What is Subscription Billing?
Subscription billing is a type of recurring payment option in which customers are charged a certain amount at regular intervals for a product or service. Most of the time, this form of recurring billing is used for subscription-based products or services. Customers are often billed at the beginning of each billing cycle, and the charge happens at regular intervals until they cancel their subscription.
Recurring billing offers many advantages for companies. It guarantees a regular and reliable stream of revenue, which is vital for maintaining predictable cash flow levels. There is also great benefit for the consumers because subscription billing saves time, money and provides great convenience!
For business owners, subscription billing software facilitates recurring payments on a single platform. Businesses can use ACH and credit card networks to accept recurring payments and transfer funds between institutions and banks.
The Benefits of Subscription Billing
Subscription billing is time efficient
Both your business and your customers can save time with subscription billing. Automate every part of your subscription and create a streamlined approach for the tasks that can’t be automated. Recurring billing allows you to minimize the overall hassle that can come with subscriptions. For customers, they don’t have to manually make a payment for every cycle. They are charged automatically and sent an invoice notifying their payment – it’s as simple as it gets!
Subscription billing boosts customer retention
People love convenience. With this billing model, customers don’t have to constantly remember to renew their subscription. For the best results, your business must have clear communication and expectations when it comes to subscription billing. Customers want to know exactly what they are paying for, when they will be charged, and what their money is getting them. When your business satisfies these needs, customers will appreciate the value of their subscription!
Subscription billing allows for predictable revenue
Although subscription billing can’t give you exact predictions, it can help you plan your finances more accurately. Therefore, businesses can understand and predict revenue. Although cancellations and failed payments are inevitable, you can start to pick up seasonal trends once you’ve been using this billing method for a few years.
Subscription billing leads to fewer failed payments
Payments sometimes fail… it happens! By using stored data payment methods for automatic payments, failed payments are less likely. Recurring billing also identifies cards that will soon expire, which gives customers a chance to replace them before a payment fails. It’s a win-win for both your business and your customers.
Types of Subscription Plans & Billing Options
- Freemium Price: With freemium pricing, customers can access limited features for free, with the option to upgrade to a paid tier that offers additional services, products, and functionality.
- Flat-Rate Price: This is the simplest pricing model to understand. Customers are charged the same amount every billing cycle no matter the volume, time of use, or any other factors.
- Fixed Plans: This is a common type of billing plan used by companies today. Businesses can offer multiple plans with a fixed cost (monthly, annually, basic, premium, etc).
- Usage-based: Also known as pay-as-you-go pricing, this billing model charges customers a set amount based on the quantity of a product or service they use during each billing period.
- Seat-based: This pricing model is when users are charged for each unit of measure that has access to the account. The more users your client has, the higher the cost.
Recurring Payments - ACH vs. Credit Cards
Automated Clearing House (ACH) network and credit cards are both methods that allow people to make payments, and in this case, subscription payments. However, there are a few key distinctions between these two payment methods.
ACH is a type of electronic payment that can be processed as a credit card or direct debit. These payments are sometimes referred to as eChecks, direct debit, or bank drafts. ACH or Automated Clearing House is the primary network used for processing electronic transactions between participating financial institutions.
A credit card is a small, portable card issued by a bank or business that enables the account holder to make purchases. When customers use a credit card, the spending amount will be charged to their line of credit. Customers can use credit cards to make purchases even if they don’t have cash in their bank account. Not only that, but credit cards can make online purchases, helping you drive revenue with your website or ecommerce store.
3 Key Differences Between ACH and Credit Cards:
Guarantee: Credit card transactions are guaranteed funds transactions, and the credit card network will verify whether the payor has gone over the limit or not. If so, they can disapprove the transaction. Alternatively, ACH payments don’t guarantee the funds. Payments may be rejected for inadequate funds, closed accounts, and more.
Processing times: ACH can take three to five business days to process and credit cards takes about one to three days to process the transaction.
Fees: ACH transactions are often more affordable than credit card transactions. ACH usually has the lowest transaction cost of all payment systems, while credit cards charge around 2.5% of the transaction fee and additional fees.
Types of Businesses that should use Subscription Billing
Should your business use subscription billing? It all depends on your company’s business model of your company. You know it’s time to invest in subscription billing if your company…
- Has a subscription-based business model
- Offers upgrades, downgrades, and add-on features
- Can manage individual subscribers
- Is capable of charging on a regular basis
- Wants to automate revenue recognition
If your business falls under these categories, then a subscription billing platform is a worthwhile investment. If not, then adding one may be unnecessary.
Below are five types of businesses that should use subscription billing:
- Software as a Service (SaaS)
- Streaming Service
- Content Subscriptions
- Health and Wellness Subscription
- “Perks” Subscription Models
Subscription Billing Software – Key Requirements
To successfully implement subscription billing, your organization must meet a few requirements. Without meeting these requirements, you are unable to take full advantage of one of the most effective business models! Consider recurring billing if your business is able to:
Provide Various Features
To remain competitive, you must offer a variety of features. For example, consider offering different product and service choices within multiple subscription plans. In addition, when a customer selects a certain subscription plan, your subscription billing software should automatically grant or deny access to features depending on the plan they chose.
Charge on a Recurring Basis
There is no reason for subscription billing if there are no recurring charges. Subscription billing software needs the capability to invoice and bill customers according to the set billing schedule. Moreover, you must have secure access to payment processing platforms. Ideally, the payment processing platform should accept a wide range of payment methods such as credit cards and ACH payments.
Manage Customers on a Personal Level
Customers are people too. They want to feel like your business cares about them and are always willing to assist when needed. This customer relationship should be based on their preferences and history with your products and services. The subscription billing software must be able to store crucial customer information like the products and services they subscribe to, payment types, price, billing cycle, and more!
Offer Self-Service Capabilities
Your time is valuable. It would be a hassle to have to manually input every customer subscription. Customers must have the ability to set up their subscription on their own. Whether they are subscribing to a product or a service, they should be able to browse features, input payment data, and begin a subscription without requiring staff assistance. This also includes easily managing accounts, having the ability to upgrade or downgrade, and change payment methods.
Automate Billing Workflows
For the best results, the subscription billing software should be able to automate workflows (invoicing, revenue reporting, and collecting payments). By saying goodbye to manual processes and automating billing, you can save both your time and energy.
Gulf Management Systems (GMS) offers all the subscription billing solutions that you need for your business. Our subscription billing software includes recurring ACH payments, credit card billing, and more!
Put your payments on autopilot with our recurring billing solutions! This way you can save time chasing down payments and focus on growing your business. With subscription billing from Gulf Management Systems, you can accept recurring, bi-weekly, monthly, or yearly subscription payments from your customers.
With almost 30 years of payment processing experience, it’s safe to say we are your payment experts!
