In the business world, fewer things are more “in” than the subscription business model. In fact, the global subscription eCommerce market is projected to reach $904 billion by 2026—up from just $73 billion in 2021. And while recurring payments are big in the SaaS niche, it’s not the only vertical that’s adopting this pricing model: from rental car businesses to airline travel and financial services, it’s taking the world by storm.
If you run a subscription-based SaaS company, chances are high that you’ll accept subscription billing to automate your billing process instead of manual payment processing—saving your accounts receivable department significant time and stress, while also reducing the likelihood of errors. Sure, if you only have a handful of customers, handling their payment information manually is possible. But if you plan to scale in the long-term, that won’t stay feasible, so recurring billing will inevitably land on your radar.
If you’ve just started toying around with implementing an automated recurring billing solution, you probably have a lot of questions: what types of recurring billing options are out there? Can this solution help improve customer retention and reduce customer churn?
In this blog post, we’ll cover everything you need to know about choosing and implementing the best recurring billing software for your subscription business.
TL;DR
- The recurring billing model is when a subscription-based business automatically charges a customer’s debit/credit card (or other payment method) on a regular schedule, usually monthly or annually.
- Once you have a provider, some of the best practices to manage recurring payments include utilizing dunning management, investing in relationship management, and proactive but personable billing communication.
- From reaching new clients, bettering your customer service, or speeding up internal operations, it’s important to make sure that your billing data works for you.
What is Recurring Billing?
First things first, here’s what recurring billing is not: recurring invoices. While the two terms might sound similar and often get thrown around interchangeably, they’re not the same thing! The recurring billing model is when a subscription-based business automatically charges a customer’s debit/credit card (or other payment method) on a regular schedule, usually monthly or annually. This is the payment model that streaming services like Netflix use.
Meanwhile, recurring invoicing is when you automatically send an invoice to a customer on a recurring basis; the difference is that you don’t automatically collect your payment, and your customers will need to transfer the money themselves, like via ACH.
If you need more insight into the difference between the two, our friends at Stax Payments have a whole blog post on the topic. And if you’re unsure about subscription management vs. recurring billing, check out this article.
Setting Up a Recurring Billing System
With a plethora of service providers that support recurring billing services that can streamline your workflow, it can feel overwhelming to find the right fit for your small business or SaaS company. No matter what pricing model you use (whether it’s usage-based, tiered, or fixed), a solid recurring billing solution will help you set up automatic payments and get running in no time.
Not sure where to begin? Here are a few questions to ask yourself, while keeping in mind your current situation, and where you want to be down the road:
- What kind of subscription billing or payments system do we need? How comprehensive should it be?
- How often do we need to bill customers?
- What kind of integrations and tools do we need?
- What features are must-haves vs. nice-to-haves?
Once you have answers to these questions, start shopping around with different providers. Don’t be afraid to ask tough questions, and do your research before speaking with a representative so you know what you’re talking about. Just a few things you can ask include:
- How do you protect our customer data and ensure compliance with legal and regulatory standards? Are you PCI compliant?
- What do your revenue recognition policies look like?
- Do you offer flat-rate pricing? What kind of hidden fees are there? Can I cancel anytime, and if so, will I be charged?
- What kind of APIs do you provide to streamline all aspects of my business, like my CRM, ERP, or tax software?
- If I need a payment gateway (or multiple gateways to accept different currencies), is it possible to add this to my plan?
- What kind of customer support do you offer? How easy is it to contact a real person, and what are turnaround times like?
These are just a few questions to get you started, but don’t stop there: look into unbiased reviews from real customers on other sites like Trustpilot, G2, or Capterra—they’re more telling than what you’ll read from the providers themselves. Next, schedule a demo with a few providers, and once you’ve made the final decision, you can start the onboarding process.
To make the onboarding as hassle-free as possible, start cleaning up your customer data during the procurement stage. Then, spend some time fleshing out what your recurring billing model will look like: how frequent will your billing cycles be? When do you recognize revenue? By taking these steps, you can be up and running in as little as a month (if you use Stax Bill, at least!)
Best Practices for Managing Recurring Payments
So you’re up and running. Time to kick back and relax, right? Well… yes and no. While automating your recurring billing will undeniably help with repetitive work, here are our top tips to keep in mind to ensure smooth sailing in the long run:
Dunning management
Everyone wants to get paid, right, so it’s in your best interest to ensure that happens. While most customers won’t try to short you, you do run the risk of accidental failed payments, which is one of the most common causes of involuntary churn. To reduce your churn rate, a great recurring billing provider should offer solutions to minimize this revenue leakage. With Stax Bill, we help ensure you get paid by using dunning processes like automated credit card retry sequences and credit card updating.
Billing communication
We all know the mantra that communication is key, but what does that look like when you’re regularly billing your customers? First, you want to keep the communication lines short—if they need to reach you, it shouldn’t feel like jumping through hoops. Keep all communication friendly and personable, even if you’re dealing with a failed or missed payment: always start by assuming it was an accident or misunderstanding, instead of taking a hostile approach. Finally, keep your messages short and punchy, and consider reaching out to your customers via different channels, like text, email, or in-app (all with their consent, of course!)
Relationship management
You shouldn’t only invest in a great recurring billing provider: you need to invest in your customers and provide an unforgettable customer experience that lasts beyond acquisition. Take a proactive approach to ensuring customer success by regularly listening and engaging with your customers and offering personalized support. With a strong onboarding and customer retention strategy in place, you can convert customers into brand promoters, increasing the lifetime value of each user and bringing in new users at a fraction of the cost. Sure, delivering value throughout the customer journey requires a lot of effort at first, but will pay off in dividends down the road.
Monitoring and Analyzing Billing Data
If you’re using a subscription billing platform, you’re sitting on a wealth of data that you should put to use! From reaching new clients, bettering your customer service, or speeding up internal operations, it’s absolutely essential that you make your data work for you. We’ve spoken in-depth about how to make data-driven decisions using your billing data, so here are some high-level summaries:
- Identifying sales trends and forecasting results: Break down the data generated in various time periods to get granular insights into when your customers increase/decrease purchases, especially with historical insights to back your findings. Plus, visualized data is a great way to help justify important sales/marketing decisions, so make sure the data is easy to read for outsiders.
- Finetune your marketing strategies. Slice your data so you can understand what plans are bestsellers, so you can understand what customers truly want—not what you want them to want. When you understand what’s in demand, you can use that knowledge to bring in more customers, raise the prices if you’re confident customers will keep paying, or eliminate poorly performing plans. And that’s just some of what you can do using these insights!
- Track activation cohorts: Activation cohorts are groups of customers that activate their subscription in the same month, making it a great predictor for future revenue. For example, the data helps you see what percentage of customers from each cohort are still subscribers, or have expanded or churned. With this information, you can run experiments to try out any hypotheses you may have as to why these customers expanded or churned.
By monitoring and analyzing your data, you’ll be able to put it into action, leveraging the data for sustainable and long-term business growth.
Wrapping up
With an agile recurring billing system like Stax Bill, you can achieve total compliance, automate your revenue recognition, improve your data-driven decision making, and supercharge your customer lifetime value. Don’t get left behind in the world of subscription-based payments: upgrade your digital transformation strategy, increase efficiency by up to 80%, and start doing billing better today.
Contact us to schedule a demo.
Quick FAQs about Recurring Billing Model
Q: What is a recurring billing model in a subscription business?
A recurring billing model in a subscription business is when the business automatically charges a customer’s debit/credit card, or other payment method, on a regular schedule, usually monthly or annually. This model is common in various sectors including software subscriptions, streaming platforms, gym memberships, and utilities.
Q: Why is recurring billing important for subscription businesses?
Recurring billing is critical for subscription businesses because it automates the billing process, saving time, reducing the likelihood of errors, and improving customer retention. It eliminates the need for manual payment processing, allowing the business to scale effectively.
Q: How does recurring billing work?
Once a customer signs up for a service with recurring billing, their payment method is charged automatically at the set intervals until the subscription is canceled or modified. The charge is applied without the need for any action from the customer, ensuring uninterrupted access to the services or products.
Q: How can I implement recurring billing in my subscription business?
Implementing recurring billing in your subscription business involves selecting a billing platform that supports recurring payments and integrates well with your existing business systems. The platform should be able to handle the entire subscription lifecycle, including sign-ups, renewals, and cancellations.
Q: What is the difference between recurring billing and recurring invoicing?
– Recurring billing involves automatic charges to the customer’s payment method at regular intervals without any action required from the customer.
– Recurring invoicing, on the other hand, involves sending an invoice to the customer at regular intervals. The customer then initiates the payment themselves.
Q: What are some best practices for managing recurring payments?
Best practices include utilizing dunning management to minimize failed payments, investing in relationship management to improve customer retention, and maintaining proactive and personable billing communication. It’s also important to utilize the billing data to identify sales trends, finetune marketing strategies, and track activation cohorts for sustainable business growth.
Q: What are the essential features of a good recurring billing solution?
A good recurring billing solution should offer compliance with legal and regulatory standards, robust revenue recognition policies, flat-rate pricing with transparency about any hidden fees, APIs to streamline business operations, and excellent customer support. It should also offer options to add a payment gateway for accepting different currencies.
Q: What should I ask potential providers when shopping for a recurring billing solution?
You should ask potential providers about their data protection and compliance measures, revenue recognition policies, pricing structure, cancellation policies, API offerings, customer support, and how they handle various aspects of your business operations. You should also look into customer reviews on platforms like Trustpilot, G2, or Capterra.
Q: What steps should I take to ensure a smooth onboarding process when implementing a recurring billing solution?
Start by cleaning up your customer data during the procurement stage. Then, spend some time determining what your recurring billing model will look like, such as how often you will bill customers and when you will recognize revenue. These steps can help ensure a hassle-free onboarding process.
Q: How can I use my billing data to make data-driven decisions?
Billing data can be used to identify sales trends and forecast results, finetune marketing strategies by understanding customer preferences, and track activation cohorts to predict future revenue. Monitoring and analyzing this data can help put it into action for sustainable and long-term business growth.
