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Recurring Payments: The Gifts that Keep on Taking, and Taking, and Taking…

I have a love/hate relationship with on-line retailers, subscription model apps, and anything else that charges me a low monthly fee – month over month over month. 

In the business world, this is what known as a breakage model. And it’s genius. Not so much for you and me unless you are running one of those companies.  What do I mean by breakage? Let me explain…

The Breakage Model

In a transaction-based world, you get hungry, and you want a sandwich. You go to the deli and purchase the sandwich. You eat the sandwich, and the transaction is complete. You’re full and the deli owner is happy.

In our modern world today, you can pay a monthly fee to access just about anything you want; gym, groceries, Netflix, amazon, etc. — regardless of whether you use the service or not. And then they have “extra” fees (these are my favorite), to access premium services or same-day delivery.

According to Investopedia, “breakage is a term used to describe revenue gained by retailers through unredeemed gift cards or other prepaid services that are never claimed.” The site goes on to explain that “the company pockets the money paid for these items, without actually providing the service or item for which the customer initially paid.” Again, it’s genius.

You may say to yourself, “so what, I used the service every-day during Covid, and it was worth it,” and you may be right, but — how much is that access worth? Do you use all the services that you’re routinely charged for? And what is the cost to you? Have you ever really added it up? I have.

Spending your money wisely

We have three credit cards that my wife and I use on a regular basis. Our main card is a rewards-based card that we have had since we first got married. Never cancel credit cards, even these ones, as they have positive effects on your credit (but that’s a story for another time). We use this card for most of our everyday purchases and pay it off in full at the end of each month.

We have a similar card that we use for Costco only. Well, because that’s their rule and not ours.

Our third card is used for business like purposes to support any investment type activities, like in support of our rental properties.

Why do I tell you this? Usually, the monthly charges are not a problem, but when you see the same company as a repeated or recurring charge on your statement, it becomes a big problem.

Recurring charges: an indicator of…fraud?

Years ago, and even today, if a charge appears multiple times on one statement, that would be cause for concern or an indicator of fraud. But in today’s world, it’s probably just your favorite monthly subscription. It’s funny that monthly subscriptions and fraud indicators are one-in-the-same.

I’m not saying they are fraudulent, but it sure does feel that way sometimes. But when I want something next day, or I am bored and want immediate access to a movie or series, it’s the greatest thing ever. And my wife and kids will swear that they are “saving us money.”

I am not convinced of that, and I don’t think I will ever be.

My wife and I often joke about proving out my theory around online grocery shopping. She hates going to the market and loves to buy online. She can’t spend 45 minutes in a store, but will spend two hours online grocery shopping, and will always fall for the new product they are pushing for twenty-five cents. Maybe she did save a little money there.

And did you know that there is even a monthly service for grocery shoppers who are visually impaired? There is – and you pay a fee for it, just to get a two-pound squash or oddly shaped or oversized apple. I call this place Not the real name, but it should be.

The price of monthly subscriptions is more than just money

I will be the first to admit that same-day service or real-time access to products and services is a good thing and a very important part of our society and global economy with little to no downside. But if not watched closely, it can quickly get out of control.

Liken it to going to Starbucks every day. Have you ever done the math on that one, and then think about what you could have done with that money to invest in your future? Look, I’m not trying to say that if you go to Starbucks every day you’ll never buy a house, but you could probably buy a couple of shares of stock.

If you haven’t calculated that cost, you should, and you should approach monthly fees the same way. Monthly subscriptions have saved me more times than I would like to admit, especially having two daughters, but it is not always the best decision.

It’s convenient, fast, and efficient, but if you take a step back, it can rob you of more than money. Human interaction, enjoying the simple things in life, or spending time with family and friends can all be missed.

Question – If you have teenage children, how much time do they spend with you or outside with their friends versus staying in their room enjoying a monthly subscription you pay for? And for that matter, how much time do you spend using a monthly subscription service versus spending time with friends and family?

If you do the math, I bet you wouldn’t like the outcome. And maybe, just maybe, begin to see how much these companies and subscriptions are taking away from you. Money, time, friends, connections…taking and taking and taking…

Todd Emerson

Todd Emerson is the Chairman & CEO of Credit & Debt.

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