There are small differences between subscription and recurring billing. Many B2B SaaS companies worldwide use these common billing models.

This blog helps you understand the differences and makes it easier to choose the right model. 

TL;DR: Subscription Billing vs Recurring Billing 

What is Recurring Billing?

Recurring billing involves automatically charging a customer or user at a pre-determined interval for goods or services. It can be on a monthly, quarterly, or annual basis. 

Since the billing occurs automatically, it helps your business accurately charge the customer each time as it considers the global taxes, proration, payment failures, etc.

Types of recurring billing

• Fixed recurring billing: Charge the same amount from the customer in every billing cycle. The customer gets a specific set of features to use within the billing cycle. 
• Variable recurring billing: Charge the customers based on their usage or consumption of the product or services. Each cycle's charges differ and depend on the product or service cost. It’s a common practice in pay-as-you-go (PAYG) pricing model. 

Examples of businesses that use recurring billing

• Web hosting platform: GoDaddy 
• Domain registrars: Namecheap, Domain.com
• Cloud storage services: Dropbox, Google Cloud, Amazon AWS
• VPN providers: NordVPN, ExpressVPN

Benefits of recurring billing for businesses

Beyond how simple recurring billing is, it provides several other benefits. These include: 

• Predictable revenue streams: Recurring billing contributes towards a stable and predictable revenue stream. The automated payments scheduled in advance help you forecast the revenue with ease. It helps you make decisions regarding budgeting and financial planning. 
• Better cash flow: Recurring billing creates a constant stream of income, unlike one-time payments. This boosts your ability to manage cash flow. You can put money into growth projects and handle costs well without needing external funding.
• Reduced administrative overhead: The automated billing process reduces the need for manual invoicing. The team doesn't have to spend time collecting payments or following up. This saves you time and money. It also lets your team zero in on key business tasks.

Challenges of recurring billing for businesses

Here are some common challenges that businesses with recurring billing face: 

• Loss of revenue due to customer churn: Customer churn, or how often customers cancel their subscriptions, can affect a business's growth and stability. You may need to invest in plans that will help you keep customer churn as low as possible.
• Managing failed payments: Involuntary churn contributes to 20-40% of the total churn. Payment failures can happen due to outdated or expired credit card information or technical glitches in the payment gateway. These can cause involuntary churn. You might need to put money into processes and tech to cut down on this problem.
• Pricing complexities associated with usage-based billing: In practice, usage-based billing offers flexibility and ties costs to consumption. However, figuring out exact usage-based charges can be tricky at times. This might spark billing disagreements, pushing customers to leave in the long run.

What is Subscription Billing?

Subscription billing is a specific form of recurring billing. Customers are charged a certain amount for products or services at regular intervals. The difference between subscription and recurring billing lies in their pricing structures and how flexible they are.

Characteristics of subscription billing

Subscription billing has some new characteristics. These include: 

• Typically involves a contract or agreement: There’s a formal agreement between the business and the customer when the subscription period initiates. It provides clarity of terms and transparency that both parties agree to. 
• Often includes tiered pricing options: Businesses provide customers with different pricing options to choose from. These price plans or tiers come with varying feature sets that users can access for a set timeframe.
• May offer free trials or discounts: Many companies provide free trials and discounts and subscription billing helps you incorporate these with ease. This helps potential buyers see what they're getting before they pay. It boosts efforts to bring in new customers.

Examples of businesses that use subscription billing

• SaaS: Salesforce, Zoom, Dropbox
• Streaming services: Netflix, Spotify, Hulu
• Gaming: Xbox Game Pass, PlayStation Plus
• Cloud storage: iCloud, Google One, OneDrive

Benefits of subscription billing for businesses

Subscription billing, in particular, provides some unique benefits that contribute to the growth and sustainability of the business. These include: 

• Increased customer lifetime value (CLV): You can establish an ongoing relationship with customers through subscription billing. The longer they stick around, the more value they bring over time.
• Stronger customer relationships: Subscription billing encourages you to regularly interact with your customers. You need to deliver consistent value, provide updates and new features, and seek feedback. This way, you create a sense of community and build stronger relationships. It also increases the chances of getting referrals and positive word-of-mouth.
• Opportunities for upselling and cross-selling: Subscription billing helps you introduce more features and new products to customers. Therefore, you can expand your contract size with customers and increase your net revenue retention (NRR). 

Challenges of subscription billing for businesses

These are the key challenges that SaaS businesses face with subscription billing: 

• Managing subscriber churn: Whether involuntary or voluntary, churn translates to a loss in business. With a rapidly increasing number of subscribers in particular, it is very hard to keep track of churn and to understand the reason behind it. 
• Pricing optimization: Having the right price point for subscription is important to retain customers while making a profit out of the deal. However, with different pricing tiers, features, and add-ons, it becomes difficult to optimize the pricing strategy well. 
• Subscription fatigue: B2B businesses with over 50 employees use around 25-30 SaaS apps. Thus, it’s easy to get overwhelmed with the number of apps they manage. They may simply choose to cancel a subscription to make their life or finances easier. 

Choosing the Right Billing Model for Your Business 

Subscription Billing Software for B2B SaaS

Whether you opt for subscription or recurring billing, you need specialized software that helps you manage billing complexities, so you can focus on your core business. 

Cacheflow specializes in helping SaaS companies automate the complexities of recurring billing and subscription management. Our software empowers you to manage billing operations and enhance the end customer experience. 

Book a demo to see how Cacheflow can help you run subscription billing and recurring billing efficiently.