Recurring Billing for Subscription-Based Businesses: Everything You Need to Know
Recurring billing is 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.Learn More
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.
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.
Recurring billing 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 Recurring Billing Work?
Here’s a quick overview of how the recurring 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 Recurring 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 subscription management platform Zuora, the subscription economy has seen a growth of 435% over the last nine years—a clear sign that the convenience of recurring billing has become a key selling point.
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.
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.
Keep an eye on your recurring billing data.
Payment analytics can tell you a lot about how your subscription business model is performing. It allows you to identify seasonal trends in how consumers subscribe and for how long, as well as whether your churn rate is increasing or holding steady.
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.