Marc Cacheiro
Head of Product

Make the Move to Subscription Billing in 2021

How to choose the right subscription billing platform for your online business

Over the last decade, many SaaS-based businesses have transitioned to a purely digital product or service distribution model. While this has undoubtedly simplified the value chain for customers, it has also created an opportunity for companies to build subscription-based pricing models to maximize the revenue growth and lifetime value attributed to these digital goods.

However, as many online businesses know, moving to a subscription billing model is not as simple as ‘flipping a switch.’ There are a number of factors that need to be taken into consideration, including choosing the right subscription billing platform.

In this article, we’ll shed some light on what subscription billing is, why it’s a powerful tool for online businesses to leverage today, and how companies can go about evaluating the many subscription billing platforms available to them.

What is subscription billing?

Simply put, subscription billing is when a company charges customers for products and services—digital or otherwise—on a recurring basis according to a preset schedule built around the parameters of a customer’s subscription.

Also known as recurring billing, this invoicing model requires customers (aka, subscribers) to give their consent once, at the onset of new subscription, so that companies can begin deducting these recurring charges automatically and on a regularly-scheduled basis from the payment method of a customer’s choosing: checking, savings, credit card, or debit card.

Subscription billing is an especially useful way for customers to pay for products and services that they will likely need and use in an ongoing way (i.e. unlike one-time purchases). It also adds convenience by allowing them to automate their purchases and avoid making multiple one-time transactions over and over again. Great examples of this include subscriptions to cloud-based software, like Microsoft 365 or Google Workspace, as well as to premium, ad-free digital services from the likes of Spotify, YouTube, and beyond.

In recent years, subscriptions have become incredibly flexible, giving customers multiple online customization options to meet their needs, including but not limited to:

• Choosing or modifying billing dates and frequency
• Updating or changing payment methods
• Adding or removing product licenses
• Upgrading or downgrading services
• Making one-time purchase add-ons
• Pausing or canceling subscriptions

To make subscription billing more attractive, companies will often offer discounts on products or services bought as a subscription and allow for free cancelation at any time as well.

What are the benefits of subscription billing?

Aside from giving customers one less thing to think about, the biggest benefits of subscription billing actually pertain to merchants. It’s a great way to ensure on-time payments, manage and predict cash flow, improve customer retention, boost customer satisfaction, lower billing costs, streamline account receivables processes, and enhance the overall customer experience.

Why use subscription billing software?

There are a number of reasons why companies use subscription billing software. The most common sense reason would be: It streamlines the entire subscription management process while opening up multiple payment gateways, so that funds can be collected from customers via the payment methods of their choosing. Additionally, this simplifies the signup process for customers, giving them an easy way to manage their subscriptions every step of the way. Providing an exceptional customer experience is critical for eliminating the barriers of entry for customers who might be hesitant to go the subscription route for one reason or another.

But what makes this incredibly valuable to merchants, specifically, is that it supports the more operational side of subscription billing and management across the entire customer journey—especially the parts that customers don’t ever see.

Managing subscriptions involves a lot of steps, including some complicated accounting processes on the backend. Relying solely on manual methods or traditional accounting software as the ‘backbone’ of your subscription program will only create more headaches for your business down the road.

From billing to invoicing to collections and, finally, to accounting, subscription billing software can provide a single chain of command for managing every part of your customers’ subscription payments effortlessly.

And finally, because this software unifies all subscription-based data in one convenient place, it becomes easier to track performance in real-time and be able to provide meaningful reports and metrics that speak to the health—and potential headwinds—of your subscription program.

TIPS FOR CHOOSING THE RIGHT SUBSCRIPTION BILLING SOFTWARE

There are a number of vendors that offer subscription billing services today—but, unfortunately, they aren’t all created equal. As you go about evaluating the right subscription billing software for your business, you will want to make sure it includes these key features:

• Recurring Billing: Any solution you choose should make it easy to invoice customers and collect payments regularly, all according to the schedule set by their subscriptions. It’s important to keep in mind that all of your customers will likely be on different billing cycles, unless, of course, you have strict billing guidelines (i.e. all payments are processed the first of the month).
  Since payments are closely tied to your pricing models, you’ll also need to ensure your solution’s recurring billing capabilities can adapt to any changes in pricing as your business grows and evolves.
  Finally, because customers can, in most cases, start and stop their subscriptions at the drop of a hat, this software should be able to provide prorated billing, based on what customers have actually used. And should they decide to add new products or services to their subscription, the software should be able to weave those additional purchases into a single invoice, all at the appropriate prorated rate.
• Multiple Payment Gateways: There are more ways to pay online today than ever before. Your subscription billing software should embrace all payment methods your customers use—from bank transfers (ACH/SEPA) to credit or debit card payments to digital wallets. The more options you provide, the easier you make it for customers to subscribe.
• Subscription Management: In many ways, this is the most important feature of your subscription billing software, as it’s what ultimately defines the kind of customer journey and experience your subscription onboarding-to-offboarding flow will entail. Even more, it’s about making it extremely easy for customers to have complete control over their subscriptions. This includes functionality like allowing customers to update their payment methods or giving them options to pause, resume, or even cancel their subscriptions with ease.
  In addition to these more customer-facing subscription management features, this software should also make it easy for merchants to do things like allow a free trial period (before the first billing cycle begins) or offer coupons and credits to incentivize sales—with the specific purpose of boosting customer retention and lifetime value across a customer’s entire life cycle with a brand.
• Dunning Management: Oftentimes, up to as much as 20% of revenue churn for subscription-based businesses is due to involuntary churn due to payment failures. This is known as dunning, wherein a solution will continue to retry to receive funds, after failed payment attempts, all while communicating with customers that there is an issue with billing—typically, an expired payment method—that needs to be addressed. A strong subscription billing solution will provide automated tools for communicating with customers, retrying payments, and maintaining a record of the entire process. This is most commonly a problem with high-volume subscription businesses selling products or services with a relatively low ARPU (average revenue per user).
• Accounting, Taxes, Compliance, and Security: A strong subscription billing solution should sync up seamlessly with your accounting system and automatically calculate relevant state, local, regional, and cross-border taxes. Maintaining tax and regulatory compliance is an absolute priority for all online businesses—beyond subscription services alone—and requires having a system in place that can ensure no stone is unturned. Additionally, this solution must maintain the highest levels of security, integrity, and customer privacy for all transactions. Depending on where you do business, the subscription billing software you choose must absolutely adhere to PSD2, GDPR, SOC1, PCI-DSS, and other current compliance standards.
• Integrations: There is a good chance your business uses multiple technologies and services to power the customer experience. To ensure that your subscription business is well-connected to the rest of the customer journey, it’s important for the software to be able to seamlessly integrate with other applications you use for everything from customer support to CRM and marketing to accounting and finance. In other words, this software cannot and should not live in its own silo.
• Analytics and Reporting: Data is king today. The success of any subscription management program comes down to monitoring payment activity, customer actions (signups, renewals, pauses, cancellations), and key performance metrics like conversion, ARPU, LTV (lifetime value), ARR (annual recurring revenue) and MRR (monthly recurring revenue). Therefore, it’s absolutely critical for this software to be able to produce real-time performance dashboards and other reports that allow you to both check the pulse of your subscription program and also provide actionable insights that can ultimately impact important business decisions (beyond subscriptions alone!).
• Dedicated Support: This almost goes without saying, but given the complexity of subscription management programs, you want to ensure you work with a partner that can help you troubleshoot and keep your program running smoothly 24/7. Some services also provide highly responsive end-user support to help your customers with subscription-related issues whenever they arise.

MOVE FROM INVOICING TO SUBSCRIPTION BILLING WITH NEXWAY

It’s one thing to use subscription billing software. It’s another thing to have a full team of e-commerce experts powering your subscription program for you.

That’s what we do via the Nexway Monetize e-commerce growth platform. As your Merchant of Record (MOR), we will handle every aspect of your e-commerce business, including helping you implement a high-growth recurring revenue model adapted perfectly to your business.

So, why waste time—and potentially fall prey to serious accounting, tax, compliance, and customer experience errors—by managing your subscription program on your own? Instead, reach out to the team at Nexway to take your online SaaS-based business to a whole new level.

Ready to grow your subscription business like never before? Contact us to schedule a demo.