Rethinking Budget Customers in a Subscription Economy

Hulu, Netflix, Birchbox, Blue Apron, Peloton, Disney Plus, Dollar Shave Club.These companies range in services from streaming, to food, to fitness. The one thing they have in common is that, unlike heating, these services are not necessities and until a year ago they were considered luxuries in most households.

Over the past year and half, families have spent an increased amount of time at home and upping their streaming service makes sense, but it’s not just streaming services—in the past year subscriptions have also grown on box services such as Blue Apron, Dollar Shave Club, and Barkbox. Leichtman Research Group released a study noting that 78% of households have at least one subscription with more than half of U.S. households carrying more than three, increasing their spending for services like these 96% from just a year ago. That’s a big jump and it has an impact on energy marketers.

While most marketers were able to collect on receivables timely last winter, we are now entering into the warmer season. New numbers on the economy suggest 63% of U.S. consumers are currently living paycheck to paycheck with 75% of earnings going to essential needs (rent, mortgage and food, etc.) 

This means that more households than not currently only have about 25% of their income as discretionary. In March 2020 most Americans spent just over $50 per month on entertainment subscriptions. Just a year later, the average spend on subscription services is $240.

So, we are seeing an increase in entertainment expenses and a decrease in disposable income. Eventually something has to give. Is it the $14.99 Netflix account (which individually doesn’t seem like much) or is it the $300 heating bill that was not budgeted for? And now your heating company is officially in the payment shuffle where customers decide which bill to pay and which one can wait until the next paycheck.

Aside from making billing easier, budget plans put home heating costs into monthly expenses much deeper than a card on file because just like Netflix and Hulu the bill is now planned for in the monthly budget by our customers.

In reviewing the Qualpay platform this past heating season we found that while up to 90% of customers may have a card on file, energy follows pretty closely with other utilities in which only 10-15% of customers are set up on monthly budget plans.

For instance, a $300 heating bill four times a year could be an extra hit to a household budget. Customers know it’s coming, but it’s not really planned for. If that same bill is spread out over 10 months it’s $120 planned into the budget and not as much of a hit. 

This is important for two reasons:

• Which bills people pay first has shifted in the past 12 months with nonessential services making their way into monthly budgets leaving less money for unplanned bills and emergencies.
• The costs of Visa Credit transactions have increased for energy marketers as of April 16.  When consumers have a larger ticket item that is not budgeted for- it most likely will fall into a credit card. However, if it’s broken out on a monthly basis and becomes part of the billing ecosystem it is primarily paid on a debit card- 55% of smaller transactions i.e, budget plans are placed on a debit card. Which costs energy marketers much less than a credit card.

Subscriptions are easy to set up with most starting off with a free trial and then you are hooked on the service and the $14.99 or $29.99 doesn’t seem bad in the grand scheme of things. These bills are now in your customers’ monthly budgets. They are planned for, while the home heating bill becomes an expense that customers may not have money for because they are paying an additional couple hundred dollars on subscriptions that snuck up on them.

All of this is to say that non-essential subscriptions have created a challenge for energy marketers, but it also presents an opportunity for energy companies that are prepared. We can take some lessons from these subscription businesses by becoming more ingrained in our customers’ monthly billings.—Marci Gagnon

Marci Gagnon is vice president of strategic alliances for Qualpay and has been in the payments industry for over 15 years with a concentration on recurring billing and the energy space. Qualpay provides processing solutions to fuel delivery and service businesses. For additional information contact Marci Gagnon at marci@qualpay.com or visit https://www.qualpay.com/industry/utility-and-energy.