Recurring billing—regularly charging your customers an agreed amount of money for your products or services—has been around long before the emergence of online recurring billing systems.
With the onset of the digital age, this model has become the preferred way to earn revenue for many service- and subscription-based businesses.
Why? Because digitizing, integrating, and automating their recurring billing processes provides such businesses with a range of operational and financial advantages they can utilize in order to grow.
In this article, we’ll explore six ways in which recurring billing benefits your business and supports its growth.
- Results in Greater Efficiency
- Boosts the Number of Initial Sales
- Increases the Customer Lifetime Value
- Secures a More Predictable Cash Flow
- Increases the Value of Your Business
- Provides Insights for Business Growth
- Conclusion
Results in Greater Efficiency
The direct result of introducing an automated recurring billing system—which also makes all the other advantages covered here possible—is greater efficiency that allows you to dedicate more time and resources to growing your business.
In other words, before the invention of different software solutions that help automate payment processing, the growth of a business was often impeded by manual processes that—as the business grew—became increasingly more time-consuming and resource-intensive.
Naturally, preparing monthly invoices and sending them to 500 customers is quite different from doing that for 5,000 customers.
Therefore, such business growth was necessarily followed by more resources (time, employees, office space, etc.) allocated to payment processing and related activities.
Source: ©SolStock via Canva.com
Conversely, when a business establishes automated recurring billing workflows, it can manage any number of regularly billed customers with the same staff working more efficiently.
Moreover, recurring billing software will free up time for the existing payment processing staff, allowing them to focus on more serious customer service issues and improve operational aspects to promote business growth.
To illustrate how software can help businesses achieve greater efficiency, we’ll use our online recurring billing platform—Regpack—as an example.
Source: Regpack
As you can see, we highlighted just some of the processes that Regpack automates, thus raising the efficiency of your employees and allowing them to efficiently manage a growing number of regularly billed customers.
Simply put, Regpack allows you to create—and embed on your website—customized signup and payment forms for any type of service you’re selling online.
Your customers can then use the forms to register, choose a payment plan and recurring billing frequency, and securely pay for the service.
At the same time, it enables the easy creation of invoices and payment emails and automates their sending, both of which result in greater efficiency.
Therefore, recurring billing software like Regpack makes businesses more efficient by allowing them to automate recurring billing and payment processes, thus freeing up time and resources that can be used for business growth.
Such an online platform also serves as the foundation for enjoying all the other benefits covered in the next sections.
Boosts the Number of Initial Sales
Today, user convenience is king, and potential customers are quick to abandon their online order/shopping cart and look for what they need elsewhere if forced to go through a long and complicated purchase process.
In other words, when the checkout process is time-consuming, confusing (including redirects to other websites for payment purposes) and repetitive, potential customers may question whether the purchase is necessary and subsequently decide against it.
Conversely, when the payment process is quick and seamless, and the recurring billing system is integrated directly into the business’s own website, customers can easily make a purchase without giving it a second thought.
Source: Regpack
This convenience and ease of purchase can help your business boost initial sales, i.e., purchases completed by first-time customers.
To underline the importance of providing a seamless shopping experience, we’ll quote one of the findings of a recent study by Linnworks:
Nearly nine in ten (respondents) say seamless and flexible payment options speed up their decision making and prompt them to spend more.
In addition, a recurring billing platform enables you to offer multiple payment plans to your customers, who can choose the one most convenient for them in the checkout process.
In other words, you can create different payment plans—e.g., pay-in-full, monthly installments, deposit plus balance—and let customers decide.
This is particularly beneficial for customers who want to spread the cost of their purchase over a certain period, i.e., pay in installments.
Source: Regpack
As expected, this payment scheduling tactic can help you draw in more first-time customers who are—for any reason—hesitant about making a purchase.
On the business side, this allows you to set up an automatic recurring billing schedule according to the payment plan they selected.
The same principle applies to offering multiple convenient payment methods your target consumers prefer, such as credit and debit cards, PayPal, Apple Pay, etc.
All things considered, a recurring billing system embedded on your website—plus multiple payment plans and payment methods—helps you create a seamless purchasing experience, which is crucial in boosting initial sales and growing your business.
Increases the Customer Lifetime Value
When recurring billing is automated, customers don’t have to worry about remembering to make payments on time to receive your service or product.
Removing this concern leads to greater convenience and higher customer satisfaction.
And when customers are happy, they’re more likely to stay with your business and be more perceptive to new offers, both of which increase their lifetime value and help your business grow.
Let’s explain.
Customer lifetime value (CLV or CLTV)—or just lifetime value (LTV)—represents the total amount of revenue a customer will generate for a business during their entire relationship.
To quote ProductPlan, CLTV is:
…a critical metric for a company trying to gauge the cost efficiency of acquiring new customers and supporting them over time.
The basic formula—depending on the type of your business—can look like this:
Source: ProductPlan
Again, recurring billing saves consumers time and effort by simplifying the checkout process and implementing automatic payments, which allows businesses to build stronger and more profitable relationships with their customers, i.e., maximize their CLTV.
However, to fully understand how to increase the value your business gets from customers with the help of automated recurring billing, there is another term to consider—customer acquisition cost (CAC).
Simply put, this is the amount your business has spent on acquiring a new customer.
According to the Corporate Finance Institute (CFI):
Customer acquisition cost is a key business metric that is commonly used alongside the customer lifetime value (LTV) metric to measure the value generated by a new customer.
This cost usually includes marketing, advertising, sales, and other expenses associated with attracting and converting new customers, which are then divided by the number of new customers.
Source: CFI
The relationship between CLTV and CAC is crucial for businesses to better understand and determine their actual return on investment (ROI) when acquiring new customers.
From there, a business can adjust its customer attraction and retention strategies—including a recurring billing system and its advantages—to optimize its ROI and ensure long-term profitability.
Overall, recurring billing has a vital role in improving customer satisfaction, which allows businesses to build long-lasting relationships with customers and increase their lifetime value, which is critical for sustainable business growth.
Secures a More Predictable Cash Flow
Whether your business sells a subscription-based service, physical products, or any other type of offering, recurring payments secure a more predictable cash flow, providing your business with guaranteed monthly revenue.
As a result, you can better manage your business finances, plan expenses, and make informed decisions about future growth initiatives.
In other words, knowing exactly when payments should be processed and the exact amount that should be deposited into their business bank account gives companies better control over their financial situation and allows them to plan ahead.
More specifically, this steady cash flow can be used to cover ongoing costs—employee salaries, overhead, marketing, etc.—and invest in product upgrades, additional features, and other growth opportunities.
Source: Facebook
For example, a software company can use this predictable revenue to invest in developing new software features and upgrades, which then helps it attract new customers and retain existing ones.
Additionally, companies can use the steady cash flow resulting from recurring billing to move into new market niches or increase their marketing budget to further grow their customer base.
Therefore, by automating payments according to fixed payment schedules—and by automating payment reminders to reduce late payments—recurring billing software helps businesses secure a more predictable cash flow.
In turn, this allows them to better plan for future expenses and investments intended for growing their business.
Increases the Value of Your Business
A more predictable cash flow—which recurring billing provides—increases the value of your business in the eyes of potential investors who look for predictability to ensure that their investments will pay off.
In essence, investors are attracted to the steady cash flow generated from recurring payments, as it enables them to better estimate a business’s value and growth potential.
The ratio between the customer lifetime value (LTV) and the customer acquisition cost (CAC) (which we covered above) usually constitutes the key metric that investors look at, particularly for subscription-based businesses.
Source: CleverTap
As you can see, this ratio shows investors how well the business is doing, which helps them assess whether their investment will provide a return—and how big that return could be when potential growth is accounted for.
According to sales expert and author John Warrillow:
What most professional investors are looking for is at least a 3:1 LTV to CAC ratio.
This means that if the average amount of money your business spends on acquiring one new customer is $1,000, then the average value of one customer should be at least $3,000.
When this ratio is right—and a high percentage of the business’s revenue is generated through recurring billing—investors are likely to value it much higher than when some of these metrics are off.
In fact, Warrillow states that businesses relying on the subscription model can be valued “up to eight times” higher.
To sum up, recurring billing provides investors with the predictability they look for when investing. It enables them to better estimate the value and potential growth of a business—which then drives up its value in the eyes of potential investors.
Provides Insights for Business Growth
Last but not least, an automated recurring billing system provides your business with a wealth of data—and thus also valuable insights—that allow you to plan and lead its growth in the right direction.
In other words, recurring billing software serves as a centralized database of various customer information, from their purchasing habits to preferred payment methods and much more.
By using analytics and reporting features of their software to interpret this data, businesses can make data-driven decisions concerning future business growth.
Source: Regpack
For instance, they can identify which subscription plans are the most popular, which payment methods are preferred by customers, and which customers are most likely to renew their subscription or buy an upgrade.
In addition, the data collected by the email automation feature used for payment reminders and marketing campaigns can be filtered to provide insights into customer behavior, preferences, and pain points.
Armed with this valuable information, businesses can make data-driven decisions to take advantage of growth opportunities by adjusting their sales and marketing strategies to the changing needs of their target customers.
In summary, a recurring billing system acts as a centralized source of data your business can use to get valuable insights about potential growth opportunities, seize them, and track their progress.
Conclusion
Given these six advantages recurring billing brings to your business, it’s unsurprising that this model’s popularity among all kinds of companies has exploded.
As a reminder, using recurring billing software results in greater efficiency of your staff, improves the conversion of first-time customers, and increases their lifetime value.
Furthermore, it helps your business secure a more predictable cash flow, increases the value of your business for investors, and—most importantly—provides insights for business growth.
The key takeaway?
If you haven’t already, implement an automated billing system and use it to grow your business.