Free trials give potential customers a chance to try out a service before committing to a subscription.

Offering free trials is a simple way to acquire new customers. They give potential users opportunities to try out products or services before purchasing. Free trials are common with businesses selling subscriptions.

Your gym, local newspaper, or favorite app most likely gave you a free trial. Free trials are everywhere and easy to access. As a merchant yourself, you may have considered utilizing this popular method.

How do free trials affect a business? Free trials can bring in customers, but can they affect important aspects such as your chargeback rate?

What are Free Trials?

Free trials are part of negative option billing models. It’s a marketing and acquiring method effective for many businesses. However, the FTC and major credit card companies have had to crack down on regulating trials.

Most free trials require users to first submit payment information. There is no charge right away. Businesses intend to automatically charge a free trial user once they’ve reached the end of their trial.

What is a Chargeback Rate?

Chargeback rates measure your chargeback to transaction ratio. Customer disputes and fraud result in chargebacks, which can harm a business’s finances.

Your chargeback rate determines your merchant risk level. Financial institutions flag certain businesses and industries as high risk when they’re likely to acquire chargebacks. A high risk merchant can lose relationships with banks and merchant service providers.

It’s every business’s goal to maintain a low chargeback rate. This grants them access to better payment processing and other necessities. It’s crucial to look at every aspect of business that could affect your chargeback rate.

How Do Free Trials Affect Your Chargeback Rate?

Communication can Make or Break Free Trials

You can write the best disclosure possible and still have customers file disputes. There is no way to completely prevent chargebacks from free trial issues. However, there are ways to set up your disclosure so that it reduces confusion.

A clear disclosure can protect you in a dispute. Even if a customer did not understand your terms, credit card companies can verify whether you correctly represented your free trial.

Free trial disclosures should make customers aware of future billing. They should be followed up with proper cardholder acceptance and billing notifications.

The Right Customer Service

Communication is a two-way street. You create a clear disclosure, offer easy cancellation, and send SMS reminders. However, your customers need to be able to reach you.

Many clients do not consult businesses in the case of an unknown charge. They may go to their bank and file a dispute thinking they’ve been hit by fraud.

Subscription-Based Model is an Inherent Chargeback Risk

Subscription-based businesses are considered high risk by banks and payment processors. The convenience of recurring payments comes with the consequence of forgotten charges.

Users may forget about a subscription or think that they’ve already canceled it. They see the charges on their account and don’t recognize them. Their disputes can involve multiple recurring charges, which could be a large amount for some companies.

Cancellation Processes

Canceling a subscription service should be as easy as it is signing up for one. Customers may resort to filing a dispute instead of consulting with your customer service if they feel the need to cancel. This can be due to them not recognizing charges or being unable to cancel payments.

Self-service cancellation options reduce dispute and chargeback risk. If a customer wants to cancel a service and receive a refund, they want that process to be as quick as possible. Inconvenient cancellation leads to frustration and chargebacks.

How can you make canceling a free trial easy for customers? Send communication via text or email to alert users that their trial is about to expire. This heads-up can remind them of the free trial.

Is it Worth Offering Free Trials?

Chargebacks will always be a risk whether or not you offer free trials. However, businesses do see high conversion rates from offering free trials.

Implementing the right communication and customer service can make free trials a lucrative method. Your team should also stay on top of updates to free trial regulations credit card companies make. In addition, Revitpay businesses utilize chargeback notifications to stay on top of incoming disputes. These alerts give merchants time to respond to disputes before they become chargebacks. Contact us today to see how we can help your subscription-based business.