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Offering subscription services paves the way for generating a steady revenue stream. Businesses are increasingly adopting subscription models, and it is becoming easier to implement such services through online platforms. This article will explain vital legal considerations for businesses offering subscription services, including drafting fair terms and conditions and practising transparent marketing.
This cheat sheet will explain your SaaS contract essentials.
Subscription Models
A subscription service is a business model where customers pay a recurring fee at regular intervals, often weekly, monthly or annually, to access a product or service. This approach has gained popularity across various industries and typically involves businesses supplying ongoing value or access to goods, services or content.
Subscription-based business models might involve:
- food delivery services;
- book subscription boxes; and
- online services (such as streaming platforms or classes).
Successful subscription-based transactions can be a great way to establish financial certainty by bringing regular cash flow into a business.
Key Legal Considerations When Offering Subscription Services
When a business offers subscription services, it must consider several critical legal considerations. Doing so ensures they comply with legal and regulatory requirements. Let us explore several legal considerations.
1. Have Clear Terms and Conditions
Subscription services need a robust set of terms and conditions to support them. Consider seeking legal advice when drafting these and regularly reviewing them once they are in place.
Particular elements you need to consider include how you will:
- outline what customers will receive;
- stipulate all fees and payment structures transparently;
- provide clear cancellation rights; and
- make the terms accessible and readily available to your customers.
One concern with subscription services is ‘subscription traps’. These traps occur when businesses mislead customers into entering subscription agreements without fully understanding the terms. The business then charges recurring fees or automatically takes payments from their accounts. This can happen if:
- terms and conditions are unclear;
- free trials automatically convert users into paying subscribers; or
- if a business employs deceptive marketing practices.
Subscription services generate loyalty and rely on maintaining your customers’ trust. Give customers clear information about your business’s pricing structure, including introductory rates and recurring and additional fees. To protect customers, the law requires transparency, accessible information and explicit consent.
2. Advertising Compliance
Your marketing materials must accurately represent the subscription service and its terms. If you offer a free trial, ensure it is free from additional or hidden charges. Avoid misleading customers into thinking they can try your services for free if you charge them even a nominal fee.
3. Renewal and Cancellation Policies
Your subscription services business must disclose any automatic renewal terms. Accordingly, ensure you inform customers about how and when your business will bill them for renewals. Further to this, provide a simple process for opting out of auto-renewal.
In addition, you must inform customers about cancellation and refund policies. You can do this by sharing accessible information on how to cancel their subscriptions and obtain refunds. Avoid using overly complex language in your terms, and present the information simply and clearly.
4. Stay Up-To-Date and Compliant With Legal Developments
In the UK, no single area of law exclusively regulates subscription services. Instead, there are various areas of law that a business’s subscription-based transactions can engage. Key areas of relevant regulation include:
- consumer protection;
- contract law;
- data protection; and
- payment service regulations.
For example, by offering a subscription service, your business will likely have access to:
- customers’ names;
- email addresses;
- postal addresses; and
- phone numbers.
These are all forms of personal data. Data protection laws and regulations require you to clearly state how your business will obtain, handle, use, and store customer information. The business must remain compliant throughout its operations.
It is vital for businesses to stay informed about changes in regulations and to regularly review and update their terms and practices to ensure compliance. It can be a good idea to seek legal advice about whether your activities are compliant. A lawyer can advise you on this and mitigate potential legal risks.
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Key Takeaways
Subscription services allow businesses to maintain customer relationships and generate regular cash flow. Key legal considerations that come with a business offering subscription services include the following:
- having clear terms and conditions;
- being aware of subscription traps and avoiding any deceptive practices;
- ensuring your advertising is transparent; and
- providing clear and accessible renewal and cancellation policies to customers.
It is also essential that business owners remain up-to-date with changes to the law. Likewise, it can be beneficial to consult legal professionals familiar with subscription services and relevant regulations. This can also help mitigate potential risks, such as future legal consequences.
If you would like legal advice about your startup offering subscription services, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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