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If you looked at your phone this moment, how many text messages would you say you have received in the last week? Of those, how many would you say were from an automated source for you to take action? (think USPS updates or shipping confirmations)
SMS communications have far and away surpassed any other form of communication for mobile devices. In fact, according to an article by Paldesk, the number of monthly texts sent has increased by almost 8,000% in the last decade. What’s more, text messages have the highest response rate of mobile communications– over 200% higher than a phone, email, or Facebook.
Transactional Versus Promotional SMS
More common, yet more risky, promotional SMS is a way for brands to communicate with their customers via text about product updates, services, and upcoming promotions. Though effective in delivery, promotional messages tend to have much higher opt-out rates, edging on 40-60%. The ripple effect of these high opt-out rates is once a customer has opted out from SMS communications from you, they can no longer receive any other kind of SMS communication, including transactional SMS.
Transactional SMS is exclusively a way for your customers to manage their subscriptions or transactions with you, without having to log in to a customer portal. Opt-out rates for transactional SMS are significantly lower than promotional SMS, at only 3-6%.
The Benefits of Transactional SMS For Subscription Management
Increased Engagement
Transactional text messages allow for an unprecedented level of engagement between brand and customer, delivered in a way that’s extremely relevant. Let’s take a look at the anatomy of a transactional text message. In this scenario, this brand is reaching out to Sampson about his upcoming shipment of multivitamins.
If Sampson were to reply “modify order” (or any other hotkeys that dictate action), he would receive a return message like the below:
From there, Sampson could simply reply with the number corresponding to his needs, and have it all resolved right there from his mobile device, without ever having to remember log-in credentials to a customer portal.
Increased Customer Lifetime Value (LTV) and Reduced Churn
The increase in engagement is directly correlated to the increase in LTV. In fact, we found that customers who engage with their subscriptions regularly (perhaps by skipping a month or swapping out products) show an increased lifetime value of 15-32% on average.
On the flip side, with the engagement rate increase as a result of transactional SMS, customer churn is reduced. Giving them real-time updates about their orders allows for them to take control of their subscription and removes the barriers of being able to easily manage their orders.
Increased Average Order Value (AOV)
Transactional SMS empowers customers to act on the options for flexibility, such as skipping a month or swapping out products. The top-tier Recharge merchants (top 30% by GMV) studied for the State of Subscription Commerce report averaged dramatically higher AOV than their counterparts due in large part to their enablement of flexible options for their customers.
Faster Support
You may be thinking that automating a transaction through SMS is opening a can of worms for increased support issues or passive churn. The contrary is actually true. Due to the nature of transactional SMS, automated support tickets are sent directly to the support platform if customer replies aren’t immediately understood by the system. Additionally, customer support is often clogged up with requests for customer portal password and username updates or changes. By eliminating the need for customers to rely on the customer portal to manage their subscriptions, those tickets decrease as well.
The Considerations For Transactional SMS
Implementing something new for your business isn’t without risk. Though the risk level for leveraging transactional SMS is very low, there are still key considerations you need to take into account.
Churn Acceleration
Wait a minute? Didn’t you just read that transactional SMS lowers churn? How could it also accelerate it? Where transactional SMS really shines is in the removal of barriers to engage with a subscription. However, with that, the barrier to cancel a subscription is also lowered (which isn’t necessarily a bad thing)
We recommend that before you implement transactional SMS, you analyze your churn rate and compare it to industry benchmarks. If your churn is significantly higher than that of your industry, prior to turning on transactional SMS, you’ll want to find ways to fix your churn problem. Once that is resolved, we recommend only starting transactional SMS with your best and most loyal customers to test it out and gain valuable feedback.
SMS Opt-In Consent
Disclaimer: Please note that the below advice is for informational purposes only and should not be substituted for consultation with appropriate legal counsel.
Just as with internet privacy laws, promotional SMS and transactional SMS have legal guidelines that merchants must follow. There needs to be a clear agreement from the customer that you will be communicating with them via text message and of which type of messages they will be receiving as a result of that consent (i.e. promotional vs transactional)
Remember, if customers opt-out of receiving SMS from you, that door is closed regardless of if you want to send them a different type of message. Eroding customer confidence in you by not honoring their opt-in or opt-out is not only a legal matter but also one of trust.
TLDR; Be clear about what you’re asking customers to do and what they can expect.
Ready To Start Using Transactional SMS?
Here at Recharge, we’re passionate about helping merchants understand the value of utilizing transactional SMS for subscription management. We put together The Ultimate Guide to Transactional SMS which is chock-full of tips and tricks to enable this functionality. On top of that, in the guide, there is a handy checklist of things to do before implementing transactional SMS for your brand.
And, for all Recharge merchants, RechargeSMS is free to use! To learn more, visit us at rechargepayments.com.