What are recurring payments and subscription billing?
In the ever-evolving landscape of digital commerce, recurring payments and subscription billing are reshaping the way businesses and consumers interact. In fact, the global subscription ecommerce market is forecasted to grow to $2,419.69 billion by 2028.
Subscriptions follow a business model in which customers and merchants engage in an ongoing relationship rather than one-time payments–and it has become a win-win for both parties. While companies get a steady stream of revenue and stronger brand loyalty, subscribers enjoy the convenience of frictionless billing for ongoing products or services that bring them value.
In this article, we’ll dive deeper into the definition of recurring payments and subscription billing, its advantages for customers and companies, and how to implement this business model.Â
Recurring payments definition
Recurring payments are automatic transactions at regular intervals–typically monthly or annually. This model is commonly associated with subscription-based services, where customers enter their billing information once and grant the merchant permission to charge them at an agreed-upon payment schedule.
The convenience of recurring payments lies in their automated nature, reducing the need for manual transactions and providing a predictable revenue stream for businesses while offering customers continuous access to the services they've subscribed to.
Subscription billing definition
Subscription billing is the automatic, regular billing process that occurs after a customer signs up to use a service. The owed amount is automatically transferred from their account to the business rather than being periodically hounded for payment.
Subscription billing and recurring payments exist hand-in-hand. When customers sign up for a service–like a gym membership, a box of the month, or a video streaming service–they agree to provide regular payments for uninterrupted access to a service. The client is issued a receipt and can cancel at any time.
How can customers benefit from recurring payments & billing?
The subscription business model has many benefits for customers. Let’s review the top five:
Subscriptions help with cost savings and budgeting
Subscription services contribute to predictable expenditure and cost savings for one-time payments, especially for products and services they regularly use–like a gym membership or a monthly coffee subscription. By paying a fixed amount each billing cycle, customers can budget more effectively, knowing the exact amount they will be charged.
Subscribers get seamless access to products
Subscriptions provide customers with continuous access to the products or services they've subscribed to–like a streaming service or an online magazine. This eliminates the need for repeated manual transactions, ensuring uninterrupted usage and convenience.
Customers receive exclusive content and regular updates
Depending on the subscription product, some offerings provide exclusive content, features, or early access to new releases for their subscribers.
Companies that work under a recurring payment model are motivated to enhance their offerings continually, providing customers with a more valuable and up-to-date experience. This added value builds customer loyalty and gives subscribers a sense of being part of an exclusive community.
Subscriptions offer flexibility and customization
Many subscription models offer flexible plans, allowing customers to choose the type of service that best fits their needs. This flexibility enables customers to customize their subscriptions, adjusting features or plans as their requirements change over time.
This flexibility, however, can be found from trial to cancel. Subscription billing often comes with free trials or introductory periods that let customers test a product before committing to a long-term subscription. Once subscribed, consumers can pause or cancel their service at any time without incurring significant penalties.
Consumers find convenience in recurring payments
The automatic renewal feature ensures that customers do not experience service interruptions due to forgetting to renew their subscriptions manually. This convenience is particularly valuable for services that customers rely on regularly.
How can your business benefit from subscription payments & billing?
The recurring payments business model has many benefits for companies. Let’s review the top five:
Improve your subscriber retention & brand loyalty
Sustainable business owners can recognize the difference between making a sale and building ongoing relationships with customers. What’s the difference? Customer retention.
Subscription billing fosters customer loyalty. This model encourages long-term relationships with customers, reducing the need to constantly acquire new customers and thereby lowering customer acquisition costs. Customers only enter their billing information once, and automatic payments take it from there.Â
Consumers benefit from a seamless and uninterrupted experience, enjoying access to the products or services they've subscribed to. This convenience can lead to increased customer satisfaction and positive word-of-mouth referrals.
Offer an enhanced & flexible customer experience
Subscription billing models are adaptable, allowing you to adjust subscription plans, pricing, and features. Offering various payment plans allows you to appeal to your customers’ specific needs without forcing them to pay for bells and whistles they’re not interested in.
Additionally, providing different payment methods–not just debit card and credit card payments–meets your customers where and how they prefer to pay. According to our survey report, State of Subscriptions: What consumers want, PayPal (45%), digital wallets (18%), and in-app payments (16%) continue to gain popularity in online payments.
Provide diversified and personalized offerings
Subscription models and recurring payments generate valuable data on customer behavior, preferences, and usage patterns. These insights can later be leveraged to personalize your offerings, improve product or service quality, and tailor marketing strategies to meet the specific needs of your subscriber base.
Recommended reading: Five subscription business stories where customer insights played a key role in success
Get a more accurate budgeting outlook
A clean-cut view of monthly or annual expenses helps your customers budget. There are no unexpected charges or service costs. And while that helps them, it also helps the businesses they pay.Â
Guaranteed income goes a long way, and not just because subscribers become more valuable the longer they use the service. Subscription billing offers businesses a stable outlook on revenue. The ability to forecast allows businesses to scale. Plus, the foresight that comes with subscription billing can mean better planning, less product waste, and higher ROI.Â
Enable faster product development and scalability
Subscription billing models are adaptable, allowing businesses to adjust subscription plans, pricing, and features based on customer feedback, market demands, and evolving business strategies.Â
With the guaranteed revenue a subscription model brings, businesses are able to provide a more regular stream of improvements to their products and services. For example, services like Paramount+ continually release new content, while companies like Apple that get consumers to sign up for a subscription (such as iCloud storage or the AppleOne membership program) offer consumers a better product every year.
Additionally, subscription billing provides businesses with a consistent and predictable income, as they can anticipate and plan for regular payments from subscribers. This stability is particularly valuable for budgeting, forecasting, and overall financial planning.
If you’re wondering if recurring payments and subscription billing are right for your business, consider this: How often do you think of your business as a one-off sale? Hopefully never.
How Recurly makes subscription billing implementation easy
While a lackluster payment system might not be driving customers away from your unique business offerings, a great payment system is an added incentive and can help drive customer retention.
Recurly’s subscription management and billing technology keep customers and businesses connected. At the same time, it allows companies to offer seamless subscriptions to spend more time delivering valuable products and services and less time managing a broken payment system.
While the payment process is quick and simplistic from the customer’s viewpoint, there are a few behind-the-scenes steps involved on the other end:
During checkout, your customer chooses their preferred billing cycle and payment option. Then, enter their payment and billing information.
Your company receives the order information and uses a service like Recurly to manage subscription billing and connect with the right payment provider.
Recurly handles the payment from there. We store the payment details securely and connect the request to the gateway, payment service provider, card association, and financial institution–this process takes only seconds.
Once the payment is approved, the customer is billed and issued regular statements each cycle.
Regardless of how awesome your service may be, no one wants to give up their hard-earned cash. So, why make payment processing harder than they need to be?
See how Recurly’s recurring payments and subscription billing solutions have helped businesses like yours show customers they’re in it for the long run.Â
