Over the last decade, subscription products and services have been on the rise. Everything from the systems and software we use at work and to manage our lives to the media we consume for information and entertainment, and even the clothes we wear and the food we eat come to us via subscriptions.
The subscription business model is showing no sign of losing momentum as individuals and especially businesses continue to prove this is the way they want to pay. In fact, the average business already uses about 80 subscription SaaS applications.
This model is a huge benefit to your businesses too, with its recurring revenue predictability and its tendency to increase your business valuation.
But how often should your subscription model business be billing its customers?
The short answer is, it depends.
Subscription billing frequency is a balancing act
When building your subscription business, be sure to choose a billing frequency that’s right for both your business and your customers. Striking a balance between your needs and those of your customers is key to finding the optimal schedule.
But how do you choose?
When deciding on subscription billing frequency, begin by considering what some of the best practices for SaaS billing are, then take a look at your product or service, as well as when and how often your product or service is delivered to your customer. Then, consider the pros and cons of the following to determine your best billing option.
Daily billing
Daily billing is typically considered “very frequent” billing. However, it can be the best option if you’re in a market with a short customer life-cycle.
The advantages of daily billing are that:
- you have regular income, and
- you can see—on a day-to-day basis—the net effect of your marketing efforts.
The disadvantages of this subscription billing model are that:
- daily invoicing requires significant management, and
- most automated billing platforms charge per transaction, or a percentage of each transaction.
If you don’t have a relatively high subscription billing charge, you may find that profit margins are too low for this to be financially feasible.
Weekly billing
This model is also suitable for businesses that have a short customer-life-cycle. It’s commonly used by businesses that have regular deliveries of their subscription products (i.e. food/meal kits, magazines/newspapers).
This option is easier to manage than daily recurring payments, but the cost of managing the subscriptions can still be expensive.
The advantages of this option are that:
- customers can often manage weekly recurring payments effectively, and
- they’re therefore unlikely to default on their payments.
The disadvantage is that:
- customers may perceive these weekly payments as higher than they might if the same rate was billed on a monthly or yearly basis (i.e $4 month, or $52 per year).
Bi-weekly billing
Having your subscription billing set so your invoices go out every two weeks can sometimes create complexity. The issue with bi-weekly billing is that:
- not all months have the same number of weeks and so not every month would have the same number of payment dates.
For customers who manage their finances on a monthly basis, this can complicate their financial planning.
Monthly billing
Monthly billing is one of the most commonly used subscription billing frequencies.
The advantages of this model are that:
- it’s easiest to manage from both a business and subscriber point of view, and
- you can quite easily spread out your workload by dividing subscribers into groups and scheduling various billing dates within that month, i.e. 1st of the month, and the 15th of the month.
Monthly billing is a great model for those who are providing a consistent service over longer periods, for example, software, streaming services, publications, and membership sites.
The potential downside of this occurs when:
- payments per month are perceived as “too high”. This can create a challenge for your business in terms of high customer churn.
In this case, customers may be more receptive to a weekly payment schedule, but more likely you may want to consider evaluating your price tag in relation to your competitors and the value your business is providing.
Annually billing
Annual payments are most often used by subscription businesses that have a significantly long product or service life-cycle.
The obvious advantages of this option are that:
- very little recurring billing management is necessary, and
- promotional discounts are used effectively with this option, as they entice customers to sign-up for annual plans.
The potential problem with the annual billing model is that:
- your subscribers may default on their payments because a significant period of time has past since sign-up.
To ensure this doesn’t happen, you’ll need to inform your customer in advance of when their renewal is due. And if you can automate that process, even better!
The best billing frequency is one that’s automated
No matter which subscription billing frequency you choose for your business, you can optimize the entire billing process with an automated recurring billing platform. If your business is using a manual or overly complex legacy billing solution, you’re sacrificing accuracy and you’re losing time and revenue to inefficient processes and manual errors.
In addition to ensuring the platform you choose supports the billing frequency you desire, here are some tips to help you select the best-fit billing software for your business.
You can also read a more detailed article on the pros and cons of subscription billing frequency and how they impact how your subscription business.
FAQs about Subscription Business Model
Q: What is the subscription business model?
The subscription business model is one where customers pay a recurring price at regular intervals to gain access to a product or service. This model has been increasingly popular in recent years, spanning various industries, from software to media and even food.
Q: What are the advantages of the subscription business model for businesses?
The subscription business model offers several benefits to businesses, principally recurring revenue predictability and a tendency to increase business valuation as a result of consistent income and customer loyalty.
Q: How often should a subscription-based business bill its customers?
The frequency of billing in a subscription-based business depends on several factors, including the type of product or service offering, the frequency of product delivery or access, and the needs of your customers. The four primary billing frequencies include daily, weekly, bi-weekly, monthly, and annually.
Q: What are the benefits and disadvantages of daily billing models in a subscription-based business?
Daily billing models offer regular income and real-time visibility of marketing efforts. However, they require substantial management, and transaction fees can erode profit margins if subscription charges are not considerably high. Daily billing is more suitable for businesses with a short customer life-cycle.
Q: What is the advantage and disadvantage of a weekly billing frequency?
Weekly billing is easier to manage than daily billing and is often manageable for customers, reducing the likelihood of payment defaults. However, customers might perceive weekly payments as higher than monthly or yearly rates.
Q: Why are monthly billing frequencies commonly used, and what’s a potential downside?
Monthly billing is prevalent due to its ease of management for both businesses and subscribers. However, if the payment per month is perceived as too high, businesses may face challenges with high customer churn.
Q: When is the annual billing model applicable, and what’s the downside to consider?
Annual billing is typically used by subscription businesses with a long product or service life-cycle. While this model requires minimal recurring billing management and can effectively leverage promotional discounts, subscribers may default on their payments due to the long period between sign-ups and renewals.
Q: What tips can help select the best-fit billing software for a subscription-based business?
When selecting a billing software, ensure that it supports your preferred billing frequency, optimizes the entire billing process, and reduces the likelihood of manual errors. An automated recurring billing platform can be an efficient solution.
Q: How does the billing frequency impact business health in a subscription model?
The billing frequency can directly impact customer retention, satisfaction, and payment punctuality. It should strike a balance between the operational convenience of the business and the financial comfort of the subscribers.
