Long before the digital age, newspaper and magazine companies have been using the subscription model to create and retain a consistent readership for their publications. This business model has now been adapted very well in the internet age, especially in the SaaS (Software-as-a-Service) and eCommerce industries. The most potent benefit of the subscription-based business model is that companies are guaranteed a fixed revenue stream—if they can retain their customers or subscribers.
The customer subscription model grew in popularity partly due to the convenience that it offers to customers. Consumers were able to buy the products that they needed and wanted regularly without any effort on their part. They were able to sign up for subscription-based services for things like groceries, cosmetics, clothing, etc. and the companies offering these services would deliver them to consumers’ doorsteps.
Subscription billing and recurring billing are the backbone of any subscription business model.
When you’re offering a product or service that renews at regular intervals, having a billing strategy that aligns with this unique offering is vital. As more subscribers join, manually sending out invoices will result in a storm of wasted paper, missed payments, and late penalties—none of which are beneficial to your business.
The alternative? Implementing a robust, automated recurring billing solution with subscription-based businesses in mind.
Recurring billing is your ticket to streamlining payments and eliminating manual work for you and your team. Plus, it makes your subscribers happy to stick around longer, which means more revenue for your business.
TL;DR
- Originally popularized by print media, the subscription model is now widely adopted in the digital age (especially in SaaS and eCommerce), due to its convenience and the stable revenue stream.
- Recurring billing is a perfect fit for subscription businesses. With the right recurring and subscription billing solution, you can manage payments more effectively, resulting in dependable revenue and a smoother experience for customers.
- Successfully implementing subscription billing requires a strategic approach, including choosing the right pricing strategy, selecting a comprehensive billing solution, and managing customer payment information efficiently.
In this article, we’re going to explore how subscription-based companies can successfully implement recurring billing and save up to 40 hours a month in accounting processes.
What Is Recurring Billing?
Recurring billing is an online payment model where consumers are charged in regular installments for a product or service on an ongoing basis.
Oftentimes, the terms “recurring billing” and “subscription billing” are used interchangeably because repetitive or recurring payments are the cornerstone of a subscription-based model. However, there is a slight difference between the two.
Recurring billing usually refers to only the recurring payment part of a subscription-based model. In a simple recurring billing process, a subscriber/customer registers for a subscription, provides their payment information, gives authorization to companies to store their payment information, and selects their payment intervals.
What is Subscription Billing?
Subscription billing not only includes the recurring billing process but also more flexible payment options such as free trial periods, renewals, pricing models, upgrades, downgrades, etc. Nowadays, most subscription-based businesses offer such flexible payment options so when they use the term “recurring billing,” it means subscription billing.
The purpose of the recurring billing model is to prevent businesses from needing to send out invoices in advance of a new billing cycle, which increases the risk of late payments and high customer churn. By charging customers upfront on a recurring basis, businesses can streamline their billing operations and dedicate more time to other tasks.
Subscription-billing software can also improve the customer experience because it saves them from having to manually remit payments.
Because customer retention is the key to building reliable cash flow, subscription-based businesses benefit hugely from adopting recurring billing or recurring credit card processing. In addition to subscription services, businesses who frequently use recurring billing systems include:
- Membership businesses (gyms, coworking spaces, private clubs)
- SaaS companies
- Professional services (financial, medical)
- Agencies (marketing, advertising)
How Does Subscription Billing Work?
Here’s a quick overview of how the subscription billing model works.
- First, the customer chooses the pricing plan that fits their needs.
- Then, they select their preferred payment method e.g. credit or debit card.
- The customer agrees for their payment information to be kept on file by the merchant’s billing software.
- When a fresh billing cycle starts, the business’ payment service provider will charge the approved amount to the customer’s card. Once this is approved, the money is transferred to the merchant account.
- The customer will be notified that the transaction has taken place. If the payment fails, follow-up instructions are provided.
- The customer’s chosen payment method will be charged indefinitely on a set schedule until they decide to pause or cancel their chosen plan.
How Subscription-Based Businesses Can Implement Subscription Billing
Recurring billing and subscription businesses are a match made in payments heaven. Automatic billing opens the door to building reliable recurring revenue and streamlined customer experiences.
By removing the need to entice customers back to your store after purchasing, you can keep your churn rate lower, improve customer retention, and maintain a healthy amount of cash flow.
According to a report published in 2023 by the subscription management platform Zuora, the subscription economy grew by 12% in 2022 compared to 10.6% by S&P 500 companies. Moreover, the same report shows that over a period of 11 years (ending in 2022), subscription businesses grew 3.7 times faster than S&P 500 companies—a clear sign that the convenience of recurring billing has become a key selling point. The news is even more promising in the eCommerce industry—as per the Business Research Company, the subscription-based eCommerce market has been forecasted to surpass $900 billion by 2026.
Let’s take a look at what subscription businesses should do to implement recurring billing successfully:
1. Decide on your pricing strategy
There are two key parts to setting up recurring billing. First, decide how often subscribers are billed for accessing your product/service. Then, you’ll need to determine which payment methods your business will accept.
These are important considerations because they dictate how much flexibility your customers have when subscribing, which is a key part of customer acquisition.
Offering an annual-only subscription plan means charging a lot of money upfront. This may be off-putting for many would-be subscribers. While lump sums are advantageous for businesses, it’s a good idea to also have a monthly plan available to entice those who are new to your business.
Offering incentives to new subscribers can also bring more people on board.
For example, Glossy Box offers new subscribers 25% off their first box when signing up for a rolling subscription, allowing them to acquire customers more easily.
Likewise, offering multiple payment methods enhances the convenience of your subscription by enabling customers to pay the way that suits them. Credit card payments, ACH, and digital payments are all standard options that customers expect to have available.
2. Look for a full-fledged subscription billing solution
There’s a variety of recurring billing solutions in the market at different price points and levels of functionality. This means it can be challenging to know which system is the right fit for your business.
For example, using a simple payment gateway to process recurring payments is a very low-maintenance solution. Payment gateways can automate mainstream payment options including credit cards and ACH. They’re also quite affordable, making them an attractive option that handles many subscription business needs.
However, this probably won’t prove to be an effective strategy in the long run.
While payment gateways can handle recurring billing, they’re a generic solution that doesn’t offer high-level subscription management abilities. This makes it difficult to exercise granular control over your subscription program as it grows.
You also need to make sure that your subscription billing platform of choice is compliant with various security standards. This not only protects customer payments and internal company data but also books customer trust.
Instead, it’s a good idea to look for an all-in-one billing solution that’s designed specifically for subscription-based businesses.
Stax Bill is a best-in-class subscription billing platform that scales effectively alongside your operation. Subscription businesses can access in-depth analytics, real-time revenue recognition, and dynamic payment schedules—all from one intuitive interface.
3. Organize your existing payment information
If you’re already running a subscription-based business, you’ll have your customers’ payment details on file for the purposes of recurring billing. Now that you’ve chosen your new billing solution, you need to prepare to migrate this payment information from your old system.
In some cases, this may require you to ask for re-authorization from your customers to keep their credit cards on file. It’s important to do this with plenty of time before you plan on launching your new system to avoid customer accounts from slipping through the cracks.
4. Implement your new recurring billing tool
Now that you’ve chosen your billing app or system, it’s time to bring it online. The process for setting up your recurring billing solution depends on what system you’re using, but it will be a variation on the following:
- Set up a new invoice and name it after your product/service subscription
- Select the start date, price, billing schedule, and payment types accepted for charges and refunds.
- Decide whether or not to configure a free trial for your subscription.
- Enter your customer’s payment information, or enable customers to opt into recurring payments themselves.
- Decide where to place “Subscribe” buttons on your website (this can be via open API integration with your eCommerce platform).
You can set up as many subscriptions within your billing system as you like. For example, one subscription box may have several invoices, depending on how many different billing schedules are available.
Tips to Help You Be Successful With Recurring Billing
Here are a few extra tips to make your recurring billing process go as smoothly as possible:
Consider segmenting your pricing based on customer loyalty.
Subscription billing platforms like Stax Bill enable businesses to implement different levels of pricing, depending on how long a customer has been subscribed for.
For example, you can choose to make your most loyal subscribers eligible for special discounts and even entice back previous subscribers with compelling offers.
SEO platform SEMrush offers both annual and monthly pricing plans to their new customers—with the caveat that customers can save 17% by paying for the year upfront:
Make sure your system can handle dunning effectively.
Credit cards have a limit of three years. This means that in any given year, around 1 in 3 of your customers will need to update their card details or risk becoming unsubscribed. To prevent your churn rate from skyrocketing, make sure that your system can capture updated card details. This is referred to as involuntary churn and your subscription billing system should have dunning management capabilities. Before payment recovery can be triggered, dunning management can get customers to rectify failed payments by themselves by sending automated reminders via in-app notifications, text, and email.
Keep an eye on your recurring billing data.
A subscription billing system should not just collect recurring payments but also analyze the vast amounts of data that it stores. A robust system should be able to provide customizable reports and visualizations on seasonal trends, subscription metrics, churn metrics, cart abandonments, granular MRR data, etc. Payment analytics can tell you a lot about how your subscription business model is performing.
Maximize upselling/cross-selling.
Look for opportunities to offer add-on subscriptions or entice customers to switch to higher membership tiers. This is one of the best ways to increase recurring revenue.
Billie, the personal care subscription company does a great job of upselling whenever people sign up for the brand’s razor blade subscription. Before finalizing a purchase, Billie encourages customers to upgrade their routine by recommending products like makeup wipes and lotion, which can be added to each subscription.
Bringing It All Together
Recurring billing offers subscription-based businesses the ability to streamline their operations by freeing up more time and resources to focus on marketing, analytics, and customer service.
The convenient payment process makes it easier than ever for businesses to deliver seamless customer experiences, increasing retention and preventing revenue from walking out the door.
With a reliable revenue stream, brands no longer have to worry whether their customer will pay their next invoice or drop out of the program.
An all-in-time subscription payment processing solution like Stax Bill makes subscription management a breeze—for both you and your customers! Contact us today to learn more.
Quick FAQs about Subscription Billing
Q: What is Subscription Billing?
Subscription billing is a business model that involves collecting recurrent payments from customers automatically at set intervals. It has been widely adopted in the digital age, especially in the SaaS and eCommerce sectors. This model not only provides a guaranteed revenue stream for businesses but also offers convenience to customers.
Q: How does Subscription Billing differ from Recurring Billing?
While both terms are often used interchangeably, recurring billing usually refers to only the repetitive payment part of a subscription-based model. Subscription billing, on the other hand, includes the recurring billing process as well as more flexible payment options like free trial periods, renewals, pricing models, upgrades, downgrades, etc.
Q: What is the main purpose of the Recurring Billing model?
The recurring billing model aims to eliminate the need for businesses to send out invoices in advance of a new billing cycle, thereby reducing the risk of late payments and high customer churn. By charging customers upfront on a recurring basis, businesses can streamline their billing operations and dedicate more time to other tasks.
Q: How does Subscription Billing work?
In the subscription billing model, the customer first chooses a pricing plan that suits their needs, selects a preferred payment method, and agrees for their payment information to be kept on file. When a new billing cycle starts, the business’ payment service provider charges the approved amount to the customer’s card. The customer is notified about the transaction and the payment method is charged indefinitely until the customer decides to pause or cancel their plan.
Q: How do businesses implement Subscription Billing?
Businesses can implement subscription billing by deciding on a pricing strategy, selecting a comprehensive billing solution, organizing existing payment information, and implementing the chosen billing tool. It’s crucial to ensure the chosen platform complies with various security standards to protect customer payments and company data.
Q: What are some tips for a successful Recurring Billing process?
Businesses can segment pricing based on customer loyalty, make sure their system can handle dunning effectively, keep an eye on recurring billing data, and maximize upselling/cross-selling opportunities.
Q: What types of businesses frequently use Recurring Billing systems?
Businesses that frequently use recurring billing systems include membership businesses (like gyms, coworking spaces, private clubs), SaaS companies, professional services (financial, medical), and agencies (marketing, advertising).
Q: What are the benefits of Subscription Billing for businesses?
Subscription billing offers businesses the ability to streamline operations, increase retention, prevent revenue loss, and provide a more seamless customer experience. This model frees up more resources to focus on marketing, analytics, and customer service, and creates a reliable revenue stream.
Q: How can businesses choose the best Subscription Billing platform?
When choosing a subscription billing platform, businesses should consider its functionality, price points, compliance with security standards, and specific features that cater to subscription-based models. Platforms like Stax Bill provide in-depth analytics, real-time revenue recognition, and dynamic payment schedules for subscription businesses.
Q: What’s the future of the Subscription Billing model?
Reports suggest that the subscription economy is growing faster than S&P 500 companies, indicating that the convenience of recurring billing is a key selling point. The subscription-based eCommerce market is projected to surpass $900 billion by 2026, indicating a promising future for this business model.
