Auto-renewals cost small businesses billions in 2020

Customisable business insurance
07 May 2021
4 minute read

Micro-businesses in the UK lost £3 - £6 billion by unintentionally renewing annual contracts and subscriptions in 2020

It’s been a tough year and a half for micro-businesses, let’s make no bones about it. The closure of high streets forced them to close their doors, lose organic custom and plow resources into developing online offerings and alternative distribution channels. All the while keeping up with the rapid shift in customer expectations driven by the pandemic. With this backdrop, micro-businesses need all the help they can get from partners and service providers to stay afloat.

Despite this, new research from Superscript reveals that micro-businesses lost between £3 - £5.75 billion of vital funds in 2020 because annual contracts and subscriptions were renewed without their knowledge.

Sneaky annual auto-renewals is a problem that a majority (six in ten) of micro-businesses have to contend with. And because the terms are often so rigid, once the renewal has been made, there is not much they can do about it except pay up. As a result, frustration is high amongst micro-business owners, and there is clearly a perception that they are ‘locked in’ to too many contracts with little to no room for flexibility. In fact, 82% of respondents said that their current annual contracts and subscriptions are too inflexible, with the average micro-business having up to half of its annual subscriptions completely locked.

Why have auto-renewals become such a problem for small businesses?

The answer, plainly, is lack of communication. Micro-business owners have identified a real gulf in communication between service providers and clients. The most popular reason, at 37%, for the silent renewals of annual contracts was chalked down to the fact that businesses weren’t alerted to the upcoming renewal - and so did not have a chance to revisit the agreement before they were locked into another year. In the same vein, 34% of businesses said the terms weren’t clear when they signed up and they didn’t realise it was a rolling annual subscription.

Almost a quarter said that the process for cancelling their annual subscription was unclear and so didn’t manage to do so. When asked about methods they put in place to avoid unwanted auto renewals, the majority responded by saying that they manually set themselves reminders so they don’t lose track of upcoming renewals. As a fast moving micro-business, this is valuable time that could be spent on growing the business.

Clearly, there is too much take and not enough give by service providers around their annual contracts and subscriptions. Micro-businesses are often not in a position to bargain or negotiate with their service providers, and it must not be taken advantage of. Communication channels are currently too opaque, and service providers should be actively working on making them more transparent. Similarly, the process of amending or cancelling contracts needs to be made less convoluted and more intuitive. To support this, 84% of micro-businesses say they would prefer to be able to amend contracts/subscriptions on a monthly basis.

Who's to blame?

Four fifths of respondents point towards ‘business necessities’ such as business insurance, WiFi or utility providers as having the least flexible contracts. And in terms of the most common type of annual contract to renew unintentionally - that crown goes to business insurance; closely followed by broadband & WiFi in silver, with phone contracts taking the bronze position.

It is perhaps no surprise that service providers which enable critical business functions are the least collaborative when it comes to their contractual and subscription obligations. As has forever been the case in business, those with the most leveraging power make good use of it and are slow to adapt. However, this is changing, as challengers spring up to revolutionise how business is conducted.

We, at Superscript, are one such example - transforming what business insurance is, and what it can be, to small businesses. The ability to choose between monthly and annual payments, and the option to amend cover at any time they see fit is empowering small businesses to pivot as they need to, and make brave decisions to help the business grow.

If you run a small business, get a quote from us now, and see how easy it is to get business insurance shaped around you.

Here is what our co-founder and CEO Cameron Shearer, had to say about the matter:

The pandemic has impacted small businesses disproportionately. Many are having to count the pennies to survive on a day-to-day basis. It does not help, therefore, that so many are having the wool pulled over their eyes by service providers that are automatically renewing annual subscriptions without explicitly communicating that they are about to do so. They are losing much needed cash, and this is not a sustainable way of doing business.

For the new normal, we should be empowering small businesses to thrive by being flexible enough to work on their terms; not forcing them into contracts that don’t suit them.

The respondents to the survey were 500 small business owners/financiers (1 - 10 employees) across the UK. The survey was conducted by Attest on behalf of Superscript in April 2021.

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