In recent years, subscription businesses have grown in popularity. The recurring nature of subscription billing models ensures that businesses generate regular revenue. A subscription model is a dynamic growth tool for businesses, especially startups, that can easily introduce their products to new customers. When you accept recurring payments you are also providing greater flexibility to your customers.
Determining the right billing schedule is an important decision for any subscription business. This means deciding whether to charge customers monthly or to take a one-time annual payment. Often customers prefer the flexibility of small monthly payments over a lump sum payment. If you are a startup, a monthly billing option may be the right choice as the low-cost provides limited barriers to entry for your customers. On the other hand, some enterprise businesses prefer an annual subscription as it means more revenue stability.
There are several factors to consider before you decide which billing frequency to choose for your business. Billing has a great impact on your revenue streams, customer acquisition, and retention, so this is not a task that you should take lightly. It may be tempting to follow what your competitors are doing, but choosing a model that doesn't fit your business may cause revenue disruptions.
With a monthly subscription billing cycle, the customer pays their bills every month. Customers can cancel their subscriptions during their billing cycle as they are not typically bound by a yearly contract.
This billing method is preferred by startups or smaller companies that want to acquire more customers with relatively smaller monthly payments.
In the annual subscription billing method, customers are billed for their subscriptions through a one-time annual payment. Annual payments are often preferred by enterprise-level SaaS companies as they can retain customers for at least a year allowing them to recover the customer acquisition cost.
As you can see both annual and monthly billing have their own advantages and disadvantages. Regardless of which model you choose, the benefits of subscription billing far outweigh the drawbacks. So it comes down to which billing frequency fits the most with your service offering and target customer.
Often B2B companies whose target customers are corporations choose the annual billing cycle. They prefer this billing frequency as they can lock in customers with yearly plans providing them secure revenues. Conversely, B2C companies or B2B companies that target small businesses, prefer the monthly recurring payments as it's easier to get customers to sign up for their business.
However, a hybrid approach works best for most SaaS companies, as it offers customers the flexibility to choose their billing frequency. The benefits of each billing cycle appeal to different customers, therefore by offering more choices you can onboard more customers.
At the end of the day whatever billing frequency you select make sure that your pricing structure aligns with the value you provide your customers. In case you serve a diverse customer base it may be a great idea to provide both annual and monthly payment options to ensure both types of customers are served. Regardless of which route you select, be sure to be transparent about your billing practices. Make sure you provide correct information about how often and how much they will be billed so there are no surprises when they receive the bill. You alleviate your customer’s experience by providing clear invoices detailing the usage and recurring billing charges. These practices earn you greater customer loyalty.
Choosing the right billing cycle is only the beginning. The next step will be selecting the right pricing model that’s suitable for your business and creating a pricing page that clearly states the features and benefits, and pricing for each pricing package. Read our guide to SaaS pricing models to help you choose the right fit for your business.
Whatever billing practices you choose, you need to select a billing service provider that can help you seamlessly integrate both approaches. LogiSense billing platform can handle all your billing and payment needs, and make accepting recurring payments a hassle-free task. LogiSense subscription billing platform helps you boost revenue with the ability to roll out new products quickly. Contact one of our billing experts today to talk about your unique billing needs.
As Sr. Director of Marketing at LogiSense, Tim is responsible for corporate brand messaging and digital assets ensuring that future customers understand the immense benefits that LogiSense Billing brings. Tim has over 20 years of Product Management and Marketing experience in the technology industry.