All You Need To Know About Recurring Billing
Ranging from groceries to CRM software, designer wedding gowns to software firms, recurring billing has become the lifeline for all subscription business. And the reasons behind such despread popularity needs no introduction at all. Automated charges for every subscription are remarkably convenient for consumers and highly sustainable for companies.
Though it has become an appealing option for everyone around, there are some drawbacks as well. There are certain factors demanding utmost consideration and when you want successful recurring billing, using an efficacious pricing strategy is highly significant.
Understanding Recurring Billing
It’s basically a payment model deployed when a subscription business levies any amount on the consumer’s debit or credit card for any product or services applicable for a stipulated billing schedule. It is charged on an annual or monthly basis till the individual customer cancels the subscription or withdraws the granted permission for drawing money. Recurring debit is applicable for cable services, gym or club subscriptions, internet services, gas subscriptions, and many others.
One of the finest advantages of recurring billing lies in the convenience it occurs. Rather than dealing with the necessity to furnish the billing information for a regular charge, consumers can authorize the service provider to keep a record of the payment details. With this, the service provider can charge the account for the service in effect or delivery of the goods that the individual has subscribed to. The business has the authority to determine the terms of the payment. They can provide all payment options including cheques, auto-debit from a savings account or credit card while others may offer any one of these.
Benefits And Drawbacks Of Recurring Billing
The main reason why recurring billing has been adopted by so many businesses and consumers alike is due to the benefits it proffers to both parties. Consumers can enjoy the convenience and hassle-free auto payment options while the service provider can take the advantage of consistent payment. Here are the top reasons why you should consider going for recurring billing:
- Pre-determined revenue:
For business providers, reliable sources of payment make it easier to conduct their work seamlessly. With a subscription billing option, they can have a precise forecast of the revenue their business can bring over a certain period of time. It also gives an early indicator of failure so that the business can work on mending the consequences.
With this precise forecast, a business can take important decisions pertaining to its growth and invest prudently in sales without any issue of overspending.
It is also an effective instrument for warding off the marketing treadmill. As a result, any business can focus on retaining its consumers by offering top-level services and products. This benefit is in stark contrast to investing time and effort unnecessarily in finding prospective leads that may only result in a single purchase.
- Lucrative pricing:
With a consistent flow of cash, a business can also reduce the prices of some products and services for those customers who have subscribed to them. At times, it results in more amount over a long span of time compared to the amount that a customer had to pay in down payments. But consumers tend to prefer smaller installments since they have a very low impact on one’s income. It is effective in bringing new consumers on board and also great for those who are looking for appealing discounts.
With automated billing, a fair amount of administrative works with respect to payment collection and sales management is also curtailed. It definitely results in cost reductions for a business which can be passed on to the loyal customers for further reduction of pricing.
- Peace of mind:
The effortless billing technique brought about by this recurring method aids in fostering peace of mind for consumers. All that a customer has to do is to sign up by providing the necessary details once. He will know that the service provider will be automatically paid for each payment cycle. Rather than having to depend on their memory to make sure every bill is paid, customers can truly take advantage of the recurring payment system.
Based on the individual service provider’s effort on sustainability, recurring billing also reduced the use of printing and paper and may curb down the negative impacts on the environment.
Are There Any Drawbacks Of The Recurring Billing Option?
While the subscription business has touched upon every sector, it cannot be deemed as a silver bullet. It comes with several drawbacks for merchants and consumers alike and this makes it unsuitable for a number of businesses.
In some cases, recurring billing can make it very complicated to revise errors in billing. It goes unnoticed for a while and when the customer happens to notice it, resolving the issue takes up significant time and effort for both parties involved.
Management of recurring billing can become very complex than a single sale. A company requires the right procedures in place for handling customers on varying payment cycles, amounts, and most importantly, varying contract lengths. An integrated subscription managing system also needs to be employed to ensure that the right consumer is charged the right amount at the right time.
- Convenience coupled with simplicity
- A predictable pattern of revenue generation
- Better decision making for business
- Lowered pricing results in better customer retention
- Complex and time-consuming management
- Discovering errors and resolving them take time
- Issues may go unnoticed
The Bottom Line
No matter whether a business is offering a monthly or yearly billing cycle or both, it has to cater to the variations of prices to make the boost revenue generation. Pricing strategy is a significant tool in this regard. Some businesses also have to deploy value-based pricing with the help of data to make out how much different sectors of consumers are ready to pay for the value proffered by the company. But almost all recurring billing businesses can leverage enormous profits, cater to the broader set of users, and indulge in effective sales by deciding prices based on value.