SaaS Implications of FTC’s New “Click-to-Cancel” Rule

Inflection Point

In October 2024 The Federal Trade Commission (FTC) introduced a new "click-to-cancel" rule which mandates that businesses provide a straightforward and accessible cancellation process, even for B2B products that require significant integration efforts and long-term contracts.

The rule requires such a cancellation process for all negative option features, such as automatic renewals or recurring subscriptions. The rule stipulates that the cancellation mechanism must be as easy to use as the method employed to sign up for the service.

Importantly, the rule applies to both B2C and B2B companies, even those providing software that requires significant integration efforts and long-term contracts. However, it does not prevent businesses from entering into agreements with individually negotiated negative option terms. Still, the cancellation process stipulated in the agreement must adhere to the principle of being as simple as the enrollment process, ensuring a symmetrical experience for the client.

While this rule may present challenges for companies to comply, it also opens new strategic opportunities to enhance customer relationships while adapting to the rule.

Strategies to Adapt

The immediate impact is on the subscription experience. Many SaaS businesses, especially those offering free trials, intentionally include friction in the cancellation process to reduce churn. With the "click-to-cancel" rule, these businesses can no longer rely on cumbersome cancellation procedures to retain customers. Instead, they must focus on providing value that motivates retention. Look for new ways to improve the incentive customers have to renew, such as:

  • More seamless and personalized onboarding

  • Quicker value realization by customers

  • Ongoing customer education

  • Enhancing the long-term value of the product

It’s “So Long”, Not Goodbye

Importantly, when customers, even trial customers, cancel it doesn’t necessarily mean forever. Sometimes it means: “Not just yet”, or “I need to pause for a while”. So, for SaaS businesses who haven’t already adopted this approach, a seamless, frustration-free exit process can help preserve a positive relationship with the customer, increasing the likelihood that they’ll return in the future- when the time is right.

Learning at the Exit

Moreover, those exits represent an ideal opportunity to learn via well-timed, thoughtful exit surveys and tickler campaigns. When cancellation is easy customers are more likely to answer the question “why”, EG: “Why are you leaving”, "What didn’t work for you?", or "What would make the product experience better?" This type of feedback offers invaluable insights into product shortcomings, pricing concerns, or competitor positioning that you can use to reduce churn going forward.

The new rule can prompt a positive shift from retention via friction to improving product-market fit.

When Does the Rule Take Effect?

Most of the provisions of the new rule will take effect 180 days after the rule is published in the Federal Register. However, a complaint has already been filed against the rule by the Internet and Television Association, Electronic Security Association, and the Interactive Advertising Bureau. In any case, SaaS businesses would be wise to use this time to consider their options, agreement language, and processes, to prepare in the case that the rule survives these challenges.  

Bill Haines, Partner

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