Recurring Billing Vs Subscription Billing: Which One is Right for Your Business?

Unable to choose between subscription billing and recurring billing?

Getting confused with the related concepts of subscription and recurring billing while deciding on your pricing strategy?

Not surprising. Many businesses having multi-period billing and payment structures are facing the same concern.

Is a subscription a recurring payment?

This question is buzzing around the market among businesses like food and catering, SaaS providers, and fitness providers.

While subscription based model and repeating billing are terms used interchangeably, both have distinct differences in their model that you as a business need to know.

This blog will cover everything related to subscription billing vs recurring billing to help you make an informed decision.

Here are the things you will learn from this blog:

• What are recurring billing and subscription billing? (with examples)
• Mapping the differences between recurring payments and subscription
• Which is the best payment structure for your business?

So, are you ready? Let’s start right away.

What is Subscription Billing? (+2 Examples)

Subscription billing is an automated payment collection system that starts after the customer signs up to access or use a product/service.

The key information areas of subscription systems include the following:

• Subscription Start Date (the date of the first subscription billing)
• Duration or Frequency (how often payments happen or the length of the billing cycle such as 1 month, 3 months, and 12 months)
• Amount to be Charged (the charges for the service/product/feature based on the billing cycle)

Subscription billing is a type of recurring payment model that offers flexible pricing and billing options. In this billing system and payment method, the different offerings of the business are divided into several flexible programs or plans providing custom pricing models to customers. This helps businesses earn more customers and create long relationships.

The plans and programs include free trials, easy upgrades and downgrades of the subscription plan, and more affordable payment solutions.

Now, let’s understand the concept of recurring billing.

What is Recurring Billing? (+ Example)

A recurring billing model refers to scheduled, periodic, and repeated automated collection of payments from customers for subscription services or products. With this model in place, you collect payments and keep charging customers credit/debit cards at regular intervals for the agreed-upon cost with the help of a payment processor. There are several issues faced in recurring billing but they can be easily managed with an efficient processor or software like Square and FacilePay.

The recurring payment system follows a model that involves customers and merchants engaging in an ongoing relationship. This model does not involve the flexibility like easy cancellations and custom feature plans.

For example:

Customers don’t sign up for the recurring fee paid for utility bills including electricity and water The fee paid for utility services are a part of customers’ daily lifecycle and recurring payments make it feasible for them to manage those transactions monthly or quarterly. Recurring payment truthfully and promptly bills each customer, taking into account the taxes, proration, and missed payments.

The two types of recurring billing systems include the following:

• Fixed Recurring Billing: In this model, a fixed amount is always debited from customers’ bank accounts on every scheduled date for the used products/services.
• Variable Recurring Billing: In this model, the amount to be charged will be usage-based and so vary with each billing cycle.

The majority of subscription businesses fall under the recurring billing system, namely, Dropbox (saas industry), Practo (health & fitness sector), and Udemy (education and e-learning industry).

You may have till now noted several similarities between the two structures and figured out the differences meanwhile.

No more guessing. The below section on subscription billing vs recurring billing will give you a clear idea of the differences. Let’s dive in right away.

Subscription Billing Vs Recurring Billing: Mapping the 3 Differences Based on Multiple Pricing Plans

Subscription Billing Vs Recurring Billing: 3 Core Differences Based on the Billing Approach

Both subscription billing and recurring billing can be seen crossing each other’s path at various levels. The above definitions, business examples, and pricing structures are a clear walk through to understand their points of intersection. These intersection points often create confusion for businesses when deciding on their pricing strategy. To clear the air, let’s have a precise look into their differences.

• Signing-up for the Feature Usage: In recurring billing, customers don’t necessarily need to sign up for the services like in case of electricity and water. On the other hand, subscription billing requires the customer to sign up for a particular pricing structure for a set of features.
• Flexibility in Billing Process: Subscription billing offers the flexibility to upgrade, downgrade, and even cancel the paid membership plans anytime. On the other hand, recurring billing doesn’t offer much flexibility and is often referred to as payment structure with no deadline or end date like for health insurance plans.
• Approach to Recurring Revenue: Subscription billing model is a structure that aims to penetrate the market with a strategic payment structure. On the other hand, the recurring billing model tries to streamline the revenue cycle and brings convenience and cost-effectiveness.

You can see while both are interlinked, they have distinct qualities making them different in terms of features. Let’s understand in which scenarios you can choose subscription billing.

When to Choose Subscription Billing?

You can choose subscription billing for the product or streaming services of your business, if you want to:

• Penetrate the market with a unique preposition that helps to overcome the prevailing high prices
• Enhance the convenience for customers in terms of the process to make payments as well as a flexible approach with pricing and transaction module
• Strategically boost your scope of revenue by the use of pricing and payments structure such as free trial subscription packages

Therefore, subscription billing works best for businesses that have a product/service with a customizable pricing structure to penetrate the market, boost revenue and profit, and ultimately grow. Since you know about automatic billing, let’s understand when you can choose recurring automated payments for your business.

When to Choose Recurring Billing?

You can choose recurring billing for the product or service of your business, if you want to:

• Streamline the revenue cycle of your business with a predictable and steady cash flow
• Better manage billing and payment cycles
• Create a plan-to-action for churns through efficient monitoring
• Improve the overall process with control over errors
• Cut down on transaction costs

In simple terms, recurring billing is the best choice for businesses that want a more managed billing and payments structure to enhance the accounts-related processes. Configuring recurring payments on Squarespace or WordPress is very easy. You don’t have to spend a lot of time to get started with this payment structure.

Which is the Best Between Subscription and Recurring Billing?

The answer lies in your business model, your existing customers, and what you wanted to achieve with your pricing strategy. There can’t be a one-size-fit-all pricing structure for every business.

When weighing up your options, evaluate your customer expectations, your products/services lifespan such as whether it lasts a month, a year, or forever, and your revenue as well as growth expectation.

Let’s now have some common queries answered on recurring and subscription based billing solution from below.

Ready to Get Started with Different Billing Systems?

In this blog, you have learned about the differences of recurring and subscription billing with a closer look into the ways both the modules intersect at certain points. There are benefits associated with both the models. As a business, it depends on your objectives and how you plan your pricing strategy.

Whether the recurring billing process or the subscription billing system, FacilePay can help you with both the pricing structures. Consider using it to leverage the maximum from these pricing modules.