Billing frequency is a balancing act
When building your subscription business, be sure to choose the billing frequency that's right for both your business and your customers. Striking a balance between your needs and those of your customers is key to finding the optimal schedule.
But how do you choose?
When deciding on billing frequency, begin by considering what some of the best practices for SaaS billing are, then take a look at when and how often your product or service is delivered to your customer. Then, consider the pros and cons of the following options.
Daily billing is typically considered "very frequent" billing. However, it can be the best option if you're in a market with a short customer life-cycle.
The advantages of daily billing are that you have regular income and you can see—on a day-to-day basis—the net effect of your marketing efforts.
The disadvantages of this model are that daily invoicing requires significant management and most auto-billing platforms charge per transaction (or a percentage of each transaction).
If you don’t have a relatively high subscription billing charge, you may find that profit margins are too low for this to be financially feasible.
This model is also suitable for businesses that have a short customer-life-cycle. It's commonly used by businesses that have regular deliveries of their products (i.e. food, magazines/newspapers).
This option is easier to manage than daily recurring payments, but the cost of managing the subscriptions can still be expensive.
Customers may perceive these weekly payments as higher than they might if the same rate was billed on a monthly or yearly basis (i.e $4 month, or $52 per year). The advantage of this option is that customers can often manage weekly recurring payments effectively and are therefore unlikely to default on their payments.
Having your billing set so your invoices go out every two weeks can sometimes create complexity. The issue with bi-weekly billing is that not all months have the same number of weeks and so not every month would have the same number of payment dates. For customers who manage their finances on a monthly basis, this can complicate their financial planning.
Monthly billing is one of the most commonly used frequencies as it's easiest to manage from both a business and subscriber point of view.
For example, you can quite easily spread out your workload by dividing subscribers into groups and scheduling various billing dates within that month, i.e. 1st of the month, and the 15th of the month.
This is a great model for those who are providing a consistent service over longer periods, for example, software, publications, and membership sites.
The potential downside of this occurs when payments per month are perceived as "too high". In this case, customers may be more receptive to a weekly payment schedule.
Annual payments are most often used by businesses that have a significantly long product or service life-cycle.
The obvious advantage of this option is that very little billing management is necessary.
Promotional discounts are used effectively with this option, as they entice customers to sign-up for annual plans.
The potential problem with the annual billing model is that your subscribers may default on their payments because a significant period of time has past since sign-up. To ensure this doesn't happen, you'll need to inform your customer in advance of when their renewal is due.
Read a more detailed article on the pros and cons of subscription billing frequency and how they impact how your subscription business.