Recurring or subscription billing gives you a popular and compelling way to upgrade the choices and quality of service that you offer to your valued customers. It allows you to accept card on file payments in predetermined amounts for set durations of time, providing both you and your clients with a wide array of advantages. If you plan to set up subscription billing, you must understand the process and the various pricing models you can choose from.

Why you should embrace recurring billing.

As a business owner, bringing cash into your operation is, by necessity, one of your most overarching priorities. Many companies find that they spend an inordinate amount of time and resources chasing delinquent payments. That is not only stressful and inefficient; it also can damage the rapport you work so hard to build with your customers.

By definition, subscription billing takes much of the guesswork out of the payments process. Because you have agreed on all the terms in advance, both your accountants and your customers know exactly what to expect and when. In short, all parties win when payments are streamlined in this way.

That being said, not all recurring billing programs are alike. There are several structures available to you and your clients. The one you choose will depend on your budget, the products you sell, and your customer market.

Fixed pricing model.

As the name implies, this structure allows users to pay a single price that covers all features of your product suite. What your customer pays will remain exactly the same from one billing cycle to the next while they should be able to count on receiving the same features or services every time.

For example, you offer a project management tool that customers can use for an unlimited number of jobs during the month for one set price of $125. Neither the available options nor the fees customers pay vary at all. The result is a one-size-fits-all product that is easy to explain and understand, has a predictable billing process that makes accounting smoother, and frees you up to focus on the numerous aspects of running your business.

Tiered pricing model.

As the name implies, this is not a cookie-cutter option. Instead, it offers several different product packages, features, and price points. Generally, sellers tend to categorize the tiers as basic, standard, and premium. When you opt for this structure, you have a great deal of leeway when it comes to customizing your offerings to fit the needs and limitations of your various target markets.

In particular, Software as a Service (SaaS) companies find this model to be especially relevant. This is because it offers flexibility that is scalable according to customers’ scope and financial situation. Additionally, you can cater to a wide range of buyers because of this flexibility. Because this model is so malleable, you will be able to retain clients for longer because it can be adapted to fit their changing needs.

Usage-based model.

Think of this pricing model as having a pay-as-you-go structure. As such, the pricing each customer sees will vary significantly. In most cases, businesses will set a base rate the user cannot go below, with the cost increasing as usage goes up.

Cellphone providers almost always employ this pricing structure. Consumers pay a specific rate for their basic charges but will often pay a good deal more if they go above their data usage ceiling. Customers tend to find this flexible model preferable, especially because it offers low upfront costs for minimal usage. However, it can be difficult for businesses to administer because they need to have the resources to accurately keep track of usage.

Per-added model.

This pricing structure focuses on the functionality of the product or service you offer to your customers. A buyer can pay for the bare bones base model that has limited capabilities, or shell out extra money to take advantage of a richer set of features or services.

An example of an organization that would benefit from this model would be a construction, engineering, and architecture software company that offers computer-aided design and building information modeling capabilities. As supplements to the base level offered, customers can opt to pay extra for software offerings that allow them to make maximum use of their individual roles in the company such as mechanical engineer, architect, and so forth. 

The flexibility that this model affords is good for both customers and merchants alike. It can be added to or subtracted from in accordance with buyers’ changing needs and provides a strong incentive to upgrade. At the same time, the company can shift staff and other assets to fit the evolving needs of its customer base, provided that they have ample resources to allow for this flexibility.

Per-user model.

In this type of subscription plan, you charge depending on how many “seats” are needed. The more users the customer wants to register with you, the more they will pay. Many businesses are refining this structure so that the customer is only charged for the active users on staff who actually employ your product.

The per-user structure is especially beneficial for businesses that sell products such as collaboration software that are relied upon by teams of employees. It can be a profitable model to employ as long as everyone who uses it must log in using their own credentials. If this is the case, this is a model that users readily understand and that provides predictable revenue generation.

The recurring billing sector has gained a great deal of popularity in recent years. That’s because it provides predictability and scalability to both merchants and their customers. When you set up subscription billing with the pricing structure that’s right for you, the result is more control over cash flow, satisfied customers, and even greater profits. So what are you waiting for?