Subscription Services v. A La Carte Pricing: The Consumer View

Recurrent billing is rising in popularity with consumers, and over 63 million consumers now rely on at least one service for which they make recurring payments. In today’s market, it’s important to be aware of what contributes to this consumer preference. Here is a quick overview of the three basic billing categories, with their advantages and disadvantages:

One-Time Purchase

This is the simplest billing model: the buyer pays all at once for a product, whether online or in a physical store. The relationship between buyer and seller may continue from one transaction to the next, through various marketing channels, but each individual purchase requires a separate consumer decision. The buyer has no commitment to make repeat purchases, and they may be easily won over by a competing offer.

Advantages: Customers feel confident about cost because the entire transaction is completed up front. Their decision-making can focus on the present moment.

Disadvantages: If it is a product or service they use frequently, customers have to repeatedly engage with the payment process. They won’t always be notified or reminded if special sales or new products are available. Also, a high-end service may be unaffordable if it must be paid for all at once.

Usage Based Fees

Usage-based fees refer to a billing model in which the customer pays a variable amount, depending on how much of the service or resource was used during the billing period. This billing model, familiar to customers through services such as water and utility companies, is increasingly being converted to tiered levels of service that provide more predictable pricing. These tiered levels of service, combined with autopay options, are following customer preference by moving closer to subscription billing practices.

Advantages: Usage based fees allow the consumer to learn how much their cost increases as they use a product or service. Meanwhile, tiered billing categories give customers predictability while also providing them with a sense of being able to control costs.

Disadvantages: When the amount owed varies with each billing cycle, customers have a harder time budgeting for the expense. Their loyalty is likely to suffer, since they may feel motivated to search for different providers after a more expensive billing cycle.

Recurring Subscriptions

Historically, consumers have been familiar with subscription models in two different arenas: The first is a service or publication that brings out new content on a continuing basis. The second is when the subscription or lease provides full access to a significant product (solar panels, automobile, etc.) that is maintained and updated by the lessor. Consumers relate readily to a billing arrangement that refers to none of these familiar contexts. Furthermore, as the convenience and safety of recurring billing becomes more widespread, they will increasingly rely on this payment model in more sectors of their financial lives.

Advantages: Customers enjoy the convenience of not being required to go through a repetitive payment process each billing cycle.

Easy access to full account information and payment details creates customer confidence.

Customers never run the risk of service interruptions due to late payments.

Continuous product updates and external maintenance are attractive elements to a subscription model.

Affordability: the product can be enjoyed immediately, while the cost of it is spread out over the period of usage. This model allows predictable budgeting and builds customer loyalty.

Disadvantages: One reason that the popularity of recurrent billing continues to increase is that it addresses the downsides inherent in other billing methods. With any type of online billing platform, customers need to feel secure that their billing information is being properly safeguarded. They also must have clear information about termination procedures and all other aspects of customer service. A high-quality billing platform effectively addresses all potential consumer concerns, creating an atmosphere of trust and commitment.

Not sure where to start when it comes to finding a subscription billing company that fits your needs? Download our free Six Must-Haves guide, which covers the features you need in a subscription billing service, why you need them, and comes with a bonus feature checklist: