Subscription management 101: Everything businesses need to know about customer subscriptions

Last updated March 6, 2023
  1. Introduction
  2. What is subscription billing?
  3. How does subscription billing work?
  4. Types of subscription billing
    1. Pricing models
    2. Common features
  5. What is subscription management?
  6. How does subscription management work?
  7. Subscription management vs. recurring billing
  8. Subscription management benefits for businesses
  9. How to set up subscription management for your business

Because of the increasing popularity of subscription billing models for businesses of all sizes and across a wide range of industries, subscription management has become a booming market. In 2020, the global subscription and billing management software market size was around $4 billion, a figure that’s projected to grow to around $7.8 billion by 2025. As businesses commit more resources to improving their customer retention rates, reducing churn, and staying compliant through their adoption and evolution of subscription billing, the need for exceptional subscription management has never been greater.

If you aren’t familiar with subscription billing and the numerous benefits these models offer businesses, start considering what version of subscription billing might be a good fit for your business. Once you’re ready to start planning your strategic approach to launching, operationalizing, and maintaining your subscription billing model, read this article to learn everything you need to know about subscription management—and then dig into Stripe Billing to make a plan of action for your business.

What’s in this article?

  • What is subscription billing?
  • How does subscription billing work?
  • Types of subscription billing
    • Pricing models
    • Common features
  • What is subscription management?
  • How does subscription management work?
  • Subscription management vs. recurring billing
  • Subscription management benefits for businesses
  • How to set up subscription management for your business

What is subscription billing?

Subscription billing is a payment model that allows businesses to charge customers for products or services repeatedly, at predefined intervals. Recurring payment intervals can be weekly, monthly, or annually or run on a customized time frame.

How does subscription billing work?

Subscription billing models can look very different depending on what type of business they serve and what audience segments they’re built for. In order to choose a subscription model with the ideal scope and structure for your business, you should first answer some basic guiding questions:

  • What key customer segments are you appealing to?
  • What is the full scope of products and services you’re going to include in your subscription offering?
  • How much do each of those things cost?
    • Does it make sense to price them according to a flat fee or a scalable rate?
    • Is there one fixed cost involved or can usage vary?
  • How long will the billing cycle last?
  • How will you collect payments?
    • Will you accept only automatic recurring payments using stored payment methods, or will you send invoices and receive customer payments each month?

When it comes to accepting payments with subscription billing, there are two main approaches:

  • Customers are given invoices at regular intervals (weekly, monthly, annually, etc.), and the customer manually submits a new payment for each invoice.
  • Customers submit a payment method for the business to keep on file, along with pre-authorization for that payment method to be charged on a recurring basis, according to predetermined parameters (frequency, amount, etc.).

The second model is more common and generally considered to be advantageous for businesses and customers, since it can be automated easily.

Types of subscription billing

We have an article that goes in depth on subscription billing, different pricing models and features, and the benefits that come with offering subscriptions to customers. Here are the key points you need to know:

Pricing models

  • Fixed
    In a fixed pricing model, a customer is charged a static amount that doesn’t change between billing cycles.

  • Variable
    In a variable pricing model, a customer is charged different amounts from one billing cycle to another, usually based on usage.

Common features

  • Introductory and seasonal promotions
  • Discounts and other coupons
  • Free trials

This is just a preview of the many layers of complexity that can be built into subscription billing models. And the more dynamic a business’s membership offering, the more that business will require from their subscription management system.

What is subscription management?

Subscription management includes the technology, processes, and people involved in supporting subscription billing models, customer lifecycles, and all the variables involved in operating and maintaining subscriptions for a business.

Subscription management refers to those aspects of operating a subscription-based business model that aren’t easily automated—unlike recurring billing itself, which is a key feature of this model. Subscription management includes functions and tasks like:

  • Overseeing billing logic, including schedules, prorations, discounts, and taxes
  • Managing free trials and introductory offers
  • Invoicing and other transactional communications with customers
  • Processing changes to the subscription, such as upgrades and downgrades
  • Fielding and processing refunds
  • Calculating and assigning credits to customer accounts
  • Customer data reporting and analysis around growth, churn, and financial health
  • Accounting and revenue reconciliation
  • Analytics and reporting
  • Tracking customer history
  • Flagging cards on file that are due to expire soon
  • Processing new sign-ups and cancellations

How does subscription management work?

Subscription management is meant to engineer an ideal experience at every point in the life cycle of the customer, from consideration to purchase to renewal. Beyond customer-facing concerns, subscription management takes on other important work, like ensuring order fulfillment and sales tracking as well as generating data that fuels revenue projections and budgeting.

For all this to happen successfully, subscription management must be powered by reliable, unimpeachable software. This is why the subscription management software market has seen so much growth in recent years. Manually managing operations around subscriptions leaves too much room for human error—and its potentially damaging consequences.

Subscription management vs. recurring billing

The difference between subscription management and recurring billing is a matter of complexity. Recurring billing is an automated process in which customer payments are processed on a repeating basis according to a predetermined time frame. Recurring billing processing can factor in taxes and failed payment retries as well as generate some revenue reporting—but it doesn’t do much more than that.

Subscription management, on the other hand, takes the ownership, operations, and maintenance of a complex subscription model to another level, while offering the features you would expect from basic recurring-billing processing.

Subscription management benefits for businesses

Subscription billing, for its many benefits, can be complicated. Pricing models can include flat rate, per-seat, tiered, or metered billing. Features like free trials, discounts, and prorating can clutter automation. And then there are important questions to consider: What’s the ideal timing to retry failed payments? How do you identify customers who are at risk of canceling? This is where the real upside of subscription management comes in—it gives businesses the data they need to make choices about how to structure their subscription billing and then deploys and maintains the execution of those choices.

Here are a few more key benefits of subscription management software:

  • Minimizes churn
    For subscription businesses, losing customers carries a heavier impact on revenue compared to nonsubscription businesses. The lifetime value (LTV) of subscription customers is higher for subscription businesses, so when a customer cancels their subscription, the loss takes a greater toll. Subscription management is a collection of tasks aimed at smoothing out a subscription customer’s overall experience. When done right, subscription management is a powerful method of cultivating a more positive customer experience at every point in the customer’s lifecycle, reducing the risk of churn.

  • Reduces operational cost
    Subscription management doesn’t mean manually completing all of the functions that keep subscription businesses running—it’s about having a system that streamlines these important and time-consuming tasks, tasks that otherwise would have to be done manually. Using a subscription management solution like Stripe Billing saves your team time, resources, and money by handling the minutiae of subscriptions for your business.

  • Offers more dynamic subscription options
    For many businesses, the most advantageous strategy for subscriptions involves offering customers different payment tiers with varying levels of access, as well as a range of promotions and incentives. This opportunity for customization allows subscription billing models to accommodate a variety of customer segments and their particular needs. However, the complexity of managing different subscription tiers can deter businesses from experiencing the full benefit of subscriptions. Exceptional subscription management enables businesses to roll out complex subscription models effectively, without overwhelming their team.

How to set up subscription management for your business

The subscription management solution you choose will likely depend on how your payments ecosystem is set up. For example, if your business has a piecemeal payments system—your payment processor does not provide your merchant account—then you might seek out a third-party subscription management software that integrates with the rest of your payments setup. It’s also possible that your payment processing provider offers their own subscription management support.

If your business uses Stripe, then you already have a sophisticated subscription management solution available, one that you can easily integrate into your current system. Stripe Billing is a recurring billing and subscription management software that automates operations around subscriptions, helping businesses capture more revenue, launch new products and business models, and accept recurring payments globally.

You can get started with Stripe Billing and set up subscription management for your business directly from your Dashboard.

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