We’d like to thank our new investors from BV Capital for sharing our enthusiasm for our business. In addition to BV Capital, our existing investors: Polaris Venture Partners, Harrison Metal Capital and FreeStyle Capital all joined in to help us continue in building a great company. We’re fortunate to have such great people involved with Recurly. In addition to our first-class investors, we have amazing employees, and so it follows that we tend to attract amazing customers as well.

Thank you, all.

WE’RE HIRING EXCEPTIONAL PEOPLE!

ESPECIALLY ENGINEERS

We plan to aggressively build out our team to keep up with our appetite to satisfy our growing list of customers. We also don’t plan to rest on our laurels, and have an exciting roadmap ahead, so help us put the word out to the Ruby, Node.js and Javascript engineering community.

We’ve got a tight team of talented engineers, and we’re looking to expand.  Our office is big and we’ve got room to grow, so take a look at our JOBS page and see if there is something that suits you or somebody you know.

Stay posted. We’re planning a party to celebrate, and you’re invited.

Cheers,

The Recurly Team.

The Recurly Payment Gateway

We are proud to announce that we have built the first payment gateway designed to support recurring billing as the primary use-case. This means that we access rich error messages from the payment processor to optimize many different common credit card decline types. As we have communicated recently, credit card declines lead to painful customer churn, which is one of the most important and sensitive metrics for any subscription business.

During beta testing, our trials demonstrated a range of 10-27% incremental lift in recovered invoices for a variety of different kinds of businesses (Both B2B and B2C).

The new Recurly Payment Gateway is now bundled with the Recurly service. In addition, we are adding critical customer retention reports so that our customers can track the long term trends of their customers by cohort month, and by subscription plan.

New Recurly Pricing

As of today’s announcement, Recurly’s pricing structure has also changed.

We now charge a simple 1.25% and $0.10 per transaction per month, with a $69 monthly minimum (as there has been for some time).

Grandfathered Pricing

Existing Recurly ‘live production’ customers will remain on their original pricing unless they choose to take advantage of the Recurly Payment Gateway, or any of our premium features – such as Retention Reports, Salesforce Integration, PayPal Payments or Multi-Currency support. We will continue to support other payment gateways to offer the broadest choice to our customers, but the cost of other payment gateways are not inclusive with our new pricing.

No Merchant Account, No Problem

All you need to take advantage of the Recurly service is your own merchant bank account. If you don’t have one already, we can help you apply and get set up with an account offering extremely competitive rates.

We’re excited about our role in helping companies to optimize their subscriber renewal rates. Our ambition is to make the Recurly service a distinct competitive advantage for our customers.

If you have any questions about the Recurly service, or the Recurly Payment Gateway, please contact sales@recurly.com.

We can help.

Cheers,
The Recurly Team.

For the purposes here, we’ll avoid the finance theory and focus on the general concepts of subscription economics that matter most to every company offering products, applications or services on a subscription basis.  In order to grow any business, it is of first-order importance to first know what your customers are worth – at all times.

Early customer retention rates decay as lower quality users are acquired

Concept 1 – Understand Customer Lifetime Value

A company offering a service for $19.95 per month with healthy customer retention rates, and an expected Lifetime Value (LTV) of 24 months can expect their customers to deliver $479 in revenue on average. (The green line indicates the slope of retention curves and gives an approximation of a 24 month expected timeline).

At this stage, many companies commit this expected customer LTV to memory, and want to ‘stomp on the gas’ to acquire as many customers as possible.

[For riveting guidance on appropriate ratios of customer acquisition costs to LTV for SaaS companies, see David Skok's post on SaaS metrics here]

Concept II – Understand Customer Retention At ALL Times

Customer retention becomes a very sensitive variable, comprising the “T” in Lifetime Value (LTV). In the chart above, we present anonymized, actual data from a Recurly customer that started with very healthy customer economics. Strong retention rates indicated an expected customer lifetime of 24 months and average customer revenue of $479 over their lifetime. As marketing programs ramped up, channel partnerships were launched, and customers were acquired aggressively to fuel growth. Over this same period, the product did not change substantially, but the average ‘quality’ of customers declined, and so did customer retention.

Frequent Assessment of Customer Economics is Vital For Success

The example company here demonstrates a very common cycle which is experienced when customer economics are not assessed on a frequent basis. Better yet, they should be assessed on a per channel, per partner, per campaign basis in order to prune the ‘losers’ and add more profitable marketing programs in a repeatable fashion.  It is rare for companies to have resources and infrastructure dedicated to understanding customer economics over ongoing periods of time until they have hundreds of employees.

Much of the recent speculation over the likelihood of Groupon’s (NASDAQ: GRPN) success centers singularly around this concept.  Their S-1 Filing indicates that they spent $179MM in Q1 of 2011, acquiring 33 MM customers at approximately $5.42 per customer. They surely have teams of people monitoring the value of their customers over time, and while customer acquisition costs are important, customer retention rates ultimately determine whether your business is growing profitably or not.

If your business offers a product, application or service on a subscription-basis and you’d like to have better visibility into your customer economics, have a conversation with us. Contact sales@recurly.com

Recurly can help.

Friday morning at 7am PST, a hard drive in our primary storage array failed. This storage array uses four drives in a RAID 10 configuration, with an extra hot spare and a second idle drive. Using four drives in a RAID array improves our disk performance and allows for a drive to fail, without losing data. Hard drives are guaranteed to fail and we planned for this scenario.

Immediately after the drive failure, the hot spare backup disk kicked in as designed. Unfortunately, the hot spare failed 4 minutes later. At this point, we joined the idle drive with the three working drives in the storage array. In order to get back to a 100% safe point with the data across four drives, we began the process of rebuilding the RAID array — this means the data had to be redistributed across the four drives. Normally this process is transparent and causes no perceivable performance degradation.

When the second drive failed in quick succession, the storage array immediately disabled the write cache to protect itself from any potential data loss should the power go out. We were unaware that the write cache was disabled. Unfortunately, this is the real cause of our performance degradation on Friday. Rebuilding the storage array requires copying large amounts of data. When the write cache was disabled as the array was being rebuilt, the disk access was 60-100x slower than usual with long latency. Once the RAID array rebuild process was started, it could not be stopped nor could the write cache be enabled until it was complete.

The entire RAID rebuild took approximately 14.5 hours and completed after 9:30 pm PST. We were able to improve the site performance during the outage by rebuilding and switching over to a database running off local disk, synchronized with two additional slave database servers for safety. Because the disk access of our primary database was competing with the RAID rebuild and write-cache disabled, the process took until 4pm for us to setup the new, local database. At this point, the performance of the site dramatically improved.

Recurly is designed with a very modular service oriented architecture. While our disk access was diminished, we disabled non critical services such as our reporting services and third-party synchronization services. New transactions were still processed throughout the event, albeit with a delayed performance. Push notifications and emails were all enabled.

By 10pm, the RAID array completed its rebuild. We replaced the first faulty drive and re-enabled the write cache. Next, we rebuilt the storage array again, this time with no impact to our site performance. Finally, we replaced the second faulty drive at 2am.

Now that the event is over, we’ve learned a few things about our storage array. We are adding six additional drives to the storage array with a new configuration that will allow us to lose even more than 2 drives in quick succession without a need to ever disable the write cache. We are working with our storage vendor to further optimize our storage array for safety and performance.

The event tested our monitoring tools, which all worked as expected and alerted us immediately to the problems. The rest of our architecture has already been designed to handle failure. We have multiples of every critical service and redundant backup servers. Our application also knows how to behave if a non-critical service is unavailable or to perform to the best of its ability should a critical service not be available.

We have several checks in place to prevent duplicate subscriptions and multiple, simultaneous transactions on behalf of one account. We will be strengthening our checks for duplicate one-time transactions in the event a merchant times out the API before our application or their payment gateway returns a response.

The event was unfortunate and I sincerely apologize for the impact it had on our customers. We have and will continue to invest heavily in our infrastructure to provide a reliable service.

Our team is ready to unveil our biggest update yet: API v2 and support for multiple subscriptions on a single account. API v2 incorporates feedback we heard from our merchants and allows you to integrate with even more flexibility than ever before. For many customers, multiple subscriptions enables scenarios that were difficult workarounds with our first API.

API v2 Improvements

Over the past two years, we’ve heard from hundreds of customers that our first API works incredibly well. From day one, our REST API was designed to be easy to use. We’ve lived with it for two years and found several ways to improve it: better validation errors, more transaction details, reliable pagination, links to nested resources, easier authentication, and official support for creating plans, add-ons, and coupons via the API.

Updated Client Libraries

With the release of API v2, we’re also releasing three completely rewritten client libraries: PHP, Ruby, and Python. PHP now has better exception and error handling. The Ruby client no longer depends on ActiveResource, and it will take advantage of Nokogiri if installed for faster XML parsing. And our Python library is a dramatic update from the first version. An update to our .NET library is coming soon.

Because our API now supports better pagination, the client libraries can paginate through very long lists transparently using iterators. The libraries will automatically lazy load the next page of results when needed. The pagination also switched from page numbers to a cursor, which means the result list no longer returns duplicates if a new record is inserted while you are paginating the results.

Multi Subscription

Recurly was designed to take the pain out of subscription billing. Most merchants manage a single subscription per account and we solved that use case rather well. We took our time to really understand how successful companies manage multiple subscriptions per customer. Next, we built a new API from the ground up since we knew API v1 could never support multiple subscriptions. Finally, we added clarity to our UI to simplify multi subscription management. We hope you like the end result as much as we do.

Updated Documentation

Our documentation has been rewritten to complement our new API and client libraries. It’s fully up to date for API v2 and our client libraries. We pride ourselves on providing documentation that is clear, simple, and complete. This revision has required a complete refresh of our documentation, and we’re proud of the end result.

Back in March 2011, we launched Transparent Post to simplify PCI compliance for our merchants. Today, we are taking it to the next level with the release of Recurly.js. Recurly.js is our open-source Javascript library that gives you great looking credit card forms to securely create subscriptions, one-time transactions, and update billing information for your customers.

Dynamic Total Calculations and Fully Customizable CSS

The library performs client-side validation of cardholder data, immediate pricing calculations for add-ons and Value Added Tax (VAT), and coupon validation. Out of the box, the forms have a great looking design that can be easily embedded into your website. Or, you may customize the CSS to make the forms match your website.

In addition to looking great, the library handles transaction failures gracefully. Should a transaction be declined, the library automatically highlights the appropriate fields and displays proper error messages for your customers.

PCI Compliance

Recurly.js continues our tradition of simplifying PCI compliance for our merchants. After performing client-side validation on the cardholder data, the library securely submits the order details directly to Recurly. Because the sensitive cardholder data is never transmitted to your web servers, your PCI compliance scope is dramatically reduced. This allows you to host the credit card order forms on your website without the headaches of PCI compliance.

Learn More

Learn more about Recurly.js from our intro video and examples, documentation, or GitHub project.

Multi-Currency Goes Hand-In-Hand with International Language Support

Recurly also supports 12 languages, (Chinese, Danish, Dutch, German, English, English (U.K.), French, Hindi, Japanese, Portuguese, Russian, Turkish) so that your customers’ experience will be defined by their browser settings and location. Recurly will present the appropriate language to your end customer so that they can not only pay in their preferred currency, but you will also speak to them in their native language.

Multi-Gateway Support and Intelligent Payment Routing

In order for companies to support multiple currencies, it is a common to require multiple payment gateways as well. Recurly supports multiple payment gateways per account, and our customers can easily configure routing rules so that transactions can be routed to the appropriate payment gateway according to the currency specified in the transaction.

See, it’s all coming together nicely!

If you have any questions about this enterprise feature, please contact sales@recurly.com.

Cheers,
-The Recurly Team

Error Code Fidelity

The error handling for most subscription billing services is pretty basic: the transaction either succeeded or failed. Yet, the actual type of failure is incredibly important. That’s why we categorized over 2,000 error codes from the dozen gateways we support down to over 60 unique errors.

For starters, we know if a card failed with a hard decline. There’s no need to retry hard declines because the card details will never work again. Soft declines, on the other hand, should be re-attempted at different intervals depending on the failure type. For example, a debit card with a temporary hold will likely work again sooner than a credit card at its limit. Additionally, any decline by a fraud filter during a renewal should set off an alert; fraud filters should only be applied to the first transaction, otherwise they are only increasing your subscriber churn.

Subscription billing systems that rely on card details being stored in Authorize.Net’s CIM are at a big disadvantage when it comes to errors during the renewal process. Authorize.Net CIM does not explain why a renewal failed. Because Recurly stores your card numbers in our PCI compliant card vault, we are able to get the full error fidelity from our Authorize.Net integration.

Optimizing Renewals

Every gateway has a unique set of parameters that must be set differently for the first transaction, or updated billing information, versus the recurring transaction. These parameters allow us to optimize all your initial and recurring transactions on your behalf.

On recurring transactions, we disable most fraud filters. Fraud filters validate that a card belongs to the cardholder and we do exactly that during the initial transaction. So, there is little incremental benefit in applying most fraud filters on recurring transactions. Have you ever moved, only to find your credit card no longer auto-renews for some services? These merchants are accidentally increasing their subscriber churn.

Recurly also leverages continuous authority, whenever possible. Continuous authority allows Recurly to continue charging a credit card on your behalf, even after its original expiration date has passed. For gateways that do not support continuous authority, Recurly is able to submit an updated expiration date for expired cards. Most issuing banks will accept the updated expiration date on recurring transactions.

Most payment gateways that token card numbers will not allow the card to be authorized after its original expiration date passes. Once again, Recurly has a big advantage over subscription billing systems that rely on the payment gateway’s tokenization.

Failure Alerts

Through our extensive effort to categorize payment gateway errors, we know exactly why your transaction failed. Temporary failures automatically recover, soft declines are retried according to a dunning schedule, and failures requiring attention trigger an alert to Recurly support for follow up.

Recurly Adds Value Where It Matters

Many companies offer subscription billing solutions, but the ‘mechanics’ of subscription billing are not the most difficult piece to get right. Companies that choose to build their own ‘homegrown’ solution always miss the optimization opportunities, presuming that a ‘decline is a decline’. Even the most expensive vendors frequently miss opportunities to optimize your renewal rates. We encourage you to take a close look at your existing decline rates by error type and contact Recurly.

If you had to pause and ponder the answer, or if you felt that it was everybody’s responsibility…then you’re not alone.

When I was with eBay, it was far easier for marketing teams to focus on acquiring new customers than to identify an effective means to address customer churn. Customer churn is a ‘wet bar of soap’ problem, and therefore always seems to be ‘somebody else’s responsibility’, because it is a difficult problem to attack.

Consider these factoids:

Most Executives Have No Idea What Drives Their Churn

Identifying the drivers of customer churn can be extremely difficult. Additionally, customer acquisition is infinitely more fun for marketers than retention marketing. [It is much more interesting and profitable for Ad Agencies to focus on driving brand awareness, positioning and expanding appeal than driving retention metrics.]

In our business of providing subscription billing, we frequently discuss the topic of customer retention and churn with our customers. Through this, we’ve learned that executives generally have a clear sense for their own customer retention and churn metrics, but they have very little idea what is driving it. Most will cite Net Promoter Scores (NPS), or customer satisfaction rates as the broad and diffuse driver of customer churn, but they have difficulty pinning down any single reason why their customers leave them.

Subscription Businesses – Plug That Leaky Bucket!

For subscription businesses, customer retention is driven by renewal rates. Improving renewal rates extends the ‘T’ in Lifetime Value (LTV), and this is an extremely sensitive variable in the overall calculation. The enemy of the renewal rate is your churn rate.

Q: What drives customer churn in subscription-based businesses?

A: [Assuming your product/service delivers good value] If you are a subscription-based business, the most immediately addressable, passive culprit is: Credit card errors and declines.

What Can You Do?

Examine Your Credit Card Decline Logs!

Many commonly experienced credit card errors can be successfully remediated. Results will vary depending on your payment gateway/payment processor combination, but by beginning with your credit card error logs, and working backwards towards the solve, you will find that you can dramatically reduce your customer churn with proper error and decline remediation. However, if your customer credit cards are stored within a payment gateway, you will be limited in your ability to remediate many common errors.

If you have questions about Recurly’s standard error handling practices, and how we might help your business reduce customer churn, please contact us.

Email sales ‘at’ recurly.com or call 415-800-2042.

PayPal has announced that routine maintenance will be performed Friday, June 16th, 2011.

We’ll be performing system maintenance on June 16th from approximately 11:00 PM PDT to 11:30 PM PDT. During this scheduled maintenance, the PayPal website and systems will not be available and merchants will be unable to process transactions. Other services that will be down during this time include Website Payments Pro Payflow Edition and Batch Processing.

During this period of time, Recurly merchants will have all of their recurring transactions buffered within the Recurly system, and scheduled payments will resume with PayPal as soon as their service outage is complete. There will be NO interruptions to your recurring payments.

However, if you use PayPal Payflow Pro, or Website Payments Pro to process your payments, the planned service outage will interrupt your new customer sign-ups. Recurly cannot prevent this from occurring.

Please message your customers accordingly during this 30 minute period.

- The Recurly Team