The online subscription business model relies heavily on recurring payments and invoices. For customers, the opportunity to enter their check out information once for a reoccurring shipment is extremely convenient and helpful. You’ve probably been asked for a credit card at the checkout and then had to find where your wallet or pocketbook is.

Consider how many abandoned checkouts are saved when a consumer securely stores their payment information with your store. Merchants also benefit tremendously from recurring payments, such as predictable revenue and inventory planning, several touch points to create rapport and brand loyalty with consumers, and a greater average order value (33% on average).

The market for subscription payments, a type of recurring billing, is expected to grow to nearly $8 million by 2025. Given the growth of this business model, it’s worth considering whether your business should offer recurring payments and subscriptions to customers.

What is Subscription Billing?

Subscription billing includes both recurring billing and more flexible payment alternatives such as free trial periods, renewals, pricing models, upgrades, downgrades, and so on. Nowadays, most subscription-based organizations provide such flexible payment alternatives, thus when they use the word “recurring billing,” they mean subscription billing.

The recurring billing approach is designed to save businesses from having to send out invoices ahead of a new billing cycle, which increases the risk of late payments and high customer attrition. Businesses that charge consumers upfront on a recurrent basis can streamline their billing procedures and devote more time to other duties.

Subscription-billing software can also improve the customer experience because it saves them from having to manually remit payments.

Because customer retention is the key to building reliable cash flow, subscription-based businesses benefit hugely from adopting recurring billing or recurring credit card processing. In addition to subscription services, businesses who frequently use recurring billing systems include:

• Membership businesses (gyms, coworking spaces, private clubs)
• SaaS companies
• Professional services (financial, medical)
• Agencies (marketing, advertising)

Here’s a quick overview of how the subscription billing model works.

• First, the customer chooses the pricing plan that fits their needs.
• Then, they select their preferred payment method e.g. credit or debit card.
• The customer agrees for their payment information to be kept on file by the merchant’s billing software.
• When a fresh billing cycle starts, the business’ payment service provider will charge the approved amount to the customer’s card. Once this is approved, the money is transferred to the merchant account.
• The customer will be notified that the transaction has taken place. If the payment fails, follow-up instructions are provided.
• The customer’s chosen payment method will be charged indefinitely on a set schedule until they decide to pause or cancel their chosen plan.

The Benefits of Recurring Payment Solutions for Subscriptions-based Businesses

There are many benefits of recurring billing:

• Timely customer payments
  Most recurring payments happen on a predictable fixed schedule; for example, on the fifth day of every month or on January 1 each year. The automated nature of recurring payments makes it less likely that payments will be missed or late, which benefits both the business and its customers.
• Fewer failed payments
  Recurring payment software like Stripe Billing helps prevent failed payments through tactics like Smart Retries and preemptively prompting customers to update payment methods that are approaching their expiration date.
• Better customer experience
  Predictability and automated recurring payments result in a better, more seamless customer experience, while also benefiting the business.
• Predictable cash flow
  It’s helpful for businesses to know how much revenue will be coming in at any point in time. While it’s hard to precisely estimate the number of failed payments and subscription cancellations during any given payment cycle, recurring billing provides at least a rough approximation of cash flow, in comparison to one-off payment models.
• Increased customer retention
  While recurring billing doesn’t ensure that customers won’t cancel their subscriptions, it can increase retention. Unlike customers that make nonautomated one-off purchases, recurring billing customers don’t need to take action to continue payments.
• Automated, efficient processing
  Because businesses can usually automate recurring billing instead of manually processing payments, it can save internal time and resources.
• Lower billing costs
  Because businesses spend less time processing automated recurring payments, recurring billing brings in revenue that is cheaper to generate than revenue from manually processed payments.

Aside from these benefits, there are still challenges and potential extra administrative tasks that come with recurring billing. For instance, stored payment information will routinely need updating as cards expire, although this task can be simplified by sending automatic email reminders to customers when their payment method on file is close to expiring.

How Subscription-Based Businesses Can Implement Subscription Billing

Recurring billing and subscription businesses are a perfect match in terms of payments. Automatic billing enables the creation of consistent recurring revenue and streamlined client experiences. By eliminating the need to attract customers to return to your store after they have made a purchase, you may reduce churn, boost customer retention, and maintain a healthy cash flow.

According to a report published in 2023 by the subscription management platform Zuora, the subscription economy grew by 12% in 2022 compared to 10.6% by S&P 500 companies. Moreover, the same report shows that over a period of 11 years (ending in 2022), subscription businesses grew 3.7 times faster than S&P 500 companies—a clear sign that the convenience of recurring billing has become a key selling point. The news is even more promising in the eCommerce industry—as per the Business Research Company, the subscription-based eCommerce market has been forecasted to surpass $900 billion by 2026.

Let’s take a look at what subscription businesses should do to implement recurring billing successfully:

1. Decide on your pricing strategy

There are two key parts to setting up recurring billing. First, decide how often subscribers are billed for accessing your product/service. Then, you’ll need to determine which payment methods your business will accept.

Read Also: How to Integrate Payment Solutions With Your Website

These are important considerations because they dictate how much flexibility your customers have when subscribing, which is a key part of customer acquisition.
Offering an annual-only subscription plan means charging a lot of money upfront. This may be off-putting for many would-be subscribers. While lump sums are advantageous for businesses, it’s a good idea to also have a monthly plan available to entice those who are new to your business.

Offering incentives to new subscribers can also bring more people on board.

For example, Glossy Box offers new subscribers 25% off their first box when signing up for a rolling subscription, allowing them to acquire customers more easily.

Likewise, offering multiple payment methods enhances the convenience of your subscription by enabling customers to pay the way that suits them. Credit card payments, ACH, and digital payments are all standard options that customers expect to have available.

2. Look for a full-fledged subscription billing solution

There’s a variety of recurring billing solutions in the market at different price points and levels of functionality. This means it can be challenging to know which system is the right fit for your business.

For example, using a simple payment gateway to process recurring payments is a very low-maintenance solution. Payment gateways can automate mainstream payment options including credit cards and ACH. They’re also quite affordable, making them an attractive option that handles many subscription business needs.

However, this probably won’t prove to be an effective strategy in the long run.

While payment gateways can handle recurring billing, they’re a generic solution that doesn’t offer high-level subscription management abilities. This makes it difficult to exercise granular control over your subscription program as it grows.

You also need to make sure that your subscription billing platform of choice is compliant with various security standards. This not only protects customer payments and internal company data but also books customer trust.

Instead, it’s a good idea to look for an all-in-one billing solution that’s designed specifically for subscription-based businesses.

Stax Bill is a best-in-class subscription billing platform that scales effectively alongside your operation. Subscription businesses can access in-depth analytics, real-time revenue recognition, and dynamic payment schedules—all from one intuitive interface.

3. Organize your existing payment information

If you’re already running a subscription-based business, you’ll have your customers’ payment details on file for the purposes of recurring billing. Now that you’ve chosen your new billing solution, you need to prepare to migrate this payment information from your old system.

In some cases, this may require you to ask for re-authorization from your customers to keep their credit cards on file. It’s important to do this with plenty of time before you plan on launching your new system to avoid customer accounts from slipping through the cracks.

4. Implement your new recurring billing tool

Now that you’ve chosen your billing app or system, it’s time to bring it online. The process for setting up your recurring billing solution depends on what system you’re using, but it will be a variation on the following:

• Set up a new invoice and name it after your product/service subscription
• Select the start date, price, billing schedule, and payment types accepted for charges and refunds.
• Decide whether or not to configure a free trial for your subscription.
• Enter your customer’s payment information, or enable customers to opt into recurring payments themselves.
• Decide where to place “Subscribe” buttons on your website (this can be via open API integration with your eCommerce platform).

You can set up as many subscriptions within your billing system as you like. For example, one subscription box may have several invoices, depending on how many different billing schedules are available.

Types of Businesses Using Recurring Billing

Recurring billing is a popular payment model for any business that bills customers on a recurring basis for ongoing access to products and services. It is most commonly used by subscription businesses, including:

• Subscription-based businesses: Companies offering subscription services—such as streaming platforms, software-as-a-service (SaaS) providers, and membership-based platforms—can generate predictable revenue streams and improve customer retention using recurring billing.
• Gyms and fitness centers: Monthly or annual membership fees enable gyms and fitness centers to maintain a steady cash flow while providing customers with ongoing access to facilities and services.
• Digital and print newspapers and magazines: Subscription-based media outlets, such as newspapers and magazines, can generate consistent revenue by providing customers with regular access to content through recurring payments.
• Utility and telecom companies: Businesses that provide essential services—such as electricity, water, gas, internet, and mobile phone services—are a natural fit for a recurring billing model, since customers typically require these services continuously.
• Online courses and educational platforms: E-learning providers that offer ongoing access to courses, webinars, or learning materials can benefit from a recurring payment model, providing customers with continuous access to updated content.
• Managed services providers (MSPs): MSPs that offer IT, security, or infrastructure services to businesses work well within a recurring payment model, as they provide ongoing support and maintenance.
• Box subscription services: Subscription-based businesses that deliver curated boxes of products, such as meal kits, beauty products, or clothing, often use recurring billing models that build consistent revenue and better inventory management.
• Nonprofit organizations: For charitable organizations, a recurring donation model can provide donors with an easy way to contribute regularly and ensure a predictable income stream for the organization.
• Cloud storage providers: Companies offering cloud storage services can benefit from a recurring payment model, as customers require ongoing access to their stored files and data.
• Freelancers and consultants: Professionals who provide ongoing services, such as marketing, graphic design, or business consulting, can establish retainer agreements with their clients that operate using a recurring billing model.

Due to the benefits of recurring payments and growing consumer adoption of subscription-based services and products, many businesses whose core offering doesn’t naturally fit with recurring payments are launching new initiatives to generate this high-retention type of revenue stream. For example, a marketing consultancy might start a subscription-based newsletter that offers expert tips each week to subscribers who pay a recurring fee.