What is Billing Cadence?

Billing cadence refers to the fixed schedule and frequency at which a business invoices its customers for products or services. It dictates how often payments are collected, ensuring a predictable revenue stream for the business and setting clear payment expectations for customers.

Cadences are critical to the billing processes of:

• Subscription businesses (SaaS, streaming services)
• Project-based businesses (construction, web development)
• Service-based businesses (consulting, marketing agencies)

Selecting the appropriate billing cadence for your product or service is crucial. This is what ultimately impacts how customers react to your pricing and view your service. If they don’t know when to expect a bill, if payments are difficult to make, or if the billing cycle is misaligned with your value proposition, they’ll miss their payments and feel dissatisfied with the service.

Synonyms

• Billing cycle
• Billing frequency 

How Billing Cadences are Used in Recurring Billing

The concept of billing cadence is a fundamental component of recurring billing. Subscription-based businesses, like streaming services and SaaS vendors, bill customers on a weekly, monthly, quarterly, or annual basis.

Done right, this model improves cash flow stability, lowers administrative overhead, and adds convenience to the customer experience by minimizing the need for manual payments.

But businesses with recurring revenue models need to collect customer payments systematically and predictably. This implies developing a billing cadence that accounts for the customer’s preferences, cash flow needs, and business objectives.

As a subscription business, there are several reasons to implement billing cadences:

• The predictability of recurring billing with a set cadence makes it easy to forecast revenue and manage cash flow effectively.
• Automated recurring billing reduces the administrative burden on customers, as they do not need to manually make payments each cycle.
• It also streamlines your business’s financial operations, as there is no need to generate and send invoices manually.
• Since payment happens immediately (according to the pre-defined cadence), the invoice-to-cash timeframe is practically eliminated.
• Customers have clear expectations of what to pay and when, eliminating confusion and reducing the chances of them filing a dispute.
• A well-designed billing cadence aligns with your value proposition. For example, a weekly billing cadence represents short customer lifecycles, which is ideal for low-cost and high-volume sales.
• Modern billing systems offer the flexibility to adapt billing cadences and structures as businesses evolve.

Depending on the type of subscription service you offer, different billing cadences may be more suited to your business model.

For example, a micro-SaaS tool students use to study might bill customers on a weekly cadence because school semesters are short, users have low purchasing power, and they won’t need access to the service for a long time.

On the other hand, a CRM software vendor would offer monthly and annual plans for business customers because they have a longer lifecycle and higher perceived value.

Types of Billing Cadences

Now, let’s take a look at the different types of billing cadences and how they can be used based on your business model:

Common Billing Cadences

The most common cadences for billing are weekly, monthly, quarterly, and annually.

• Weekly cadences work suited to businesses with short customer lifecycles or highly seasonal products/services. It’s also useful for low-priced items. Fitness and wellness apps, meal kit services, streaming platforms, online newspapers and magazines, and mini-courses are examples of businesses that sometimes use a weekly cadence. 
• Monthly frequency aligns with most people’s pay schedules, making it a popular choice for businesses of all kinds that offer subscription services. Software subscriptions, agency retainers, and digital media subscriptions are popular uses of monthly billing.
• Quarterly cadences provide an element of convenience by reducing the number of times customers need to make payments while still maintaining predictability for businesses. This is suitable for high-priced items with longer customer lifecycles, like enterprise software or consulting services.
• Annual billing cycles offer the most convenience for customers and the least overhead for businesses, as they only need to make/process one payment per year. It’s ideal for long-term products and services with high perceived value that customers use every day (e.g., core business software).

The key to selecting the right billing cadence is understanding your customer’s preferences and aligning them with your business model (more on this later).

Usage-Based Billing Cadences

Usage-based billing is a flexible and increasingly popular way of charging customers based on their consumption of a product or service. This can be combined with other billing cadences, such as monthly or annual plans.

• Pay-as-you-go is the most straightforward. Here, customers pay for what they use (e.g., data usage, cloud storage). It’s useful for customers who need variable amounts of a service.
• Tiered pricing offers different pricing tiers based on levels of usage and feature access, with higher volumes generally leading to lower prices. It’s ideal for customers who consume larger or more advanced versions of your product or service.
• Per-user pricing creates a usage-based cadence that counts the number of users accessing the product/service. It’s suitable for businesses with multiple employee or team accounts, such as project management software or collaboration tools.

While there may be overlapping characteristics (it’s still recurring and may have a flat fee), subscription billing is different from consumption-based billing. The key difference is that the former requires customers to pay a fixed fee for unlimited access to a subscription service, while consumption-based billing charges vary depending on actual usage.

Usage-based strategies are best when product value naturally aligns with customer usage patterns and when the end user is other software, rather than a human user. Cloud computing, cloud storage, and digital ad impressions are all common examples of consumption-based billing that can be used with different cadences.

Event-Based Billing Cadences

Event-based billing is different from the abovementioned cadences as it’s not tied to a specific timeframe or usage. Instead, customers are charged per event that occurs (e.g., per transaction, service call, or project milestone).

• Per-transaction billing is common for marketplaces and payment platforms like PayPal or Square, where customers pay a fixed percentage (e.g., 3%) of each purchase made using the platform.
• Per-metric billing is similar but ties into more specific service usage (e.g., per kilometer driven, API call made, or marketing contact created).
• Milestone-based billing works well for project-based businesses like agencies, consulting firms, and construction companies. Customers pay a fixed amount for each completed milestone or stage of the project.

The main distinction between usage-based billing and event-based billing is that the latter doesn’t rely solely on the duration or quantity of usage. Instead, it’s tied to specific actions or events that trigger billing (even though those events do relate to product usage).

Hybrid Billing Cadences

Hybrid billing models support all types of pricing strategies, including subscription-, usage-, and event-based. Businesses with complex products generally need to have more than one pricing model in place to capture customer usage and the varying value they derive from a product or service.

For example, your typical SaaS product might have:

• A flat rate monthly subscription fee
• Tiers for different levels of access to the product’s features
• Additional flat monthly charges for each team member above a certain threshold
• API call fees for businesses that use the product to integrate with other software

Beyond this, they might offer monthly billing as a standard but incentivize annual subscription payments to increase customer lifetime value. In the end, what works best for your business depends on your customers and product.

Instalment Payments

Even if you aren’t a subscription business, you might sell products to your customers on credit. This is common for higher-ticket items like cars, furniture, and appliances. To make it easier for consumers to pay on credit, businesses let them spread the cost over a predetermined schedule of installments.

It works like this:

1. The customer purchases the product for its retail price.
2. They’re given X installments to pay it off at $Y per installment.
3. The business collects the installments. They may also include interest (or other fees).

The cadence for installment collections is normally weekly, bi-weekly, or monthly. That way, they can recoup their costs more quickly.

Establishing Billing Cadences

Implementing a billing cadence requires you to consider everything from customer preferences to pricing and product value.

1. Understand what resonates with your customers.

Your industry probably already has well-defined billing cadences that work for most businesses in the space. For example, monthly/annual subscriptions are common for SaaS products and usage-based billing is common for cloud computing services like AWS.

However, customers may have specific preferences based on their price sensitivity and perceived value. Test the waters with surveys, A/B tests, or offering different cadences for product trials.

2. Evaluate your revenue goals.

Depending on where you are in your business’s growth, you may need to prioritize higher revenue over attracting more customers or vice versa.

• Longer billing cycles provide upfront cash for major investments and guarantee longer rentenion, but they create gaps in cash flow.
• Shorter billing cycles create more steady cash flow, but they’re labor-intensive to manage and facilitate higher churn.

If your main goal is to grow revenue or introduce new customers to your product, you can make purchases risk-free by offering shorter cadences. To support your loyal customers and increase customer lifetime value, you should offer longer cadences with a slight incentive (e.g., “1 month free with an annual subscription”).

3. Align you cadence with value delivery.

For products with high perceived value that’s realized over a longer period of time, longer billing cycles make more sense. This could be true for products like:

• Personal development courses
• Software with steep learning curves
• Products with deep customization potential (more time to see ROI)

On the flip side, if the value is immediate and customers can start using your product right after purchase, shorter billing cycles are ideal. Think:

• Meal kit delivery services
• On-demand streaming platforms
• Pay-per-event services (e.g., digital ad impressions)

For products where usage is highly variable and/or directly proportional to cost, but users have high control over the amount of time and effort spent on them, usage-based or event-based billing is ideal. In this case, you can set up different pricing tiers based on expected usage levels, with higher levels of usage at a lower per-usage rate.

4. Consider operational complexity.

Lastly, it’s important to consider the impact different billing cadences may have on your business operationally. Longer billing cycles can create a higher risk of non-payment and require more resources for collections. Shorter billing cycles may require more frequent invoicing and processing, which can be time-consuming and costly.

You will also need to factor in the complexity of your pricing structure and any discounts or incentives you offer for longer cadences.

5. Establish clear billing policies and procedures.

To optimize your billing process, you need to outline payment terms, late fees, and discounts. Communicate these policies clearly to both your staff and customers to avoid misunderstandings and ensure consistency in billing practices. And program them into your biling software so it can automatically execute them with every transaction.

SaaS Billing Software Automates Billing Cadences

When you make an automatic payment on the customer’s behalf and send them an automated payment reminder a few days before, the customer experience is a lot better. That’s how automated billing works — it’s the best way to ensure that billing cadences can run smoothly while minimizing human intervention.

The benefits of using an automated billing solution are many:

• Easy setup for cadences of invoice reminders and charges to customers’ cards
• Automated invoice generation and delivery
• Dunning management workflows to minimize late or delinquent payments
• Integration with multiple payment gateways, making it easier for customers to pay on their preferred platforms
• Simplified tracking for all payments and invoices in one place for easy reconciliation.
• Ability to set up recurring billing for subscriptions or installment payments without manual intervention
• Self-service options for customers to update their billing preferences and information
• Insights into customer engagement, purchase behavior, and churn rates for optimization and forecasting purposes

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