If you’re wondering how to introduce recurring payments into your business model—or you already use them and want to improve your approach—it’s important to distinguish between recurring payments and subscription billing. At first glance, the difference between the two might not seem significant, but it can affect how you plan your company’s payment models and subscription management approach.
And with so many variations in how you structure your subscriptions and payment plans—from what to charge to what’s included to which incentives you should offer—there are still many decisions to make. Here’s what you need to know about the difference between recurring payments and subscription billing.
What’s in this article?
- What are recurring payments?
- What is subscription billing?
- What types of businesses use recurring payments and subscription billing?
- Types of recurring billing models
- Fixed
- Variable
- Fixed
- Benefits of recurring payments
- Types of subscription billing models
- What’s the difference between recurring payments and subscription billing?
What are recurring payments?
Recurring payments are a billing model that allows businesses to charge customers at predefined intervals, repeatedly, for subscriptions to products or services, memberships, installment payments, or for other agreed-upon purposes. Recurring payment intervals can be weekly, monthly, annually, or run on a customized timeframe.
What is subscription billing?
Subscription billing is a payment model that allows businesses to charge recurring payments for access to products or services. Subscription billing intervals can be weekly, monthly, or annually or run on a customized timeframe.
What types of businesses use recurring payments and subscription billing?
The range of businesses that use recurring payments and offer subscriptions is vast and growing. By 2023, as many as 75% of direct-to-consumer (DTC) brands are expected to offer customers some type of subscription billing. The market is already booming: In 2020 alone, the industry was worth over $6 billion, according to Zion Market Research.
While the list of business categories that use recurring billing and subscriptions is constantly expanding, here are a few areas where they’re commonly used:
- Gym memberships
- Software applications
- Digital and print newspapers and magazines
- Utility companies that use metered billing
- Product-of-the-month clubs
- Streaming services
- Subscriber-based content (e.g., podcasts, newsletters)
Types of recurring billing models
Here are the key points to know about types of recurring billing:
Fixed pricing model
In a fixed pricing model, a customer is charged a static amount that doesn’t change between billing cycles.
Variable pricing model
In a variable pricing model, a customer is charged different amounts from one billing cycle to another, usually based on usage.
Benefits of recurring payments and subscription billing
There are many reasons why a growing number of businesses are exploring ways to incorporate subscription billing into their payment model. Subscription billing can save time and money through payment automation; create an easier, more seamless customer experience; reduce churn and improve customer retention; enable a more predictable cash flow; and generate a wealth of actionable data and insights.
Subscriptions are also a powerful tool for bringing new products and services to market and creating tailored offerings for different segments of your customer base—all within an easily scalable model.
In fact, the benefits of recurring payments and subscription billing models are so substantial that an entire industry has arisen to help businesses manage them. In 2020, the global subscription and billing management software market size was around $4 billion and is expected to grow to $7.8 billion by 2025.
Types of subscription billing models
One key reason why subscription billing models are so popular is that they are easy to customize. Two businesses in the same industry with similar offerings that target the same audience of consumers might come up with very different subscription billing models.
Subscription models, like other recurring payments, are usually either fixed or variable. For example, a “box of the month” membership will typically cost customers the same amount every month, whereas a meal delivery service subscription might charge customers a different amount every week based on how many meals they order.
Subscription models can also offer a range of different membership tiers. For example, a gym might offer both a lower-priced membership tier that doesn’t include access to group fitness classes alongside a more expensive option that includes classes. Many subscription-based businesses also use a “freemium” model, through which customers can access a limited scope of products or services for no charge, with the option to upgrade to a paid tier for greater access.
What’s the difference between recurring payments and subscription billing?
Recurring payments are the simplest form of a subscription billing model. The biggest difference between the two concepts is flexibility—recurring payments are straightforward, whereas subscription billing models can offer customers a range of plans with different tiers, options, and features.
With simple recurring payments, the process looks like this: A customer signs up with the company and gives them their payment method with permission to store it and charge it again for a specified amount (even if that amount changes) at defined intervals. Subscription billing involves the same scenario, but with the possibility for more options, including:
- Trial periods that are billed at a reduced amount or offered for free
- Membership tiers that offer customers access to different layers of features, products, or access
- The ability to upgrade or downgrade between tiers
Sometimes subscriptions involve a fixed contract period with financial penalties for canceling outside of a predetermined period, whereas most simple recurring billing arrangements allow for cancellation anytime.
Stripe Billing provides an end-to-end solution for recurring billing and subscription management. To learn more about how Stripe Billing powers recurring payments and subscription management—or any other billing model—start here.