Many businesses are looking for ways to increase their profits through driving recurring income. Besides improving product quality, enhancing value of offerings and boosting customer relationships, it is important to choose a suitable billing model depending on the company’s needs.
There is no one-size-fits-all billing model. Here are three main types of pricing models that companies can consider when it comes to recurring revenue.
Subscription billing has seen rapid growth in recent years across industries. The simplest form of subscription is one you have seen in everyday life, whether it is a music streaming service or a gym membership. In this basic subscription model, customers pay a fixed amount of money for a product or service. The transaction is repeated over a predetermined frequency – typically monthly, quarterly, or annually.
An example of this could be Apple Music or Spotify. You pay $9.99 every month ($5 if you’re a student) to use their music streaming service. As long as you are in the subscription, whether you have 10,000 streams or 0 streams, you get charged the same price monthly.
The basic subscription model is less complicated than other models. Customers find it easier to budget with a straightforward payment process. However, as simple as it may sound, having a successful subscription business and a stable recurring revenue stream requires more than collecting money and sending customers the same invoice every time. As easy as it is to sign up, customers can cancel any time, especially when there is no cancellation fees or long-term commitment. Managing a subscription business comes with managing free trial periods, membership discounts, various renewal times and more. Invoicing, processing transaction and revenue reporting accurately and timely can be as simple as it should with the right billing platform. Learn more to find out whether this is the right billing model for you and how you can successfully implement it with our industry experts.
In many cases, the basic subscription model does not have the flexibility that today’s customers need with endless variation of usage and consumption. Usage-based and Consumption-based billing refer to a pricing model in which product/service price is based completely on captured usage/consumption. These methods provide additional flexibility, transparency and cost-efficiency for end consumers. They also enhance ongoing loyalty as customers can see exactly how much they use/consume and how much they pay for it. A good example of usage-based billing is a pay-as-you-go old school phone plan (before unlimited data and bundle plans were a thing). Texts and calls are 25 cents each. At the end of the month, you pay the amount based on how many texts or calls you have made that month.
These methods provide additional flexibility, transparency and cost-efficiency for end consumers. They also enhance ongoing loyalty as customers can see exactly how much they use/consume and how much they pay for it. Businesses can also benefit from usage-based and consumption-based billing with the valuable insights into customer behavior, obtaining information on what, when and how customers buy. Using such information helps with the research and development on high-value bundles or new products/services. Besides, while it is easier to predict fixed-price subscriptions, the revenue remains stagnant for each customer. A usage-based model removes that limit and promotes room for growth as usage increases.
Both subscription and usage-based models are powerful, but they can be even more powerful combined. Businesses can use this model to offer general, basic, and limited features/products at a recurring fixed price and include new customized add-ons for a usage-based price. For example, the business offers a specific amount of usage for a specific subscription rate. Think of HelloFresh, a meal kit delivery subscription. You can choose to have 3,4 or 5 meals sent to you weekly, all for different subscription rates. In this way, customers can choose from multiple options exactly what they use the most and what they pay for instead of overpaying for what they don’t need.
At Congero Technology Group, we help businesses choose and implement the most suitable billing model that most align with their goals and objectives. We invite you to take a virtual tour of our platform and reach out to us to receive help from our experts.