What is Recurring Billing?

Recurring Billing

n. The process of ensuring subscriptions to your product or service are billed accurately and on time for each customer, accounting for global taxes, proration, payment failures, etc.

Recurring billing has been called the ‘new black’ in the digital economy and it’s probably no stranger to you. While you’ve definitely read the articles about why the world is catching the subscriptions bug, you still feel you can’t quite put your finger on a couple of things: what is recurring billing and how can it support your business?

Take a common problem: If you have a SaaS business or you’re planning to start one, one of the most important and frustrating things you’ll bump against is pricing strategy. But if your pricing is right and you provide value, your customer base is going to grow.

If at this point, you don’t use a recurring billing solution to support your pricing model, it’s like putting jet fuel in a steam engine. Your billing efforts can’t keep up with your growth and you’ll be adding complexity unwittingly, where you actually think you’re simplifying.

Recurring Billing is Your Jet Engine

A bill is generally a simple object which shows details like money owed, discounts, taxes and so on. But in a SaaS recurring revenue scenario, you’re dealing with much more:

  • Invoices that need to take into account:
  • Post-invoicing necessities:

The good news is, it can all be done without manual effort. Recurring billing software is great at automating complicated intelligence that doesn’t need a lot of human nudges. But when you run a subscription model, every transaction can make or break a long-term relationship. So when you do need a nudge from an actual customer service executive to extend a trial period or upgrade plans mid-cycle, subscription management comes into the picture.

This provides the much-needed leeway for the human intervention in automated recurring billing. As a result, the two systems are tightly interconnected to maintain consistent records and keep everything running like clockwork.

All SaaS companies are constantly navigating a common problem on different scales: outgrowing their existing infrastructure. If you are building your equivalent of Space X’s Falcon 9 or Falcon Heavy, you need your Merlin engines to take off.

Recurring Billing Works with Different Pricing Models

There are several different kinds of SaaS pricing strategies you may be using based on your business model. Most commonly, we see a few kinds of billing models in the recurring revenue space:

  • Usage-based billing: Charge customers based on their usage of your product or service. Here customers are billed post usage on a regular, pre-determined schedule.
  • User-based Billing: SaaS software that is typically employed by larger teams may use a user-based billing model, where recurring billing happens based on the number of ‘seats’ that are serviced.
  • Tiered Billing: Different products or services have different price points. When the customer chooses a different bundle of features or exceeds a particular volume of features, they need to upgrade to a higher pricing tier.

If you follow any of the above, a recurring billing system should be able to facilitate it and remove unnecessary complexity from your plate. As Jason Fried says, ‘Complexity is like a leak in your roof. It starts small. But over time, it does real damage. And once that damage has begun, it's hard to stop. Best not to let it in in the first place.’

Pro Tip

What’s a better billing cycle for SaaS subscriptions: monthly or annual?

Annual subscriptions improve your revenue, remove the need for monthly invoicing and basically puts more cash in the bank. However, monthly subscriptions are flexible and relatively risk-free, giving customers a low barrier to entry. In 2014, Price Intelligently created the ‘SaaS Pricing Page Blueprint’ which stated a fact: Only 1 in 5 of the 270 SaaS companies they studied offered both monthly and annual pricing. Whether you bill monthly, annually or provide both options should depend on which option gives your customers the highest value.

The Billing Intelligencer

A roundup of expert opinions, stories and insights around recurring billing:

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