Last editedDec 20212 min read
In Australia, 78% of adults use at least one subscription service. This is up 11 percentage points from 2018, indicating the rapid growth of the recurring subscription market. Could recurring billing be useful for your business? It depends on your services, products, and pricing strategy. We’ll discuss the definition of recurring billing below along with its top uses, advantages, and challenges.
Recurring billing explained
This payment model enables businesses to charge customers for products and services at predetermined intervals. Payments are usually taken weekly, monthly, or annually, but you can also set up recurring payments at custom or irregular intervals. The definition of recurring billing is often used alongside subscription services, allowing businesses to automatically deduct payment from the customer’s account to access a subscription. Yet this pricing model can be used to pay for any service provided on a regular, recurring basis.
Here are a few examples of when to use recurring billing:
Magazine and newspaper subscriptions
SaaS applications like Dropbox or Salesforce
Telecom services with metered billing
Subscription boxes like Birchbox
Streaming entertainment like Netflix
All these types of services utilise a recurring billing model. Once the customer has subscribed to your service or product, you can set up recurring billing via a secure payment gateway. This takes payments automatically at the agreed-upon interval.
What is a recurring subscription model?
You might see the terms ‘recurring billing’ and ‘subscription billing’ used interchangeably. What is a recurring subscription, and is there any difference between the two billing types? There’s very little difference between the terms. Both recurring and subscription billing store payment information to set up automatic payments at regular intervals.
Subscription billing often involves multiple pricing tiers or plans. Subscribers can choose from different levels of services, switching to a higher or lower-value plan as needed. By contrast, recurring billing simply refers to the billing mechanism. No matter the plan value, the payment is taken at recurring intervals. And although recurring billing is usually applied to subscription services, it can be used by any type of business. For example, you could sign up for automatic renewal of your insurance policy and set up recurring billing. You haven’t subscribed to an insurance plan, but you’re using recurring billing.
What are the types of recurring billing?
There are two types of pricing models that apply to recurring billing:
Fixed recurring billing
The same, fixed payment is taken from the customer each billing cycle. This model works for services provided at a fixed price, like a monthly Netflix or gym membership. Benefits for businesses include a stable, predictable revenue.
Variable recurring billing
When the payment amount goes up and down each billing cycle, this is an example of variable recurring billing. Examples include metered billing for utilities or data plans. It also applies to volume-based services like cloud storage.
In addition to fixed vs variable billing, there’s also the question of the billing cycle. Annual subscriptions lock in customers for a longer term, while recurring monthly payments offer added flexibility.
Pros and cons of recurring billing
Could recurring billing be right for you? Here are a few pros and cons to consider.
Predictable cash flow and revenue
Convenient automated invoicing and billing
Smoother payment process for customers
Revenue expansion via upselling to a higher tiered pricing plan
Potential for high customer churn rate
Complexity of system when handling payments manually
How to take recurring payments
The challenge with recurring monthly payments is ensuring both that payments are secure, and that all payment methods are valid. You can solve both of these problems with an automated payment solution. GoCardless offers an easy way to take recurring payments automatically on their due dates, without any monthly fees. Instead, you only pay a fee per transaction. It also easily integrates with subscription billing and accounting partners like Xero, Zoho, Chargebee, Chargify, and more. All you need to do is choose the right billing frequency or cycle to set it and forget it.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.