Taking the Measure of Click to Cancel

Faced with a proposal to make it easier to stop a subscription, payments companies and subscription specialists have much to ponder.

Everyone dreads the inevitable sales pitch that comes when trying to cancel some subscriptions. There’s multiple pages to read online and the search to find the diminutive cancel button. Or there’s the phone call that requires you to decline multiple pitches so you can stay on the line to confirm a subscription cancellation.

While not every company offering a subscription-payment service makes it difficult to end a recurring payment, enough do that the industry may be faced with a mandated easy-to-use option to cancel a subscription.

It’s the Federal Trade Commission’s so-called click-to-cancel button. Announced a year ago, the proposal, which is part of the commission’s review of its 1973 Negative Option Rule, would require companies to make it as easy to cancel a subscription as it is to enroll in one.

“The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties,” Lina M. Khan, FTC chair, said when announcing the proposal.

Observers suggest the measure is likely to be enacted. When and in what manner is uncertain. The proposal is still in review, and there’s no formal timing or schedule for the rulemaking process. While acknowledging there could be additional informal hearings, an FTC spokesperson says the agency’s staff will need to review and evaluate all comments before a draft rule can be issued.

The United States is not alone in reviewing subscription-cancellation protocols. In Europe, the EU Digital Services Act went into effect in mid-February. It requires online platform providers to make the procedures for terminating a service no more difficult than subscribing to it.

“It’s a general push to make it easy for consumers to cancel,” says Jonas Flodh, chief product officer at Recurly Inc., a San Francisco-based subscription-management specialist. “To be honest, it’s in line with what subscribers want as well.”

Indeed, the FTC’s version of an easier-to-use subscription-cancellation protocol is a good bet to be approved, suggests Tom Zauli, senior vice president and general manager of Softrax Inc., a Canton, Mass.-based revenue-management services provider.

“We believe it is likely to get passed, given that the FTC already has a rule—the Negative Option rule—to protect consumers and allow them to cancel recurring charges easily,” Zauli says.

“The click-to-cancel rule reflects how prevalent digital subscriptions have become in our society, but how these services can be difficult to cancel,” he continues. “At issue are companies that make it easy to sign up for a service, but that require a phone call—with waiting times and a representative’s sales pitch to stay on as customers—before [customers] can cancel.”

Dealing With Churn

A click-to-cancel button would make it easier for consumers to end subscriptions, potentially affecting the transactions, and this might increase the volume of consumers unsubscribing, Zauli says.

“This equals churn and the providing company would have to have the infrastructure in place to record the cancellation and adjust revenue-recognition reporting according to the ASC 606 requirements,” he adds. These requirements are part of an accounting standard that details how revenue is recognized.

Churn—which refers to when a consumer discontinues a subscription either voluntary or involuntarily—is a critical indicator for subscription services. The rate, according to Recurly’s data in its “2024 State of Subscriptions” report, hasn’t varied much over the past few years. It stood at 4.1% in 2023 and 2022, 4% in 2021, and 4.3% in 2020.

The way to deal with churn, Flodh says, is to acknowledge it is part of the business, especially if the click-to-cancel proposal advances. “We are recommending our merchants embrace that,” he says of the potential new reality. “It’s better to be open with them but also give them other options, such as a pause or a downgrade-subscription option.”

It could be challenging for a subscription provider if it does not have something like that in place should the proposal become a regulation, he says. If mitigation measures are in place should the FTC rule be finalized and implemented, companies will be in a better position to curtail some of the churn, Flodh says.

For example, when the Covid pandemic forced physical locations to shutter, e-commerce, including subscription products and services, boomed. But subscriptions were also affected by out-of-work individuals, such as those in hospitality positions, who had to reduce their costs. Some Recurly clients had a pause feature that enabled many of their customers to maintain their accounts while they were not in use. They were able to keep those customers on their books, Flodh says.

He cites a movie-theater chain that sustained a decrease in revenue during the pandemic, but extended offers to its subscription customers to pause and reactivate once it was safe to attend an in-person event. “As soon as everything opened up, they came back stronger,” Flodh says.

Reinforcing Retention

If click-to-cancel becomes the norm, merchants must be ready, Zauli says. “Assuming that more customers will cancel, providing it is easier to do so, companies must be ready to replace those customers with marketing efforts,” he says.

“However,” he adds, “companies should also look to retain the canceling customer, such as by offering a discounted rate to continue the service for a set amount of time. The challenge companies will face is replacing the lost subscription revenue.”

While voluntary churn is more difficult to manage, Recurly is able to help with involuntary churn, which occurs when a customer’s subscription is canceled because of payment failure. In 2023, the median involuntary churn rate was 1%.

Such efforts might involve a tactic called dunning, which is notifying customers by email that a recurring payment failed. In 2023, Recurly says, the median dunning-recovery rate was 49%, and the company was able to recover $254 million in revenue for its clients.

All of these measures are essential now for subscription businesses, and will only become more important should the FTC measure be enacted. For now, there’s no definite timeline for the updated Negative Option Rule proposal.

The most recent action in the matter was an informal hearing in January that saw opponents counter the FTC’s estimated $100 million impact of the proposal. One participant in the hearing, Lartease Tiffith, executive vice president of public policy at the Interactive Advertising Bureau, an association for the digital advertising and marketing industry, questioned the estimate.

“…Just for us as stakeholders, we have no information from the commission about what went into its decision that the costs were less than $100 million … at all,” Tiffith said, according to a transcript of the hearing. “But yet, we’ve put together three experts who have said that it far exceeds $100 million.”

The costs may be contested, but there’s no question there will be some costs associated with a revision to the subscription cancellation process.

“Companies should expect some variation of an easier cancellation procedure to be enacted, and take measures now to improve their customer retention,” Zauli says.

As Flodh says, “It’s important that you are strategic about it, what you have to offer, and the kinds of plan. You have to have a flexible experience. Then you have to have the tools to provide value to different types of subscribers.”