What is Subscription Billing?
Subscription billing is a type of recurring billing in which customers are charged a set amount at regular intervals for a service or product. Subscription billing is an integral part of effective subscription management. This type of billing is often used for subscription-based products or services, such as video streaming services or software-as-a-service (SaaS) subscriptions.
With subscription billing, customers are typically billed at the beginning of each billing cycle, and the charge is repeated at regular intervals until the customer cancels the subscription. This type of billing can be convenient for customers, as it allows them to budget for recurring expenses. It can be profitable for businesses, as it helps reduce churn and increase customer retention.
- recurring billing
- subscription billing model
- subscription payment processing
Subscription Billing Models
There are a few subscription pricing models companies use to bill their customers. The most common subscription billing models are per-use, subscription, and usage-based.
Per-use subscription billing means the customer is charged based on the number of times they use the service. For example, a customer might be charged $0.10 per email sent. This type of subscription billing is common for email and other communication services.
Per-user subscription billing is a type of recurring billing where customers are invoiced based on the number of users in their organization. This type of billing can be helpful for businesses with many employees, as it allows them to track and monitor employee usage and budget accordingly.
Standard subscription billing means the customer pays a set fee every month or year regardless of how much they use the service. This type of subscription billing is common for SaaS companies and internet service providers.
With usage-based subscription billing, customers are charged based on how much they use or consume the service. For example, a customer might be charged $10 per gigabyte of data used. This type of subscription billing is common for cell phone service providers and cloud storage services that use pay-as-you-go or consumption-based pricing. Tiered subscription billing is often combined with usage-based pricing, and customers pay different pricing based on their usage level.
Subscription Billing Lifecycle
The subscription billing lifecycle is the process that subscriptions go through to be paid. This typically starts with the customer signing up for a subscription, then continuing to use it, and being billed for it until it’s canceled.
There are several stages in the subscription billing lifecycle, which are:
- Activation: This is when a customer first subscribes to a service. The activation process may involve verifying the customer’s identity and setting up their account.
- Usage: Once the customer is activated, they can use the service. This stage generally involves making payments and/or consuming the service.
- Termination: The customer may want to stop using the service at some point. They may choose to cancel their subscription, or it may be canceled automatically if they do not renew.
Benefits of Subscription Billing
Compared to other pricing models, subscription billing has several benefits:
- Predictable revenue: With subscription billing, businesses can predict their revenue more accurately since customers are billed on a recurring basis. Predictable revenue allows businesses to better plan for future expenses and make long-term investments.
- Increased revenue: Another benefit of subscription billing is that it can help businesses grow. When customers sign up for a subscription, they are often more likely to continue paying for it than if they had to purchase each item or service separately.
- Increased customer loyalty: When customers know that they will continue to be charged the same monthly price, they are more likely to stay loyal to the business. This helps to reduce churn and increase customer lifetime value.
- Easier renewal process: When customers’ subscriptions are automatically renewed, the renewal process is easier for them and the business. This reduces the chances of canceled subscriptions and lost revenue.
- More opportunities for upsells: Because customers are more likely to stick with a subscription-based service, businesses have more opportunities to sell them additional products or services. This can help increase an organization’s overall revenue.
Best Practices for Efficient Subscription Billing
A few best practices businesses should keep in mind when implementing subscription billing are:
Make Customers Aware of Charges
Companies using subscription billing must ensure that customers know all the charges incurred as part of their subscription.
This means listing all applicable fees and taxes on the company’s pricing page and being clear about when they will be charged.
Another key consideration is how renewals are handled. Customers should always be given the option to cancel their subscription before it renews, and subscriptions should never automatically renew without the customer’s consent.
It’s also essential to provide a grace period after a subscription expires, during which the customer can still access the service without being charged.
A large portion of most companies’ revenue comes from existing customers. For B2B companies, the pre-renewal period is an opportunity for the sales team to reach out to customers, especially those at risk of churn and those that can benefit from new features or different pricing tiers.
In addition, renewal is the perfect time to increase revenue by upselling, cross-selling, and bundling products.
The subscription billing software should automate workflows based on individual user accounts, including invoicing and revenue recognition. Companies can improve billing accuracy and increase billing efficiency by converting manual processes into automated workflows.
Easy Subscription Management
Finally, you should make it easy for customers to update their payment information or cancel their subscriptions if they no longer need it.
Allowing customers to manage their subscriptions online makes it quick and easy for them to take care of these tasks. By following these best practices, you can ensure a smooth and hassle-free experience for your subscribers.
Benefits of Subscription Billing Software
According to the Subscription & Billing Management Global Market Report 2022, the subscription and billing management market is expected to grow to $10.10 billion in 2026.
The increasing use of electronic media and devices is projected to spur the subscription & billing management market.
Customers using electronic media and devices such as mobile phones and laptops have easier access to products or services online, which necessitates improved management of subscriptions and billing of customers.
Subscription billing software helps improve subscription management by automating the billing process, saving businesses time, and making it easier to track payments and subscriptions.
Automated billing also helps to ensure that bills are paid on time, which can help to improve customer relationships.
In addition, subscription billing systems can often provide insights into how customers interact with your subscription services, which can help you to improve your offerings.
Benefits of subscription billing software include:
Automated Billing and Payment Processing
Subscription billing software can automate the entire billing process, including charging customers’ credit cards and sending out invoices.
This makes the process more efficient, saves time, and helps to ensure that customers pay their bills on time.
Improved Customer Service
Recurring payments can sometimes be difficult for customers to keep track of, especially if they have multiple subscriptions.
Subscription billing software can help customers with an easy-to-use online interface where they can view all of their active subscriptions and payment history.
This can help customers stay organized and avoid late payments.
By automating the billing process, subscription billing software can help companies to improve their collections rate and optimize revenue.
In addition, this software can help businesses identify and track subscription trends, so they can adjust their pricing and offerings to stay ahead of the competition.
Better Tracking and Reporting
Subscription billing software provides detailed reports on all aspects of a company’s subscription business, from individual customer payments to overall sales trends.
This information can help rev ops teams with revenue reporting so they can make informed decisions about business growth and sales and marketing strategies.
Provides Subscription Billing Data
Subscription billing software provides data on how many subscriptions are active, how much revenue is generated, and how much is lost.
This type of revenue intelligence can help businesses make decisions about their subscription billing strategy and how to improve it.
To provide the best billing experience for their customers, subscription-based businesses often turn to third-party integrations.
These integrations allow businesses to connect with various software platforms that can help them with quote management, subscription management, billing, invoicing, and more.
There are many different third-party integrations that subscription billing software can use. Some of the most popular integrations include those with:
- CRM platforms such as Salesforce and SugarCRM
- CPQ software such as DealHub
- eCommerce platforms such as Shopify and Magento
- Payment processors such as Stripe and PayPal
By integrating with these platforms, subscription billing solutions can provide a more seamless experience for their customers.
This makes it easier for customers to manage their subscriptions and helps streamline the billing process. As a result, businesses can save time and money while providing a better customer experience.
How CPQ Helps Automate Subscription Billing
CPQ software helps automate subscription billing by streamlining the process of creating and managing quotes and orders. This can save sales teams time and hassle when renewing subscriptions or setting up new ones.
With CPQ in place, sales reps can quickly create accurate quotes for their customers, automatically turning them into orders once they’re accepted.
This streamlined process can help reduce errors and ensure that customers are billed accurately and on time.
CPQ software can also help businesses optimize their pricing strategy. By automating the subscription billing process, businesses can more easily test different pricing scenarios to find the right price point that maximizes profits while still attracting customers.
Overall, CPQ software can help businesses automate and streamline their subscription billing process, making it simpler and more efficient. This can lead to increased revenue and improved customer satisfaction.
People Also Ask
How are subscriptions billed?
Companies typically bill subscriptions on a monthly or annual basis. The billing cycle is often based on when the customer originally signed up for the product or service. Some companies offer discounts for paying annually instead of monthly. In some cases, the customer may be able to pause their subscription if they’re away for an extended period.
What is the difference between a subscription and a recurring payment?
A subscription is a pre-determined, periodic payment plan in which the customer agrees to pay a certain amount at fixed intervals for service or product usage. For example, a customer might agree to pay $50 per month for a software subscription.
On the other hand, a recurring payment is an automatic payment set up by the customer to be charged to their debit or credit card or bank account withdrawal. For example, recurring payments may be set up for monthly utility bills or Amazon Prime memberships.
What type of payment is a subscription?
Subscription plans are periodic payments for access to products or services. Typically, customer subscriptions are set up for recurring payments, meaning the customer will be charged at fixed intervals until they cancel their subscription.