The goal of any business is to improve sales and secure a consistent and predictable flow of income. A recurring payment model, sometimes known as recurring payment, enables subscription businesses to accomplish precisely that. A recent research report by Juniper indicates the market potential is substantial with global recurring payment transactions expected to surpass $15.4 trillion by 2027. This exponential growth is generated by increasing adoption of subscription business models, which benefit both businesses and customers through advanced digital payments like recurring payment models.
In this blog, we will provide you all you need to know about recurring payments, its pricing models, payment modes and how your subscription business can benefit by adopting this payment method. Let’s begin.
What are Recurring Payments
A recurring payment system automatically collects payments from customers at regular intervals in exchange for ongoing services. Using the best recurring billing automation software simplifies this process by eliminating the need for manual payments each billing cycle.
Recurring Payment Pricing Models for Subscription Business
Recurring payments are a fundamental aspect of subscription-based business models, especially in the Software as a Service (SaaS) sector. Various pricing models cater to different customer needs and preferences, enabling businesses to optimize their revenue streams. Here are the primary pricing models in recurring payments:
Flat-Rate Pricing
In this model, customers are charged a fixed amount at regular intervals, regardless of usage. This straightforward approach simplifies billing for both the business and the customer.
Example: Slack offers a flat rate monthly for its Pro plan, providing access to all core features regardless of usage.
Tiered Pricing
Tiered pricing allows customers to choose from multiple service levels or bundles at different price points. As customers upgrade or downgrade their plans, their pricing changes accordingly.
Example: HubSpot provides tiered pricing plans like Starter, Professional, and Enterprise, with each plan offering additional features at progressively higher price points.
Usage-Based Pricing
In this model, customers are charged based on their actual usage of the service. This approach is often perceived as fairer since costs directly correlate with consumption.
Example: AWS Cloud charges businesses based on the actual usage of storage, compute, or data transfer resources, making it scalable and cost-effective.
User-Based Pricing
User-based pricing charges customers based on the number of users accessing the service. This model is common in SaaS applications where multiple users from an organization require access.
Example: Microsoft OneDrive’s business plans charge per user and include a defined amount of cloud storage, such as 1TB per user in Business Basic or Business Standard plans.
Pay-As-You-Go Pricing
This model combines elements of flat-rate and usage-based pricing. Customers pay a base fee plus additional charges based on usage beyond a certain threshold.
Example: Akamai provides cloud services like content delivery and security solutions based on actual usage and are typically billed on a pay-as-you-go basis, where businesses are charged based on data transfer, requests, or traffic volume.
Subscription Bundles
Subscription bundles offer customers a package deal that includes multiple products or services at a discounted rate compared to purchasing them separately.
Example: Microsoft 365 Business Suite offers bundled subscriptions that include tools like Word, Excel, Teams, and OneDrive at a combined discounted rate compared to purchasing them separately.
Types of Business Use Recurring Payments
In recent years, recurring payments have transformed from a niche billing option into an important business strategy that drives sustainable growth. This shift reflects the modern customer’s preference for easy, automated payment solutions that align with their digital-first lifestyle. As businesses adapt to changing market demands, recurring payment models have proven essential for building predictable revenue streams and encouraging long-term customer relationships.
Various businesses have implemented recurring payments for their products or services like:
- Streaming Services – Netflix India, Amazon Prime Video
- Software-as-a-Service (SaaS) – Zoho, Freshworks
- Fitness – Cult.fit
- E-Learning Platforms – Coursera, Unacademy
- Utility and Telecom Providers – Jio, Airtel
- Health and Wellness Services – Cure.Fit, HealthifyMe
- E-Commerce Businesses – Zomato Gold, Swiggy One
- Digital News and Publications – TOI Plus, Reader’s Digest
Different Modes of Recurring Payments
Recurring payments can be categorized based on the payment modes used and the method of calculating the payment to be charged:
Based on Payment Modes
Recurring Card Payments
This involves recurring payments made through credit or debit card details provided by the customer to the merchant. For example, many OTT platforms like Netflix and Amazon Prime India use this mode.
Recurring UPI Payments
Unified Payments Interface (UPI) enables recurring payments by allowing automatic deductions directly from the customer’s linked bank account. For example, apps like Google Pay and Paytm facilitate recurring UPI mandates.
Recurring Direct Debit Payments
This method allows merchants to automatically charge a customer’s bank account at regular intervals through services like National Automated Clearing House (NACH) or e-NACH, commonly used by telecom providers and loan repayment services.
Recurring Wallet Payments
Digital wallets like Google Pay, PhonePe, and Mobikwik enable recurring payments by deducting funds from the customer’s wallet balance. These are popular for mobile recharge or utility bill payments.
Recurring ECS Payments
The Electronic Clearing System (ECS) is a payment mode used by Indian banks to facilitate automatic, recurring transfers for loans, insurance premiums, or mutual fund SIPs.
All the above payment methods involve intermediaries, which may occasionally result in transaction failures. To avoid disruptions, it is advisable to offer customers multiple recurring payment options for your subscription-based business.
Based on Usage
Fixed Recurring Payments
When a specific amount is charged at regular intervals, such as a monthly or annual subscription fee, it is called a fixed recurring payment.
For example, a gym membership charging ₹800 per month for access to gym facilities or OTT subscriptions like Hotstar and Zee5 that offer fixed monthly or yearly plans.
Variable Recurring Payments
These payments fluctuate based on usage or consumption. For instance, postpaid mobile plans from providers like Airtel or Jio charge customers based on data usage, call duration, or additional services consumed.
Many SaaS and subscription-based businesses in India provide both fixed and variable recurring payment options.
Examples:
- Zoho CRM: Offers a fixed monthly fee for businesses, starting at ₹800 per user for a standard plan with predefined features.
- RackNap: Enables service providers to offer a flexible pay-as-you-go pricing model for customers, where costs scale based on usage rather than fixed subscription fees, ensuring affordability and efficiency for small and large businesses alike.
Such flexible payment models cater to the diverse needs of both large businesses and small businesses, ensuring greater affordability and customization.
Benefits of Recurring Payments
The Indian SaaS market’s projected growth to $50 billion by 2030 reflects the global shift toward recurring payment models, with industry leaders setting new benchmarks for customer engagement in the maturing subscription economy. The rapid evolution in payment models has become critical for SaaS companies looking to maintain their competitive edge in the digital landscape.
Here are some of the key benefits of recurring payments for SaaS subscription models:
Predictable Cash Flow
Recurring payments provide SaaS companies with a reliable and predictable revenue stream. This stability allows businesses to forecast income more accurately, facilitating better budgeting and financial planning.
Reduced Manual Effort
Automating recurring billing eliminates manual collection processes and errors. A strong billing system saves time, reduces operational costs, and simplifies subscription management.
Improved Customer Retention
Subscription models build long-term customer relationships, offering insights into customer behavior and preferences. This allows businesses to tailor offerings, enhance the customer experience, and improve retention.
Opportunities for Upselling and Cross
Customers committed to subscription payments are more likely to explore additional products or services. This increases revenue and enhances customer lifetime value by creating opportunities to upsell or cross-sell effectively.
Operational Efficiency
Automating billing processes through recurring payments significantly reduces the administrative burden on finance teams. With collections on autopilot, staff can focus on strategic initiatives rather than chasing payments or managing manual billing tasks.
Reduced Late Payments
By automating payment schedules, recurring billing minimizes the risk of late or missed payments. Funds are withdrawn at agreed-upon intervals, ensuring that cash flow remains consistent and that customers are relieved from the responsibility of remembering payment due dates.
Set Up Recurring Payments for Subscription Business Easily with RackNap
Setting up recurring payments has never been this simple. RackNap is the ultimate automation platform designed to boost your Average Revenue Per User (ARPU) while simplifying subscription service delivery. With RackNap, you can ensure timely invoicing, consistent revenue streams, and seamless service management.
Create plans with auto-renewal, usage-based pricing, and flexible adjustments based on cycles, units, and bundles. Offer service changes, add-ons, auto-notifications, and self-renewal options. Effortlessly manage orders, credits, pricing, renewals, and refunds. Gain real-time insights into payments, renewals, and client data with intuitive visualizations.
Join the growing list of subscription businesses that trust RackNap to streamline their operations and maximize revenue potential.
Ready to revolutionize your recurring payment process? Schedule a demo today and set your subscription business up for unmatched success!
Read next: Finding the right subscription pricing strategy for your subscription business
