Subscription Billing Explained: A Guide For SaaS Businesses

Subscription Billing Explained: A Guide For SaaS Businesses

Expected to reach $1.5 trillion by 2025, recurring payments are the preferred billing choice for most eCommerce brands. While revolutionary, recurring billing is not without its challenges.

Key Takeaways

  • Subscription billing complexities are growth killers. Managing diverse pricing models, international payments, and churn can easily hinder expansion and success. 
  • A comprehensive recurring billing solution is how you remain competitive within this dynamic landscape and maintain your focus on your product rather than operational difficulties. 
  • The right recurring billing partner is the one that goes beyond straightforward subscription management, offering additional features to support your SaaS’s global growth. 

59% of subscription companies encounter significant customer friction due to billing misunderstandings, whereas 32% of them have technical issues when introducing new pricing plans leading to time-to-market delays. 
So, yes, even though the subscription billing model can ensure SaaS business growth, its complexities can often leave businesses uncertain and puzzled. 

In this article, you’ll get a thorough understanding of recurring billing management by looking at: 

What is Subscription Billing?

Subscription Billing Models

5 Subscription Billing Challenges

Why Use Subscription Billing Software?

How To Choose The Right Recurring Billing Platform

Is The Merchant of Record a Solution?

How Can PayPro Global Help? 

What is Subscription Billing?

Subscription billing is a comprehensive business approach where customers are charged on a regular basis be it monthly, annually, or other predefined intervals for products or services.  

How Does Subscription Billing Work?

With the recurring payment model, customers receive invoices at set intervals, and they can: 

Manually submit orders through different payment methods each time.

Allow their payment information to be kept on file and used on a recurring basis.


Considering how subscription billing works, it’s important to clarify that it includes several fundamental aspects: 

Triggering billing cycles 

Invoice delivery 

Payment collection 

Subscription management 


Subscription Billing Pricing Models

One of the key features of the recurring billing model is its flexibility. Because you can offer different pricing models and packages, you can better cater to various customer preferences and ultimately increase your recurring revenue potential. 


Here’s a rundown of the most popular subscription models: 

Flat Rate Pricing

This is the most straightforward pricing model, and it is an excellent option for subscription businesses with a clear value proposition and target audience. 

When opting for fixed billing, your customers pay the same price on a recurring basis for access to your product. Through a single price point, SaaS brands are simplifying the customer’s decision-making process. 

Tiered Pricing

Unlike the previous model, this is a flexible pricing strategy where subscription-based businesses offer several price points to their targeted clients. These are known as tiers, and they differ based on different criteria, such as usage, users, or features. 

Tiered pricing’s major benefit is that brands can target different market segments by responding to multiple needs and requirements. Additionally, with gradual increases, multiple ters allow for cross-selling and upselling opportunities. 

Per-User Model 

Common in the world of B2B and SaaS products, the per-user model billing logic hinges on the number of users who access the platform. The more users, the higher the price, of course. 

What is most useful about this billing option is that it offers flexibility and predictability to both the merchant and the customer. It provides multiple subscription plans allowing the user the ability to meet their business needs. 

Usage Based Model 

Employed mostly in industries like telecommunications, and cloud computing, usage-based monetization is also successfully applied for SaaS brands.

In this context, the client is charged based on their product usage. 
But here is the thing. You can apply this model in the traditional manner, calculating usage and billing accordingly or you have the option to use a hybrid option. 

In this variation, you can set up thresholds with a flat price. Once those thresholds are exceeded, different fees are then applied. 

Freemium Model

One of the stars of subscription marketing strategies, called freemium, is a popular choice for SaaS businesses. 

Freemium pricing provides interested users with access to a product version with limited functionality at no cost. The intention is to convince them to upgrade to a paid tier and enjoy the full power of the app for a price. 

However, you mustn’t confuse free trials with freemium. While they are both solid strategies for attracting and upgrading customers, they differ in approach. 

Free trials have limited time access and a greater urgency to convert, whereas the freemium model can be used over prolonged periods of time.

5 Subscription Billing Challenges 


Unadaptable Billing Structure

The subscription-based business model offers significant advantages in flexibility for both users and brands, driving faster business growth, enhanced customer relationships, and increased revenue.

However, without a scalable billing infrastructure, these benefits become unattainable.

As your SaaS expands, managing new customers, pricing changes, subscription updates, and international expansion all introduce complexity. Factors such as compliance regulations, automated tax calculations, and multi-currency payments add to the challenge.

And on top of that, you need to move fast because successful business scalability is a time-sensitive matter. 

Keep this in mind: a growing business will eventually outgrow an outdated subscription management platform. 

Insufficient Operational Insight

SaaS metrics are very much like success compasses. Follow the right one, and you’re bound to reach your destination (eventually). 

Churn, MRR, ARR, or ACV, are just a few examples of what subscription companies should be tracking if you wish to answer critical questions like: 

Is my SaaS business profitable? 

Am I offering sufficient payment methods? 

What’s the strongest product functionality? 

Is my pricing strategy done right? 

Why am I losing my subscribers?

Detailed SaaS analytics is essential for obtaining actionable insights and identifying growth opportunities. However, an outdated and unstable subscription billing system acts as a roadblock, hindering your gathering of this crucial data.

Systematic Revenue Loss

Subscription products face a persistent challenge: revenue loss due to failed payments and involuntary churn. 

Whether it’s expired cards, insufficient funds, or bank errors, failed payments occur. This is part of how the world of eCommerce functions. The danger is the domino effect triggered by these lost transactions, further amplifying involuntary churn. 

Additionally, with involuntary churn being a massive part of churn in general, your subscription channel could end up bleeding revenue. 

Of course, there is a solution, multiple, if we’re being honest. Automated retries, backup payment methods, dunning management, and smart payment routing all qualify as effective revenue recovery best practices. 

However, only a modern subscription billing platform will have these necessary features. 

Growing Invoicing Complexity 

Subscription brands thrive on recurring revenue, but managing invoices is a major headache as your customer base and product catalog grow.

Offering multiple pricing plans, discounts, and promotions, being able to collect payments on a global scale, switching to different monetization strategies, and handling prorated billing all introduce increased complexity. 

As a result, this leads to time-consuming manual work leaving room for greater error risk and potential revenue loss. 

Without joining forces with a fully-featured, comprehensive subscription billing system, this challenge will not be completely overcome, and in time, it will undoubtedly contribute to a growing churn rate. 

Increased Tax Burden 

Business growth requires greater attention to ever-changing tax regulations, especially if you are considering expanding your SaaS operation overseas. 

With each region having specific taxation rules and regulations, billing existing customers, registering, collecting, and filing the right amount of tax in every country becomes a complicated process.

Without establishing solid partnerships with subscription billing systems with the required features to handle these complexities, e-commerce developers might find it difficult to achieve long-term success. 

Why Use Subscription Billing Software?

Managing multiple subscriptions can be a daunting task. Not to mention that it can expose the business to a multitude of risks and challenges.

Investing in recurring billing software is the natural choice of action in the current dynamic landscape. Here is what you gain as a result of this strategic move: 

    • Efficiency and Automation: By automating repetitive tasks like invoicing, payment processing, and subscription management, SaaS merchants are saving more time and allowing their teams to focus on more strategic efforts. 
    • Greater Accuracy and Consistency: Task automation eliminates human calculation errors by automating and ensuring accuracy in billing, leading to fewer billing disputes and improved customer trust.
    • Improved Customer Experience: Through features like automatic reminders, a self-service customer portal, alternative payment methods, and currencies, reputable subscription billing platforms offer seamless billing and boost customer retention. 
  • Scalability: As your business grows, so do the billing complexities. Introducing new subscription tiers or add-ons, having to manage greater customer volumes with different payment preferences, and complying with various mandatory tax and compliance requirements need a scalable foundation. This can only be achieved by externalizing these operational burdens to a comprehensive, fully-featured e-commerce payment solution.

And this leads us to our next topic. 

How To Choose The Right Recurring Billing Platform

When it comes to deciding on the right subscription billing solution, it’s important to keep in mind that you aren’t simply looking for help in managing recurring payments. 

Your partner should provide you with additional features to allow your business to reach global audiences and track your overall performance. So, consider the following functionality when reviewing your options: 

Dunning Management 

Through automated payment reminders and notifications, dunning management helps businesses recover failed transactions and reduce involuntary churn.

Scalable Infrastructure 

Through open APIs and strong integration capabilities, your business benefits from a scalable solution capable of swiftly accommodating higher subscription volumes and complex workflows. 

Customer Support

Dedicated customer support is essential for troubleshooting payment issues and clearing up misunderstandings before they become a requests for a service pause or cancelation.  

Recurring Billing Automation

Your solution partner should be able to provide you with automation capabilities in terms of recurring billing operations like payment, collection, plan renewal, and invoicing to reduce your manual work and improve efficiency. 

Flexible Pricing Options

A worthy recurring payments software should have the ability to sustain a flexible pricing strategy, offering multiple subscription billing models and frequencies, ensuring an effortless switch between them, and providing brands with multiple payment options to cater to diverse customer preferences.

Subscription Management 

Consider improved subscription management capabilities to adequately handle sign-ups, upgrades, downgrades, cancellations, and prorations. Additionally, having the option to set up custom billing rules, discounts, promotions, and audience-targeted billing cycles is definitely a must. 

Data Compliance and Security

Expanding internationally and locally requires your business to comply with different industry regulations, including PCI DSS (which is a mandatory requirement). Additionally, correctly handling all payment details is required in order to maintain payment security.

Analytics and Reporting

Having quick and easy access to real-time analytics and reporting allows you to track key subscription metrics and measure your brand’s performance.

Is the Merchant of Record a Solution?

Yes, the Merchant of Record is a valuable solution from the payments, risk and business perspective. 

how merchant of record works

Acting as your reseller, this business model performs several payment-related operations, such as: 

International SaaS payment processing 

Tax and compliance management 

Access to different payment methods and local currencies

Fraud and risk analysis 

Refunds and chargebacks 


Having the expertise and latest technology, a Merchant of Record can ensure a faster time to market when looking to launch a new service or expand in new territories. You are no longer losing time setting up local entities in each market you want to sell or invest resources to assemble your own payment infrastructure. 

However, keep in mind that not all MORs are built the same. So when choosing the right partner for your SaaS or e-commerce business, it’s important to assess them thoroughly and carefully consider your business needs. On the surface it may appear you are comparing apples to apples, when often this is not the case.  A quick call with a reputable provider will help you ensure you are moving in the right direction and that the partnership will be a successful one.

Meet PayPro Global.

The Merchant of Record that helps you grow

PayPro Global takes away the headache of selling your products worldwide. From local payment methods to simplified subscription handling and tax management, we give you the eCommerce tools you need to scale your business smoothly into the global market.


How Can PayPro Global Help?

PayPro Global effectively combines the MOR business model with advanced subscription management capabilities, providing SaaS and software vendors with a complete payment solution. 

With over 15 years of experience in the industry and an excellent track record, our subscription management solution gives you the benefits of streamlined operations, reduced risk, and global reach, all coupled with features specifically designed for subscription businesses. 

You can easily experiment and quickly respond to growth opportunities with access to multiple pricing models, monthly or annual subscriptions, manual, automatic, or on-demand renewals, upgrades, and real-time payment reporting. 

Additionally, by providing you with automated billing, best-in-class dunning management, smart payment routing, and our 24/7 multilingual customer support, we help drive more recurring revenue and prevent churn by lowering transaction failure rates while considerably reducing your staff's workload.

As a certified PCI-DSS Level One partner committed to global compliance, we uphold the most rigorous payment security standards, ensuring that payments are not declined due to compliance issues.

Find out more about how our all-in-one payment solution can strategically help your recurring business grow in global markets, or book a demo and let our specialists show you how advanced the platform is. 

Final Thoughts

Subscription billing might have complexities, and they might even seem difficult to surpass. 

However, by harnessing the power of strong software and an experienced partner, these intricacies become mere road bumps on your path to success.

When chosen correctly, they provide your company with increased efficiency, consistency, and accuracy. Taking your subscription business globally is no longer a dream but a real and attainable business goal that is much easier than you ever imagined. 


Frequently Asked Questions

What is subscription billing?

Subscription billing is a business model in which users are billed at set intervals to access different products and services.

How does subscription billing work?

Within the subscription billing approach, customers are billed at set intervals ( monthly, annually, and quarterly). They can be charged manually or automatically if they allow their payment information to be regularly used.

What are the popular subscription billing pricing models?

Recurring billing businesses can approach different monetization models, and the most popular ones include flat rate pricing, tiered pricing, usage-based, and per-user model billing.

What challenges do subscription billing businesses face?

Some of the biggest challenges subscription-based businesses face are unscalable billing structure, reduced operational insight, invoicing complexity, and continuous revenue loss. Together, these challenges can hinder overall business growth.

Why use subscription billing software?

There are several advantages that come with implementing a robust subscription billing software. A recurring billing system will automate and simplify key processes like invoicing, payment processing, and subscription management. This will lead to improved efficiency and accuracy, streamlining both business scalability and customer experience.


Meir Amzallag

Co-founder and CEO of PayPro Global

Ioana Grigorescu

Content Marketing Manager at PayPro Global

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