What Is Recurring Billing? Benefits, Best Practices, and Examples

Recurring billing is your business's simplest, easiest tool for making revenue more reliable.

Imagine your customers purchased a product or service that you could bill for reliably every month or a year into the future. Whether it's a fixed amount or varies with each bill, this ongoing billing simplifies covering expenses and planning for business growth. Recurring billing is a steady source of reliable income that helps you anticipate cash flow.

Read on to learn more about how recurring billing works, its pros and cons, examples across industries, and how additional technology can simplify the process.

What you'll learn:

• What is recurring billing?
• Benefits of recurring billing
• Types of recurring billing models
• How does recurring billing work?
• Examples of recurring billing
• Best practices for recurring billing
• Common challenges of recurring billing and how to overcome them
• How can revenue management software streamline recurring billing?

Subscriptions are just one kind of business model that uses recurring billing. Whether it's a newspaper or cloud-based sales software, subscriptions provide continuous access to something as long as customers continue to pay. Businesses can use automatic charges (autopay via credit card, debit card, ACH, etc.) to ensure customers maintain their service while they keep getting paid, but manual payments initiated by the customer also work

Virtually every type of business has some form of recurring billing. Examples include:

• Technology: Most software services today include a subscription component, from complex enterprise resource planning (ERP) software to personal nutrition apps.
• Ecommerce: Direct-to-consumer (DTC) and other online retailers offer subscriptions for regular deliveries of the same products or the option to break up a larger product into multiple financed payments.
• Health and fitness: Gyms, personal trainers, and health insurance providers regularly bill for access and services.
• Education: Prestigious universities and online training courses rely on recurring tuition bills to fund teachers and education planners.
• Publications: National newspapers, independent journalists, podcasts, and newsletters receive payment from their subscribers.
• Financial: If you take out a loan, you will receive regular bills for repayment according to a mutually agreed-upon schedule.
• Entertainment: Customers are charged ongoing fees for streaming apps, cable packages, season tickets, and online gaming.

In both business-to-business (B2B) and consumer markets, customers benefit from recurring billing by receiving:

• Discounts and price breaks: Companies often offer incentives like discounted pricing or lower upfront costs for enrolling in recurring billing plans, which gives customers immediate value.
• Expanded access: One-time purchases often come with a fixed value, but upgraded subscriptions can provide enhanced features. Businesses may concentrate on these for greater returns.
• Continuity of service: Because recurring bills are sent on a regular, predictable schedule, customers have less risk of losing access to products and services. This is important for situations such as prescriptions or physical therapy.
• Personalization: Customers might have options to customize their plan, such as picking a service tier or billing frequency, giving them more control over their purchase.

Companies in all industries find significant benefits from recurring billing, such as:

• Predictable revenue: Companies can provide on-going services and rely on that value for longer than a single purchase. Remember that annual recurring revenue is more predictable than monthly, which can be canceled much earlier and threaten predictability.
• Better forecasting: Forecasting revenue is easier because customer lifetime value (CLTV) is more predictable. This benefits both your sales team and company leadership because it can lead to more accurate expectations for performance.
• Reduced sales and marketing costs: A customer who has purchased a product or service with recurring billing doesn't need to be acquired again — and acquiring new customers tends to be more expensive than keeping existing ones .
• More sales opportunities: Someone who keeps a subscription longer may be more receptive to cross-selling and upselling because you've established a longer relationship and have more touchpoints to remind them to use your service or to check their satisfaction.
• Lower administration costs: Many functions of recurring billing can be automated, such as sending invoices and reminders. And if a customer opts into an autopay agreement, even the collection of revenue can be automated.

Fixed billing refers to any recurring bills that charge the same amount each time. This consistent fee contributes to overall annual or monthly recurring revenue (MRR), or the total recurring revenue generated each period, for everything from streaming entertainment apps in the B2C world to enterprise contract management software in the B2B world.

As the name implies, the amount due can change from bill to bill with variable billing. How it changes depends on which subtype it falls into:

• Usage-based billing: Also known as metered billing or pay-as-you-go pricing, this bill varies according to the exact amount of a resource customers have accessed. A B2C example is home electricity, and a B2B example is the amount of computing power a web app uses.
• Quantity-based billing: This charge adjusts each billing period according to the number of concrete units of a product or service used. A B2C example is how many add-on classes a gym member uses in a month. A B2B example is the number of licenses for a software-as-a-service (SaaS) product that a customer has signed up for.

Billing and pricing in revenue lifecycle management require careful analysis. Evaluate your cashflow goals and needs along with historical pricing / contracted pricing and market data from your customers to establish the monthly or annual prices you're willing to set and that customers are willing to pay. Account for possibilities like transaction fees and late payments, and consider incentives like price breaks to encourage customers to use automated payments for a reliable collection of recurring revenue.

You might want everyone locked into multiyear contracts for ease of calculating revenue, but you may be able to sign a larger number of customers by giving some leeway. For instance, consider letting them choose aspects like whether they want to be billed annually or monthly, the day of the month they'd like to be billed, and the ability to change certain things like the number of licenses for subscription software.

Many recurring billing platforms are up to the task of noting your product and pricing data in an internal catalog, generating binding and signable contracts, managing invoices, and collecting payments. These are table stakes, so look for recurring billing features within a larger revenue lifecycle management platform. This way, it can also generate quotes for custom deals, integrate with your CRM tools, and be accessible by finance, legal, and sales teams alike. Billing, payment management, and account statuses should be able to be automated within the platform with no coding required.

If recurring billing is built separately from these systems, you can end up spending a lot of time on integrations and risk letting details slip through the cracks due to data silos.

Pricing terms, options, benefits, late payment fees, and all other details need to be listed clearly on your site and other marketing materials where appropriate. And don't forget the legalese. It's important to be explicit about the arrangement in case disputes arise with customers who try to back out or stop paying. If you're moving to a subscription revenue model from other types of business models, it's important to make the differences from your old offerings clear and give enough lead time to avoid churn and dissatisfaction.

The benefit of recurring billing is that it shifts resources from acquiring new customers to retaining them and ensuring their satisfaction. For a small-scale service, this might involve sending invitations for online surveys and exclusive discount codes for add-ons and other products. For expensive, large-scale products, this could entail dedicated success managers who proactively work with customers.

Recurring billing isn't a cure-all for businesses. Pitfalls to beware of include:

Challenge: Creating custom recurring billing technology can be complicated, especially for organizations with ERPs designed primarily for one-off sales.

Solution: Instead of building an in-house solution that demands ongoing work from developers to address unforeseen complications, consider relying on a subscription management platform. These solutions provide a familiar and easy front end for customers and a back end that integrates with your other critical systems.

Challenge: A premium blog subscription with repeat billing is relatively straightforward. But what about a usage-based, multi-tier cloud software product with thousands of fluctuating users and price breaks customized by the sales rep? If your business has too many specialized contracts for enterprise customers, it may be too complex for some systems to handle.

Solution: Migrate your configure, price, quote (CPQ) process into a CPQ solution that guides you through standardization options and is able to handle any remaining complex customization options in your offering.

Challenge: Each time you contact customers, such as notifying them of changes, it becomes an opportunity for them to rethink their contract and potentially cancel.

Solution: Since customer churn is a persistent challenge, it's crucial to focus on retention. Customers should receive good service throughout the relationship, but it's also important to make straightforward things like the invoice experience flawless to avoid frustration and loss of trust.

Whether you're trying to figure out how to calculate recurring revenue or how to get a recurring billing process up and running, revenue management software is beneficial. It can be used to:

• Centralize your product and pricing data. This helps sales and finance teams make unified decisions upfront.
• Generate contracts with regular payment terms from a centralized template library to ensure consistency and accuracy.
• Provide your sales team flexibility within boundaries to close deals while allowing billing systems to keep up.
• Automate usage calculations and handle scenarios like upgrades, downgrades, and all billing to reduce manual errors.
• Reduce reliance on an internal development team to accommodate all possible changes to your processes, pricing, packages, and more.

Recurring billing is a powerful tool for businesses. It helps you secure more steady customers who, in turn, experience less sticker shock and gain more access to products and services. You can succeed by turning your focus from acquisition to retention and providing value in your pricing so customers don't feel nickel-and-dimed. Take advantage of the wealth of revenue management platforms available to ensure all recurring billing is handled correctly and automatically, and you'll be set to gain long-lasting customers.

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