Subscription Billing Models

Recurring Payments: What Every Business Should Know. 👇 If your business offers subscriptions or repeat billing, recurring payments are the lifeblood of your cash flow, but getting them right is about more than just charging a card every month. Here’s what you should consider when setting up or scaling recurring payments: ✅ Support for All Major Payment Methods To reduce friction and increase conversions, offer a range of payment options including: ➡️ Cards: Visa, Mastercard, American Express, Discover ➡️ Direct Debit: A stable, trusted method with strong consumer protection ➡️ Pay by Bank: Increasingly popular for those who prefer instant, account-to-account payments, variable recurring payments remain a work in progress in the retail environment ➡️ Digital Wallets: Apple Pay and others now support recurring billing, ideal for mobile-first customers and at the click of a button 🔄 Ease of Cancellation = Trust Make it easy for customers to cancel. Why? ➡️ Reduces disputes and chargebacks ➡️ Builds long-term brand trust ➡️ Encourages them to return later, rather than churn out frustrated ➡️ Transparency and ease are key to a sustainable recurring model 🔧 Smart Tech Behind the Scenes: Updater Services & Network Tokens Card expirations and replacements used to be a big problem, but now? 🔹 Account updater services (like Visa Account Updater and Mastercard Automatic Billing Updater) automatically update stored card details when a card is replaced or renewed, reducing failed payments and involuntary churn. 🔹 Network tokens take this a step further. They replace card details with a secure, tokenised version that stays valid even when the underlying card changes, offering higher authorisation rates and enhanced security. Together, these innovations keep your billing cycle smooth and your customer experience seamless. 🧠 Why Stability Still Matters Direct debit may feel “old school,” but it remains: ➡️ Exceptionally reliable ➡️ Protected by strong consumer guarantees ➡️ Ideal as a trusted fallback or even primary option in certain markets Combining modern flexibility with stable, regulated solutions is often the smartest approach for long-term success. Recurring payments are not just a billing method, they’re a customer experience. Make it seamless, secure, and adaptable, and your revenue (and reputation) will thank you.

What do Spotify, OpenAI, and Canva have in common? These industry leaders thrive on a recurring revenue model, ensuring predictable income and sustained growth. How do they do it? Let's dive into the mechanics of recurring payments for subscriptions and how they can transform your business. How Recurring Payments Work for Subscriptions Creating a successful subscription model is no easy feat. It's not just about setting plans and going live. Once you understand your prospective customers, there are various business models to consider: - Monthly subscriptions / fixed-frequency models - On-demand usage billing - Pay-what-you-want models - Setup fee + subscription - Per seat billing A transparent billing model, like Slack's per-seat monthly billing, ensures customers pay only for what they use. Behind the Scenes of Subscription Engines The subscription engine's complexity depends on the payment method. Platforms typically distinguish between cards and Alternative Payment Methods (APMs), such as cash, bank transfers, and wallets. - Cards: These are synchronous payments, providing near-instant responses regarding fund collection. - APMs: These are asynchronous payments, requiring user action to complete the transaction. Subscription Flow: A Deep Dive. 1. Recurring Payment is Due: The system initiates the payment process when a payment cycle is due. 2. Payment Success Check: - If Successful: Billing date updated, status set to ACTIVE, webhook triggered, invoice sent. - If Unsuccessful: Status set to RETRYING, webhook triggered, customer notified. 3. Customer Action on Failed Payment: - Updates Payment Method: Payment retried, if successful, invoice sent; if failed, smart retries initiated. - Doesn't Update Method: Smart retries start; if all fail, the subscription status changes to "defaulted" at the next cycle. For failed payments, platforms typically retry only "soft rejections" (e.g., insufficient funds). An automatic email invites customers to update their card details via a secure link, allowing the billing process to continue smoothly. The success of a subscription model hinges on creating a seamless payment experience that handles both successes and failures gracefully. By implementing smart retries, sending timely notifications, and providing easy ways for customers to update their payment information, businesses can minimize churn and maintain steady revenue. Have you implemented a subscription model in your startup? What challenges did you face in managing recurring payments? If you're still using traditional one-time payment methods, how are you handling customer retention and predictable revenue? Share your experiences below! #RecurringRevenue #SubscriptionModel #BusinessGrowth #FinTech

Seat-based pricing is slowly dying... but was THE pricing strategy of the past 10 years. It made sense: (1) Customers always grew their teams, so their software spend grew too. (2) Collaboration was the core value driver, and more seats meant more collaboration. (3) SaaS margins were high, so unlimited usage was viable. But that model is breaking down. Teams aren’t growing like they used to. Some are shrinking. AI features come with real costs—every query has a price tag. Subscription fatigue is real, and companies are scrutinizing every dollar. That’s why usage-based and hybrid pricing models are taking over. We’re seeing: -Credits (prepaid usage that depletes over time) -Subscription + overages (pay a base fee, plus per-unit costs) -Outcome-based pricing (pay per successful result, not per seat) Many companies are shifting to a more usage-based and less seat-based model (even if payment still happens as a subscription). The challenge? The most common billing systems weren’t built for this level of flexibility. Every company measures usage differently, which makes implementing new pricing hard. That’s why we’re building Lago—to make modern pricing models easier to implement, so you’re never stuck in a legacy billing system that slows you down. If you want to read our full breakdown, check out our latest Substack post here: https://lnkd.in/e3VZ6FdE

Subscriptions or consumption-based pricing? I’m seeing the market split into two clear models: 1) Subscription: predictable monthly fee per AC charger, with a small transaction fee (1-4%) 2) Consumption: pay per kWh. At Monta, we chose subscriptions early because that’s where the market was in 2021. In the US, consumption is gaining momentum. Due to Tesla picked that pricing strategy What I hear and see: Established operators favor subscriptions. They’re betting on higher utilization and want CPMS to be a stable OPEX line. New operators like consumption. It shares utilization risk while they learn their sites. Support scales with usage either way. The software work doesn’t change; the model just shifts who carries the risk. Incentives matter. Consumption aligns CPMS revenue with CPO throughput, but it can also tax your upside as you scale. Subscriptions protect margin and planning. What would you choose today—subscription, consumption, or a hybrid?

Subscription Strategy Insight 👉 Are your longest subscription billing cycles hurting your revenue? We recently audited a great supplement brand's subscription program and uncovered a fascinating trend: They offer 4/8/12 week delivery options for subscriptions. For new customers: - About 60% choose the default 4-week option - About 40% opted for either 8 or 12-week deliveries The interesting thing: over 6-12 months, customers on longer delivery cycles had: - Meaningfully lower lifetime value (LTV) - Fewer average orders before cancelling So what we're recommending is a structured front-end delivery cadence test: Eliminate the 12-week option on the front end, and go with "every 4 or 8 weeks", or "every 4, 6, or 8 weeks". Assuming conversion rates, 1st order AOV, and sub take rate holds... they could see a SIGNIFICANT boost in monthly recurring revenue. Why? They'd increase rebill velocity by 33% for a large portion of new subscribers. Key Takeaway: Review your subscription billing cadences and whether they really make sense. You might be leaving money on the table with your longer cycles.