WooCommerce ending renewal discounts is a good thing

WooCommerce has — at least for now — decided to end renewal discounts for extension sales. This is a smart business move and the right thing to do, even if it could've been rolled out better.

Matt Mullenweg said in Post Status Slack that it's been under testing a for a few months and “100% isn't a policy,” which leaves room to roll back the decision in the future. But folks who previously relied on renewal discounts picked up on the change, and WP Tavern ran a story about it.

Ending renewal discounts is the right call

Discounted renewals are a relic of incentivized manual renewals. By discounting a non-automated renewal if the buyer renews before the renewal date, then the buyer is motivated to renew, as opposed to waiting and renewing on their own time — or more likely, not renewing at all.

There is no promise when you buy a renewable subscription that your renewal will be discounted. WooCommerce trained buyers to expect this behavior by offering the renewal discounts in the first place. WooCommerce started auto-renewals when they switched to Stripe for checkout in March 2016; since then, there has been no good reason for the renewal discounts.

The backlash would not exist for new customers, or first-time renewing customers, because they have never been offered discounted renewals. However, folks who have renewed their WooCommerce extensions for many years have grown to expect them, causing this miniature freakout. And those folks, at a minimum, should've received better communication.

At the heart of this change is a natural desire for more revenue, of course. In Automattic's case, Matt says they have doubled the number of employees full-time on WooCommerce since they acquired the company, and most of those new hires are in support, which costs money. WooCommerce support has had many periods with simply atrocious response rates — up to a week at times.

Obviously WooCommerce has a big support burden, and they should improve it. Improving support is expensive, and ending renewal discounts when renewals are now automated is a smart way to increase revenue.

Most of the people renewing (and expecting discounts) would likely have been okay with it, had it been communicated why the change was being made. Woo could've managed that better. But the change is a proper one.

It's not the highest point of cost for full-time store owners

If someone is making their living from eCommerce, the cost of extensions is not the primary cost of their online presence. They spend more money on hosting, advertising, social media, various third party software, and probably email too.

On a monthly basis, even $1,000 per year of extensions is only $83 per month, which is competitive with Shopify's mid-tier pricing and well below their advanced pricing ($299/month) — even once you factor in likely hosting costs. And $1,000 is the high side for extension buying; a pretty complete memberships bundle is $299 ($25 per month!).

All in all, the platform component of an eCommerce website is not where a typical store owner should be sweating their costs.

I will grant you that the long tail of WooCommerce store owners are probably not full time on their online stores; it's probably a part time thing, or maybe it's a brick-and-mortar store just entering eCommerce. Still, the free features of WooCommerce can suffice for many folks, especially with all the free payment gateways out there now. Buying extensions is a definite move toward establishing specific, higher end functionality for your store, and that costs money.

Significant revenue potential

I've heard of other plugin businesses testing renewal discounts versus no renewal discounts, and as far as I recall, the advantage was drastically in favor of not providing renewal discounts.

Let's take some numbers from a previous post I wrote about manual versus automatic renewal rates:

The difference in renewal rates can be staggering. Common ranges I’ve heard over the years for manual renewal rates are between 15-30%. Whereas, some folks are reporting renewal rates with auto-renewals set as 60-70%+. So, people are seeing doubled or tripled renewal rates, thanks to creating a subscription style renewal system.

So, it's possible that WooThemes is doubling their previous revenues by enabling automatic renewals. Now, by removing a 50% renewal discount, they are doubling them again. Additionally, they've slowly raised upfront pricing over time. If this change doesn't significantly impact the percentage of people opting out of auto renewals, and if their renewal rates follow similar patterns to what I highlighted above, then the potential revenue gain for Woo is a fourfold increase.

It's too good of an opportunity with too little downside not to take it. It's the right business move, and there are absolutely no ethical qualms about it.

The only thing they should've done differently was to communicate it to long-term customers.