Subscription Billing /
undefined

How to get it right

Subscription billing. Sounds like it should take care of itself, right? But it’s full of pitfalls, each with the potential to affect customer experience and trigger churn. How do you create subscription models that ensure customer loyalty, grow revenue, and earn you 5-starred reviews? Here’s a primer on subscription billing to help you get it right.

What are subscriptions and recurring billing?

Recurring billing or subscription billing is a payment model in which a business automatically charges a customer − on a prearranged schedule − for goods or services. The businesses must first receive an opt-in from the customer to charge their account, after which payments are automatically processed until the customer cancels their service. Services like this often charge on a monthly or annual schedule.

Examples of recurring billing include:

  • Cable bills
  • Cell phone bills
  • Gym membership fees
  • Magazine subscriptions
  • SaaS services like Slack, HubSpot, etc
What are the common billing mistakes?

Billing is a core component of your SaaS business, but it can also be cumbersome. Your customers expect convenience and flexibility, so you want to avoid the following subscription billing mistakes that could affect your customer experience:

  1. Building an in-house subscription billing system may seem like a no-brainer, but it can quickly take a downturn as your team may not have the knowledge or expertise required to manage the complications of a billing project.
  2. Choosing from an over-complicated pricing model, with too many pricing tiers, will confuse your customers. If you keep updating your pricing structure multiple times, it may be a cause for customer churn. Offer your customers a pricing model that makes it easier for them to choose their plan.
  3. While your customers expect a recurring charge every period, it doesn't mean you shouldn't notify them before processing the charges, especially in case of contract renewals at a higher rate. This will leave a bad impression on your customers and even lead to churn.
  4. Not providing an itemized list of invoiced charges will dissatisfy your customers, especially if complicated usage charges are involved. If the customers are confused, they will reach out to customer care for an explanation. This will waste time and resources that could have easily been avoided by just providing a breakdown in the invoice.
  5. Not having an automated dunning strategy in place that retries failed payments is a huge mistake and could be causing you to lose recurring revenue. Many customers churn without even realizing it happened as their credit cards may have expired or important information may have changed. If you do not have an automated system that catches these issues, updates the customer information, and notifies them on time, it will cost you greatly.
  6. Although not desirable, customer churn is a normal aspect of every business. Do not make the cancellation process difficult for them, as it will only leave a bad impression. You need to make the cancellation process easy for your customer, while also extracting information about their cancellation, and perhaps offering them a downgrade or pause.
  7. Not setting up proper reporting and analytics is a mistake you cannot afford to make. SaaS subscription billing metrics provide you with actionable insights that help to make informed decisions that grow your business. It’s important to track customer usage data to understand their behavior and make meaningful predictions, or else you may be leaving money on the table.
How do you stop subscriber churn?

Churn occurs when customers end a subscription plan, discontinue the use of a product and cease being a customer. Every subscription business is fighting against churn. They may go out of their way to eliminate it, but despite all the efforts they put into keeping loyal customers, churn does happen. So how do you minimize your customer churn?

  1. Create a seamless onboarding process by providing clear instructions and all the tools your customers need to use your product. If your customers can easily and skillfully use your product, it will increase the chances that they continue paying for the subscriptions.
  2. Talk to your customers about how they use your product, and share helpful guides. That way, you can find out what your customers need, and help them get the most out of your product.
  3. Create and automate a cancellation flow to help combat customer churn. Offer your customers an incentive to remain with you like a discount or offer to pause their subscriptions.
  4. Create win-back campaigns by sharing tailored offers that will resonate with customer pain points and remind them of the value you provide.
How do you optimize for customer experience?

Good customer experience is critical for any business's success. If your customers are satisfied, they will be more likely to re-purchase your products, recommend your company to their friends, and keep on spending money with you. Research showed that 86% of customers are willing to pay more for better customer service.

Subscription billing is a powerful tool to drive customer loyalty and retention. We'll explore how you can use this as a growth strategy for your business.

  1. The most important thing you can do to alleviate customer experience is automating your subscription billing platform. Errors and inconsistencies arising from manual billing are the major cause of customer dissatisfaction.
  2. One of the biggest concerns for customers who shop online is protecting their personal information. You can mitigate this risk by complying with Payment Card Industry Data Security Standard (PCI DSS) regulations and ensuring your customers don't experience any issues.
  3. Your customers prefer to pay with the payment methods that they're most familiar with and they expect businesses to accept a variety of payment types. To remain competitive and make it easier for them to pay you, you should accept their preferred payment methods. This will enhance their experience and help you capitalize on the local markets.
  4. When you offer recurring billing services, like subscriptions, it's important to make the collection process as smooth as possible for your customers. You can do this by ensuring that invoices are sent out at convenient times when your customers have sufficient funds. Align their billing schedule with their pay dates.
  5. Provide a clear invoice so that your customers can easily determine what they are being charged for and how often they'll be billed. Provide all relevant information regarding their invoices to avoid any confusion.
Monthly vs Annual Subscriptions, which is the right choice?

The two most common billing frequencies are monthly subscriptions and annual subscriptions. Billing has a huge impact on the revenue stream, so it is important to make the right choice for your business.

A monthly subscription is one where the customer pays their bills every month. This billing method is preferred by startups as it presents minimal barriers to entry for customers. Monthly subscriptions also have shorter sales cycles and higher revenues. This is because there's a constant income stream. And this makes for stronger customer relationships as customers are continuously engaged. But since customers are not bound to any contract, they can leave the service whenever they want. This makes it difficult for you to forecast revenues, as well as track customer lifetime value.

On the other hand, in the case of annual subscription customers are billed through a one-time annual payment. It is preferred by enterprise businesses as it means more revenue stability. This model has several benefits such as a longer customer lifetime value and reduced customer churn. Companies that use annual subscription billing have found that they can provide a higher quality of service, retain higher customer satisfaction rates, and attract a better-paying demographic. It is also easier to predict revenue with this model But it poses a higher barrier of entry due to the high upfront payment requirement, and also runs the risk of weaker customer relationships as you do not regularly interact with the customer.

Both billing models have their benefits and drawbacks, so to determine which billing frequency is best for your service consider the one that best suits your service offering and customer base.

What are the different types of subscriptions?

The subscription model is great for both large and small businesses. They work well across a wide variety of industries, so the subscription business model has become quite prevalent. Let’s take a look at the different types of subscriptions:

Software as a Service (SaaS)
Subscriptions have become very popular in the SaaS industry as they help generate a constant stream of recurring revenue. SaaS companies like Salesforce, Mailchimp, Dropbox, and HubSpot provide a solution to a business problem by making the process of addressing that problem smoother and more efficient. The subscription business model is very profitable for SaaS because it reduces entry barriers by offering the product at a lower price thereby widening the customer base. It is easier for SaaS businesses on the subscription model to scale because they have a consistent flow of income.

Subscription Boxes
Recent years have seen the rise of the subscription box-style service among businesses from different industries ranging from makeup, tea, meal kits, apparel, etc. It’s a win-win for both customers and businesses: customers get a neat product delivered to their doorstep each month and businesses get to generate recurring revenue by being able to consistently sell their products. This model reduces customer churn for business and increases profitability.

Access Model
The access model has been popularized by media giants like Netflix that provide access to premium content or products for a subscription fee. Other popular examples include Spotify, Amazon Prime, Disney+, etc. This model helps businesses generate a consistent revenue stream by offering valuable content, and scale their business. By focusing on delivering value over the long term, these companies reduce churn by nurturing a community of loyal customers.

This model is also used by publications that offer membership subscriptions to grow their revenue and increase their membership base. News sites like The Atlantic, New York Times, and Reuters have used this model by putting up a digital paywall on online news to get their readers to pay for their content. This has helped grow their revenue, with 73% of NYT's revenue being generated from subscriptions.

If you offer it,
you can bill for it.

No matter what you sell, LogiSense can help you measure it and bill it.

Usage, Consumption, and Mediation

LogiSense's industry-leading usage and rating engine lets you automate consumption-based billing with ease. Any type of pricing, any way you want it.
Learn more

Integrations and Extensibility

LogiSense's system supports the quote-to-cash flow within existing infrastructure, adding event driven monetization cability to your existing investments.
Learn more

Subscriptions and Recurring Billing

LogiSense's rating and mediation capabilities adapt to any business scenario or industry, so you can stay competitive as you grow.
Learn more

Accuracy, Security, and Privacy

Data security is our top priority. LogiSense keeps your data safe and up to date, with our enterprise security and compliance policies.
Learn more

Billing Academy

Billing Platforms
Billing platforms have myriad features and capabilities. Find out how to choose the one that’s right for you.
Billing Best Practices
Best practices for your business to run efficiently.
Usage-Based Pricing/Billing
Providing usage-based pricing options gives your customers the power of choice.

RESOURCESSee All

Billing Academy: Billing Platforms 101

Learn everything that you need to know about billing platforms and how to find the right one for your business.
Learn More

Overcoming Subscription Fatigue

Customer churn remains one of the largest threats to service providers. Overcome the struggle to instill customer loyalty.
Download PDF

Cisco Replaces Zuora with LogiSense

Guess who Cisco turned to when it went looking for greater autonomy and better automation?
Read Case Study