two year project) and much, much more. Additionally, PCI DSS compliant infrastructure, processes and scope are updated at least every two years, so you can’t rest on your laurels.
Privacy Laws for International Sales & Data Transfer
Applicable privacy laws are another serious consideration. Because laws, regulations, standards and best practices around this are continually changing, they require constant monitoring. Your business needs to respond immediately to any sudden changes that impact business practices, like Canada’s recent Anti-SPAM legislation (for which violators face penalties up to $10,000,000).
Global Trade Compliance Regulations
These are constantly being updated, so you need to stay abreast of any countries in which an embargo or other specific trade rules apply. Without screening and escalation processes in place for identifying embargoed countries and individuals or organizations on the Specially Designated Nationals and Blocked Persons (SDN) watch list, you run the risk of non-compliance with U.S. export regulations. That can lead to 10 to 30 years of imprisonment and fines between $50,000 and $10,000,000.
European Privacy Laws
Even United States-based companies have to think about European privacy laws when engaging with European customers: European law requires an adequate level of data protection when collecting, processing or storing customer data from European citizens. The German Federal Data Protection Act (FDPA) fines your business up to 300.000€ per violation. Not complying with the European General Data Protection Regulation (GDPR) when it goes into effect in 2018 may audit a fine up to €20,000,000 (or up to 4 percent of the annual worldwide turnover, whichever is greater).
Data Breach Notification Laws
In the United States, these laws vary by state. Some states simply provide a maximum civil penalty per breach; other states calculate the penalty based on the number of customers affected. Under Michigan’s statute, a business that knowingly fails to provide the required notice to a customer is fined up to $250 per failure (with a maximum fine of $750,000).
Channel Partner Compliance
If you do business with channel partners (affiliates, resellers, etc.), you must actively screen them to make sure they’re also maintaining compliance with global standards.
Updating Security Infrastructure
Active maintenance of network security infrastructure is also required — for example, outdated versions of a firewall operating system may no longer be compliant.
In the unlikely event of a security breach, litigators can claim negligence if it is determined that your business violated compliance standards. A subscription billing provider will protect the personal information of your customers and react immediately to any sudden changes in legislation. Additionally, they will keep you in line with global trade compliance regulations, ensuring that you don’t conduct business in embargoed countries.
We all get by with a little help from our friends. On top of offloading internal operations and reducing processing costs, utilizing a subscription billing provider actually creates revenue opportunities for your business. You might not have the internal resources required to expand into new markets, comply with global data privacy regulations and prevent fraud while continually nurturing long-term customer relationships — but an experienced provider can help with all of that and more.