In the subscription industry, recurring billing and recurring payments are terms that are often used interchangeably. However, they both hold significantly different meanings. Dominic Smith, Marketing Director at Cerillion, provides the lowdown on recurring billing and recurring payments and deep dives into the value of recurring billing systems for businesses launching subscription services.
When starting a subscription business, a fundamental question to address is when do you require a recurring billing system? This should be a straightforward question, however confusion reigns due to the proliferation of payment providers (PayPal, Stripe, etc) who now support subscriptions but refer to this as ‘billing’! Quite clearly, businesses taking the first tentative steps towards subscription-based business models are getting muddled signals about the support systems they need.
To put things in perspective, billing involves calculating the price of products and/or services and making a payment request. Payment, on the other hand, involves the exchange of money from buyer to seller for their products and services. For instance, when a bill is presented to you at your favourite restaurant, it is first calculated at the till before payment is then made in cash, by card or using other electronic payment methods.
Decoding Subscription Management
However, it is important to keep in mind that payments made to restaurants and other merchants are typically just ad-hoc transactions. Businesses that embrace a subscription-based model require a more sophisticated and automated approach to manage their recurring transactions. For instance, they must store payment details securely and manage the subscription amount and frequency. Enter recurring payments!
So let’s look at a specific example – all you fitness enthusiasts out there might have come across Strava, a popular cycling and running app. Based on the freemium model, the app encourages you to sign up for their paid service for just a few dollars per month. All you need to do is fill in your card details and voila! You are charged automatically every month without even being sent a notification for the payment. While this may be the benchmark of efficient payments, there isn’t any real billing going on here!
The Case for Recurring Billing
With recurring payment solutions, you just need to clearly define the charge amount and frequency, and the system takes care of the rest. This is all well and good for one product / one price subscription models such as Strava. However, it becomes a much more complex affair when offering a wider range of products and services which may combine various charges, usage fees, discounts and tax rates.
Recurring payment systems simply cannot do this computational work which is why recurring billing software is needed to perform these calculations and automate these processes to build an efficient and scalable business model.
Moreover, recurring billing systems also offer the much-needed flexibility in your services. Be it offering multiple payment methods, billing frequencies or management of contract periods and terms, the best recurring billing systems help you to address the needs of multiple market segments instead of being stuck with a one-size-fits-all subscription model.
So, if you are undecided on the business case for recurring billing software, here are some key questions you need to answer:
- Do you need to bill more than one subscription on an account?
- Do you need to manage renewal rules and contract periods for your subscriptions?
- Do you plan to offer subscriptions, value added services and one-off products?
- Are you considering a usage-based pricing model for some of your services?
- Will you want to be able to offer discounts and promotions?
- What about offering customers a choice of billing periods and payment methods?
- Do you need to be able to negotiate contract terms with your customers?
- Will you need to manage services in a corporate billing structure or hierarchy?
- Do you need to account for revenue separately for individual products and services?
If these questions have got you thinking, then recurring billing software will certainly give your subscription-based business a much-needed fillip!
Latest posts by Dominic Smith (see all)
- Recurring Billing vs Recurring Payments: A Primer - March 15, 2017
- Agile Billing and the Future of Business Innovation - October 19, 2016