Subscription billing is a model in which customers are charged on a regular basis (such as monthly, quarterly, or annually) for access) to a product or service. Digital services, SaaS, streaming services, consumer product delivery subscriptions, and gym memberships are some examples.
Elements of the model include:
Subscription Plans: Subscription plans vary in terms of cost and services but are similar in that they charge a recurring fee for access.
Billing Frequency: Customers are charged at regular intervals, typically with automatic payment deducted from their accounts, with the frequency depending on company policy, customer choice, or industry common practices.
Automated Renewals: Subscriptions are usually set to auto-renew by default, ensuring continuity of service, but a good CRM strategy is to make sure customers are aware of autorenewals in advance.
Predictable Revenue: Subscription billing provides businesses with a predictable and recurring revenue stream, making it easier to manage finances and make financial projections for the future.
Customer Retention: Retaining customers is key element to successful subscription billing. High churn rates will hurt the company financially.
Subscription billing models vary according to industry, but some common elements include:
Recurring Billing: Customers are billed at regular intervals (e.g., monthly, quarterly, annually) for ongoing access to a product or service. Examples include streaming content services.
Tiered Pricing: In this model, businesses offer different subscription plans with price being based on access to features, levels of service, or usage. Customers choose the plan that best fits their needs and budget. Examples include mobile games.
Freemium: With a freemium model, customers can access a basic version of the product or service for free. Premium features or enhanced functionality will cost more. Companies often use this model to attract a large user base with the hope that many will upgrade to premium subscriptions. Some streaming music services offer a freemium subscription in which customers listen to commercials in exchange for the streaming music.
Usage Based Billing: Some businesses charge customers based on their actual usage of the product or service, and metrics tracked include data usage, number of transactions, time on the site or using the service. Cloud storage services typically use this type of billing.
Perpetual License with Maintenance: This model is commonly used for software. Customers pay an upfront fee for a perpetual license to use the software, and then they have the option to pay for ongoing maintenance and support, often on an annual basis. An example of this is an office suite of software that charges a perpetual license fee with additional fees added for an extended maintenance program.
One-Time Purchase with Subscription Add-ons: In this model, customers make a one-time purchase of a product or service, but they can subscribe to additional features, content, or services for a recurring fee. This approach is often seen in the gaming and media industries.
Group or Family Plans: Some businesses offer subscription plans that can be shared among multiple users or family members, often at a reduced per-user cost. This is common in streaming services, software applications, and cell phone plans.
Dynamic or Value-Based Pricing: In this model, the subscription fee may be based on the value a customer derives from the product or service. For example, a business might charge more for higher usage or additional features. Hospitality services can offer dynamic pricing.
Subscription billing offers several benefits to both businesses and customers, making it an attractive model for both. Some of the key advantages of subscription billing for each group are: