Getting Started with Recurring Payments & Subscription Billing

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Getting Started with Recurring Payments & Subscription Billing

Written by: April Grudier

Subscription services haven’t just survived over the past couple of years, they’ve thrived with impressive growth. Our partner Zuora’s Subscription Economy Index (SEI) showcases how both B2B and B2C subscription services ­experienced sustained growth through the end of 2021.

That’s for good reason, as a 2020 McKinsey survey shows that the number of respondents who paid for a subscription service increased from 50% in 2018 to 59% during the pandemic. So, if you’re thinking of offering recurring billing and subscription billing options, then now is the right time to act.

Offering a best-in-class service requires the integration of subscription and recurring billing services into your payment platform in a way that’s as easy for you to set up as it is for your customers to use. Get started by understanding the best practices for offering and accepting payments for subscriptions to keep your customers engaged and your revenue growing.

What Are Recurring Payments?

How Recurring Billing Benefits Businesses and Customers

Subscription Billing Models in Use Today

Recurring Billing Challenges

How Does a Subscription Payment Service Work?

What Does Subscription Billing Really Do?

8 Key Requirements for a Subscription Billing Platform

Subscription Billing Platform vs. Payment Gateway

Getting Started with Subscription Billing

How BlueSnap Supports Subscription Billing Services

What Are Recurring Payments?

Recurring billing and subscription billing are terms for a payment model where a business automatically charges a customer for products or services on a regular billing schedule.

Recurring payments are when customers enter their billing information once and grant the business permission to charge them at an agreed-upon cost and frequency.

Subscription services charge recurring payments on a monthly or annual schedule, until the customer withdraws permission or cancels their subscription.

How Recurring Billing Benefits Businesses and Customers

Steady revenue for businesses and convenience for customers are arguably the two biggest benefits of subscription services, but there is additional value that’s accounting for its steady growth across all industries.

Benefits for Businesses

  • Predictable Revenue: Subscriptions offer a more predictable monthly revenue stream that you can build upon to drive faster growth.
  • Forward Visibility on Inventory: Adding a recurring subscription option can help prevent you from over- or under-stocking products.
  • Fewer Returns: Customers are less apt to return goods when they have chosen to subscribe.
  • Increased Customer Value: By maximizing your customers’ lifetime value, businesses can also minimize the cost of customer acquisition, and this typically means more profits down the line.

Benefits for Customers

  • Convenience: Goods or services are automatically delivered on a monthly basis. There’s no need to remember to place an order and no need to go out to pick up the items.
  • Flexibility: Customers have the ability to adjust subscription preferences, timing, product selections, etc., to meet their needs, all done from their own computer or mobile device.
  • Novelty: Curated box-type subscription models can delight customers by tailoring a sample of products to their tastes that they might never have found or tried on their own.
  • Cost Savings: Customers may be able to take advantage of discounts for signing up and ordering products on a recurring basis. As the business, you may be able to take a loss in the first month to entice your customers to subscribe. Even if you only charge a small amount the first month, you’ll make it back with their future subscription.

Subscription Billing Models in Use Today

If you’re uncertain of what subscription options to offer your customers, consider any one of these popular models – or even a combination to provide them with options.

  • Freemium to Subscription: In this model, companies offer free access to a limited set of features. Customers can use these features indefinitely at no charge, and if they want to upgrade for more, they can do so at any time. Businesses use the freemium model to prove the value of their service or platform to a large base of potential customers. Users can explore features and capabilities risk-free until they are ready for a paid membership.
  • Limited Promotion to Subscription: Many companies allow users to test their services for free for a limited time before they automatically roll over into a paid subscription. Like the freemium strategy, the promotion-to-subscription model is a “try-before-you-buy” approach that enables businesses to prove their value to customers before they must pay. Customers will need to pay if they wish to continue using the service beyond the limited time.
  • Overage Subscriptions or Hybrid Pricing: The overage variation of the subscription billing model means that companies charge a consistent base fee for limited feature access. Customers incur extra charges for using more than is allocated at the base fee price. Overage models are valuable for companies with business models that would otherwise favor light users, as it enables them to capture additional revenue for heavy users that cost more to support. This model typically requires advanced billing capabilities, such as the ability to calculate the amount of usage over the set access. This is not a standard feature of traditional subscription billing providers.
  • Pay-As-You-Go Subscriptions: Those with advanced billing capabilities can also deploy pay-as-you-go subscription pricing. Under this arrangement, customers expect to be charged regularly, but the specific amount they pay depends on how much they use the service or product. Pay-as-you-go subscription models are also called usage, or consumption-based, pricing models.

Recurring Billing Challenges

If offering subscription services were simple or risk-free, then everyone could easily provide their customers with an attractive subscription model. However, subscriptions and recurring billing have inherent challenges and risks for both the business and the customers.

  • Subscription services and recurring payments have an added layer of added complexity for merchants. Getting the process wrong can result in costly errors that may rob you of revenue or upset customers.
  • There is also a risk of billing errors for customers, and it can be difficult for them to correct billing problems. They may not even notice problems with the amount they’re paying for quite a while, at which point they’ll be more than a little upset.
  • Just like regular payments, when dealing with international sales, taxes and currency exchanges must be taken into consideration, which can and will change over time. If your subscription service isn’t set up to handle these fluctuations, then you’re going to have major problems down the road.

How Does a Subscription Payment Service Work?

If a company offers a subscription service and provides relevant payment options, then:

  • A purchasing customer may choose their preferred payment plan and payment method (debit or credit card, direct deposit, digital wallet, etc.)
  • The company will receive the order info and use a payment solution to manage the subscription billing details
  • The payment solution stores the payment information and processes the payment request
  • The customer is charged and then issued regular statements on the agreed-upon schedule

What Does Subscription Billing Really Do?

Subscription payment software enables and streamlines the billing process by allowing you to collect payments from your customers through a flexible range of payment options. The software manages and, when possible, automates the operational side of subscription management and billing, which can include offering additional features such as free trials and custom pricing models.

8 Key Requirements for a Subscription Billing Platform

If you want to overcome the challenges of offering a subscription service to benefit your business and retain your customers, then your billing and payments platform is going to need to heed to some requirements. Here are eight we consider to be absolutely key.

1. Your subscription options should match your customers’ personas and buying habits: If you’re looking to extend your customers’ lifetime value through subscriptions, then start by researching your existing customers. Develop personas and map their preferences and buying habits to the products and services with the most potential to be added as subscription options. This will also determine which added features, payment types and subscription plans are essential and which are lower priority.

2. Customers should be able to pay in their native currencies and preferred payment types: As you grow globally, you need to make sure that your subscription engine supports the primary payment types in each country where you sell your product. For example, if you want to sell in Europe, you should offer SEPA to appeal to European customers. However, if you want to sell in the US, digital wallet payments are going to be more popular among those customers. And you’ll also need to offer customers’ local currencies and will want to take advantage of local card acquiring whenever possible.

You might be wondering: Why does it matter? Can’t my bank just convert the currencies? Sure, your bank might be able to process cross-border payments, but if it can’t help you take advantage of local card acquiring, you either need to find a payment solution for each region you’re selling into or will be forced to pay unnecessary cross-border fees.

3. Your subscription plan(s) should be flexible: You’ll need to offer choices for the services or products available with different subscription tiers. When customers select a specific subscription plan, the platform should automatically provide or deny access to features depending on the tier. Look for a payment processing provider that gives you enough control over your subscriptions to offer:

  • Predefined subscription plans: With this subscription plan type, you can set up plans to be quarterly, monthly, annually, semi-monthly or whatever cadence works best for you and your customers.
  • Free trial plans: Offering a free trial period is a great way to introduce new customers to your product and get them hooked before they’ve had to pay. Choose a payments provider that allows you to define a trial period that switches to the regular plan automatically.
  • Auto-renew: Most subscriptions require customers to renew their plan each year. Find a subscriptions management solution that automatically alerts customers when their renewal is up.
  • Upgrades and discounts: Offering discounts like family plans and student discount plans is a great way to boost customer loyalty. However, not all payment processing providers offer this, so look for one with maximum flexibility for both you and your customers.

4. Payments should be processed with automation and retry logic to increase revenue: Transactions fail for several reasons, and sometimes that reason is as simple as an outdated card. Luckily, you don’t have to manually contact your customers every time a transaction is declined. Instead, you can boost your successful transaction rates with subscription retry logic and automatic account updates.

Retry logic automatically retries failed transactions a set number of times before the system gives up. If, for example, a customer’s subscription payment is billed on the first of every month and their mortgage payment is also billed on the first, they may not have available funds on their card for the subscription payment. The automatic retry system can try to process that transaction again up to four times over the course of two weeks to try to save the sale. Usually, by that time, a customer will have funds in their account, allowing the transaction to go through.

Additionally, automatic account updater functionality will automatically reach out to the customer’s bank for the new card information in the case of an expired card. This allows you to save countless transactions without interruption to your customers or your business.

5. The platform should have customer management and data analysis capabilities: You’ll need to be able to manage individual subscribers based on their preferences and history. Your subscription platform should be able to store information about your customers, including the products they subscribe to, their preferred payment types, their billing cycle, add-ons they prefer and more. This level of information will allow your finance teams to analyze your billing productivity and generate reports in real time to help you understand the effectiveness of the subscription service. Customer information is also invaluable for your customer service team so they can immediately respond to requests from clients about their subscriptions. With sophisticated reporting capabilities, you can continually refine your subscription models for overall efficiency and to maximize revenue.

6. Customers should be able to sign up with self-service: Your customers should be able to initiate subscription billing entirely on their own for any product or service. This means all your users should be able to easily browse subscription levels and features, input or select their preferred payment information and begin a subscription without needing to go through a convoluted process or contact anyone.

7. Retain and entice customers with free trials and incentives: Once you have a subscriber registered for a trial of one of your products or services, you are one step closer to converting them to a paying customer. To make the conversion as simple as possible, create different pricing plans so customers can pick and choose what will be best for them once their free trial is over. Create incentives for existing non-subscribing customers to sign up (i.e., discounts on their first order, free shipping, or even a recurring discount) and then get the word out via your email newsletter and social media channels.

8. You should be able to consolidate your number of payment gateways: Recurring revenue models create brand loyalty, business growth and income you can count on — but only if you have the payment infrastructure to support them. If you don’t have the ability to process payments from anywhere around the world, then your potential revenue growth is hindered. Some companies try to get over this hurdle by investing in multiple payment gateways to process global transactions.

The problem is, when you have multiple payment gateways that each process payments in a different part of the world, you might experience some challenges, including upkeep, maintenance and difficult reconciliation.

By consolidating into one global payment solution, you can eliminate the headache of reconciliation with streamlined unified reporting, conserve technical resources by decreasing the number of systems to be maintained and encourage more customers to follow through with the sale by allowing them to pay in their native currency.

Subscription Billing Platform vs. Payment Gateway

Subscription platforms and payment gateways are not one in the same. Subscription billing software focuses on managing the subscription service (as well as your customers’ information), while a payment gateway is focused on receiving payments and ensuring transactions get authorized.

Using integrated subscription billing and payment processing capabilities together gives you greater options when it comes to important features like reporting, tax calculations, support for add-ons and more.

Getting Started with Subscription Billing

If you are thinking about going the subscription route, here are some questions to consider:

  • How might you get started with your subscription model? Do some or all of your products make sense to offer on a recurring basis? Do your customers often repeat orders already?
  • How are you retaining your customers and ensuring repeat orders now? Your business needs to find ways not just to attract customers, but to retain customers and ensure repeat orders over time — a recurring subscription can be the answer.
  • What are your current metrics for customer acquisition and profitability? Would adding subscription options enable you to improve them?

Thankfully, at BlueSnap we can provide you with the answers.

How BlueSnap Supports Subscription Billing Services

BlueSnap can power your subscriptions and recurring billing services in several ways. First, we integrate with top-notch subscription platforms, so you can enjoy their full range of options in combination with our powerful payment functionality. These are fully robust subscription platforms, including:

  • Chargebee, which allows you to simplify billing and invoicing through payments and accounting, as well as reports and analytics
  • Chargify, which enables powerful subscription billing and data management tools built especially for SaaS companies
  • Zuora, which provides subscription management through a truly seamless payment processing experience
  • And more

Or, if you want, we also have subscription functionality integrated right into our Payment Orchestration Platform through our Subscription Billing Engine. At BlueSnap, we offer features like:

  • Flexible Subscription Plans: For dynamic and custom-built pricing models that best fit your sales model and your customers.
  • Automated Retries: To help you capture more conversions through automatic retries whenever a subscription charge fails.
  • Automated Account Updater: Keep your customers’ information constantly up to date to ensure that their billing stays uninterrupted.

Plus, with BlueSnap you’ll reach shoppers around the world since you can offer them 100+ different payment methods. Our Subscription Billing Engine can be used with nearly every payment method (not just credit cards), including local payment types. Those are just some of the benefits of BlueSnap’s All-in-One Payment Orchestration Platform, designed to help you increase sales and reduce costs.