The subscription model has blossomed in recent years, with more and more companies turning their products and services into a recurring revenue stream using subscription billing in place of pay-as-you-go structures. Ten years ago, Netflix mailed DVDs and The New York Times mailed physical copies of the newspapers. Today, this has changed. Businesses are utilizing the subscription model, from streaming music, fashion styling, groceries to dog toys. Should your business adopt this model? In this blog post, we break down the in-depth definition of subscription billing, as well as the pros and cons that come with it.
What is subscription billing?
Subscription billing is a billing process that utilizes recurring payments with an automatic system that collects payments from clients at a set cost and frequency. Customers are required to provide billing information and authorize automatic charges from the business. Unlike the traditional one-time purchase in pay-as-you-go system, subscription billing enforces an ongoing relationship between businesses and their customers. However, customers do have the option to cancel their subscription anytime.
Subscription billing provides businesses an almost guaranteed cash flow, which makes it easier to predict future income. Invoice can be issued annually, quarterly, monthly or even weekly depending on the type of product or service offered. Recurring payments often occur electronically, making billing cycles much easier to manage.
Subscription billing applies to both enterprises and individual customers. For examples, companies like HubSpot charge enterprises and small businesses monthly for CRM services, and streaming platforms like Spotify charges individual customers for access to its contents.
Pros of subscription billing
Simple payment process
The less work customers have to put in to pay for something, the more likely the sale would go through. No one wants to go out of their way to spend money on something, especially if the process is complicated and lengthy. With subscription billing, instead of having to go through the checkout process again and again, a quick and simple initial sign up will save users the hassles later.
More stable revenue outlook for business
Subscription billing offers businesses a stable outlook on revenue. Recurring purchases make it easier to predict income and manage inventory. The ability to forecast income allows businesses to scale, plan better and generate higher ROI.
Easy budgeting for customers
A transparent, clear view of expenses for subscription cycles help consumers budget. There’s no guessing game or unexpected charges.
Diverse offerings to meet customers where they are
By offering different subscription packages and payment plans, you can appeal to customers’ specific needs and work with different budgets, attracting various sectors of the demographic. Moreover, providing a variety of payment methods allow customers to pay how they prefer to.
Cons of subscription billing
Customers might be paying for what they don’t need
For those who utilize the product or service at its highest capacity, it is beneficial to enroll in a subscription. But for those who don’t take advantage of their subscription as much as they should, they might be paying for what they don’t need. For example, Hello Fresh, a meal prep kit service which ships out boxes including recipes and all the ingredients ready to cook, is a great option for someone who commits to cooking and eating home cooked meals every day. However, those who want to try new recipes but often have to eat out due to work schedules would be wasting money on uncooked groceries gone bad. For such cases, usage-based billing might be a better solution.
It is easy to cancel
As easy as it is to sign up, it is not hard to cancel, especially when there is no cancellation fee or other conditions. Although the hassle of switching products or services may prevent customers from ending their subscription, ultimately there is not much to stopping customers from leaving the business.
Congero Technology Group makes implementation easy with the expertise to guide your business through a seamless process of upgrading to subscription billing technology. Contact us here and get a free and personalized demo, only for your business.