Sometimes used interchangeably, ‘subscription management’ and ‘recurring billing’ are complementary, with each having a distinct meaning and purpose. Take the analogy of a bat and ball. Each are separate objects with different purposes, however when they come together they form the essential components of baseball. The same can be said for subscription management and recurring billing.
Let’s take a look at what subscription management and recurring billing are, and the differences between them.
- Subscription management: As defined by TechTarget, subscription management is the process of overseeing and controlling all aspects of products and services sold repeatedly through a weekly, monthly, quarterly or yearly subscription-based pricing model. Subscription management software is designed to ensure that the correct amount of money is charged to the right person, the accurate number of times a year.
- Recurring billing: As defined by Investopedia, recurring billing happens when a merchant automatically charges a customer for goods or services on a prearranged schedule. Recurring billing requires the merchant to get the customer’s information and permission. The vendor will then automatically make recurring charges to the customer’s account with no further permission needed.
Sounds strikingly similar, don’t they? Let’s dig a bit deeper by looking at the functionality of subscription management and recurring billing.
Subscription Management Uncovered
Simply put, subscription management consists of the interactions throughout the entire customer subscription lifecycle. It begins the moment the customer signs up until the subscription is cancelled, and includes everything in between. Essentially, subscription management reduces the amount of manual labor needed to keep accurate records of billing-related interactions between the business and the customer. This could include upgrading or downgrading products or services, calculating credits, tracking ad hoc changes, providing discounts or free trials, updating customer information, handling dunning management, and more.
As the name implies, recurring billing (aka automatic bill payment) is the automated process of generating an invoice, and includes the handling of proration and regional taxes. In addition, recurring billing involves storing payment information and tracking payments.
Tightly integrated, subscription management provides companies with the ability to streamline the entire customer management process, while recurring billing is a payment model that enables organizations to automatically deduct customer payments.
Let’s delve a bit deeper into subscription management and recurring billing by taking a look at:
- <li”>Key requirements of subscription billing
- Billing management systems
- Subscription billing business models
- The advantages and disadvantages of subscription billing
Key Requirements of Subscription Billing
Also referred to as recurring billing, subscription billing enables businesses to maintain a consistent cash flow, while fulfilling customer needs. Applicable for both B2C and B2B organizations, subscription billing consists of various pricing models. Most B2C businesses deploy one of the following subscription business models:
- Flat-rate: recurring pricing for a fixed set of features
- Tiered: recurring pricing for the purchase of multiple product packages or multiple units of an offer
Typically, B2B companies offer subscription memberships for marketing automation tools, cloud computing platforms, accounting software, creative design services, etc. In addition to the B2C pricing models referenced above, B2B organizations may also offer:
- Per-user recurring pricing that is based on the number of number of users and/or functionality used
- Per-unit pricing that is billed based on consumption
- Tiered pricing that refers to a step decrease (discount) in the cost of goods
To take full advantage of the benefits subscription billing offers, organizations need to:
- Offer customers choices on the products or services available within different subscription tiers
- Be able to invoice and bill customers based on agreed to schedules, and have the ability to accept digital payments
- Manage customers based on their preferences and history with products and services purchased
- Allow prospects and customers to serve themselves – browse features, input payment information, manage subscriptions, etc.
- Automate workflows, including invoicing, revenue recognition, and dunning
- Provide finance teams and executives with intelligence obtained from sophisticated reports
Billing Management Systems
With the numerous types of billing models – recurring, usage-based, dynamic, subscription, etc. at your disposal, a billing management system provides the automation you need to reduce manual effort and costly errors. The right billing management system should provide the flexibility to quickly change pricing structures and easily bill for complex accounts.
A billing management system enables you to automate invoicing for billing accuracy, group customers and automate billing schedules, handle subscription upgrades and downgrades, configure subscription billing models without IT involvement, and maintain compliance through seamless integration to external tax engines. In fact, the right subscription management system can boost your customer retention.
Subscription Billing Business Examples
While many organizations use subscription billing, it’s better suited for some business models and industries than others. Basically, if you provide regular access to a service, subscription billing works well. Let’s take a look at a few subscription billing use cases.
- Consumables and retail billing models: Replenishing consumable goods via subscription box services continues to grow. It’s no wonder why… Companies deliver invoices, collect revenue, automate dunning, and much more without manual effort – while building customer loyalty.
- As-a-service subscription billing models: Used by both B2B and B2C companies, businesses and consumers pay to access the online platforms and products they require. With any ‘as-a-service’ model, companies need a dynamic billing solution that is able to handle complex pricing scenarios.
- Digital entertainment industry: Subscription billing dominates video and music streaming. With a sophisticated, yet easy-to-use billing solution, entertainment companies manage millions of accounts, reduce revenue leakage and package personalized offerings.
- Maintenance and service price plans: Consumers and businesses alike choose subscription-based maintenance and service plans like landscaping, pest control, pool services, etc. Subscription billing is a win-win for both the business and the client, as it provides the consumer with peace of mind and the business with a predictable cash flow.
For businesses built on repeat utilization, platform access or recurring needs, subscription billing offers an efficient and profitable billing model. If you’re a SaaS company, the subscription business model can’t be beat when it comes to benefits.
The Advantages and Disadvantages of Subscription Billing
Let’s take a look at the advantages and disadvantages of subscription billing from the perspective of both the company and the customer. Key advantages of subscription billing for businesses include consistent cash flows, a higher rate of collections, improved customer retention, and the ability to bill automatically. Switching focus, let’s look at the advantages for the customer – predictable expenses, cost-effective access to services and products, and the convenience of automatic payment.
While there are many advantages, subscription billing also has a few disadvantages that you should keep in mind. On the business side, challenges may include complex customization of subscription packages, the possibility of customer overuse or early terminations. From the customer’s vantage point, disadvantages may include higher total cost, forgetting an active membership and the possibility of an inferior subscription pricing model.
The SaaS subscription-based business model comes with its own set of challenges, which if not attended to could result in financial decline. Recognizing what works for this business model is the first step in taking your company from merely surviving to financially thriving. This isn’t, however, accomplished by re-inventing the wheel but by incorporating proven best practices into your business processes.
Subscription Management Is Ongoing
It’s true, subscription-based pricing can add complexities to your billing processes. BillingPlatform provides a sophisticated yet flexible billing solution that provides you with the convenience, predictability and simplicity you need to take subscription billing to the next level.
Establishing a successful subscription business isn’t just about winning new customers. In fact, it’s the ongoing services and continuous relationship with your customers that’ll keep your company profitable. With BillingPlatform you can complement your subscription-based billing model with innovative metered and usage-based pricing for faster revenue growth, increased profitability and customer loyalty. Talk to a member of our team today and see how BillingPlatform can help your organization.
