What is Recurring Billing?

Most SaaS businesses adopt a subscription-based model supported by a recurring payment system.

Setting up a recurring payment system can be complicated and requires the right tools to measure, manage, and review payments regularly. 

What is Recurring Billing? 

Recurring billing happens when a merchant automatically charges a customer for a service on a prearranged schedule. It requires the customer to sign up and provide their information and permission.

After that, the vendor makes recurring charges with no further permissions required. That typically continues throughout the customer lifecycle until the client terminates the subscription or a pre-agreed upon expiration date is reached. 

Processing such payments can be complex. However, you can read more about choosing a payment processor on the Baremetrics blog and sign up for a Baremetrics demo to see what recurring revenue metrics and insights would look like in your company. 

1. How Does Recurring Billing Work?

Generally, there are two methods of setting up recurring billing. 

First, the company must set up a recurring billing merchant bank account to take deposits from credit or debit cards.

Yet, having a merchant bank account does not include the processing and actual delivery of  payments from your customers.

Therefore, companies typically outsource the entire process to a payment service provider, such as Stripe. Stripe can process and deposit funds and meet the compliance requirements for security and recurring billing.  

When using a payment service provider, such as Stripe, customers can choose their recurring payment option when they opt for a specific product or service tier on the SaaS website. The payment service provider will take care of everything from prompting the customers for credit card numbers, to sending payments between accounts. After accepting the terms and conditions and receiving authorization, customers just provide their payment information and agree to the amount they have to pay. 

Recurring Payments are usually made daily, weekly, monthly, and yearly. Customers typically receive a receipt or notification when billing is processed, either via email or text message.  

2. What Are The Types of Recurring Billing?

Recurring billing can be fixed or variable. 

Fixed recurring billing charges a customer the same amount each time, like a Netflix subscription or gym membership. 

When customers are charged using variable recurring billing, the payment amount depends on the cost of the services the customer uses during the payment period. The most common example of variable recurring billing is a cell phone or utility bill that varies depending on your usage for the month. 

3. Who Is Recurring Billing For?

Recurring billing can be used by businesses that offer their services on a recurring basis, such as telecom companies with metered billing, newspaper subscriptions, or SaaS applications like Slack or Dropbox. 

By using recurring billing, companies benefit from consistent cash flow, an ongoing relationship with their customers, and a lower barrier to entry.

That said, there are not only benefits for businesses, but for customers, too. With recurring billing, especially recurring billing facilitated by a payment provider, customers reduce the time and effort they spend on manual billing and are much less likely to miss a payment leading to a disruption in service. 

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4. Examples of Recurring Billing (And How to Measure Your Billing Metrics) 

Most of us encounter recurring billing on a day-to-day basis. Some companies charge a flat rate, such as the eCommerce Saas platform Carthook.

Carthook charges $300 per month for access to all features. There are no fees for additional usage or seats. 

Monday.com or Jira are good examples of standard recurring billing based on the number of seats. If more users are added, pricing goes up.

Companies like SaaS social media management platform Storrito sell usage plans based on the number of social media posts they help their users publish per month or year.

Few SaaS companies get billing right from the start. Churn, demand, growth, and changing customer expectations may see your billing strategy change over time.

This is why it is crucial to keep an eye on your subscription and revenue analytics. It’s also crucial to manage your accounts receivable through tools such as Recover.

Baremetrics provides subscription analytics for individual brands and companies that are running Subscription Billing through a payment provider service. This includes monitoring for Monthly Recurring Revenue, Annual Run Rate, subscriptions, subscription value, and more. 

Baremetrics can integrate with most billing software solutions, including Stripe, Checkout, Shopify, and more. View a live demo now to see how everything works. 

Pros and Cons of Recurring Billing

There are advantages and disadvantages to recurring billing for businesses and consumers. Fortunately, the positives far outweigh the negatives:

1. Pros for Businesses Using Recurring Billing

Businesses typically find that recurring billing is straightforward and accessible, with low risks. They can also set up clients with a free trial and then sign them to a recurring payment schedule when the trial ends. Other benefits include: 

• Payments are always received on time
• Predictable cash flow
• Lower billing and collection costs
• Automation of accounts receivable functionality 
• The ability to introduce price discounts to new customers 
• Reduced administrative work 
• Convenience
• Cost-and-time-effective
• Higher customer lifetime value 

2. Cons for Businesses Using Recurring Billing

As with everything, recurring payments are not without drawbacks. Companies must use the right tools to track and manage their recurring billing subscriptions integrated with their existing software platforms.

Some of the disadvantages to recurring billing include:

• Difficulty in correcting billing mistakes
• Dunning is hard to detect and manage without the right tools
• Diverse payment amounts and contract lengths can be confusing without a singular dashboard view 

Keeping track of recurring revenue is nearly impossible without proper subscription analytics. Using a tool like Baremetrics is almost essential to keeping it all straight. Still, most of the cons are overcome or at least managed with the right analytics and insights at your disposal. 

Does SaaS Have to Be Recurring? 

Most SaaS companies use the MRR (Monthly Recurring Revenue) model. However, no SaaS company is compelled to use a recurring revenue model. Recurring revenue is just a monetization strategy, one of many to choose from, in fact. 

Some SaaS companies sell the use of their platform at a fixed price and don’t charge for upgrades. Microsoft, for example, sells technology as a unit at a fixed price. Licensing fees apply, and new releases have to be bought as they roll out. 

Most SaaS companies opt for an MRR model because it is highly beneficial for them and their customers. The SaaS model is so popular because it offers flexibility and scalability, even as customers’ needs change.

Customers can scale up or down, add features or remove them when they need to. Month-to-month subscriptions allow them to stay agile. 

Recurring Billing FAQs

What is recurring billing?

Recurring billing is a payment model where a business automatically charges a customer at fixed intervals — typically monthly or annually — for ongoing access to a product or service. It's the foundation of subscription businesses, SaaS, membership communities, and any model where customers pay continuously rather than per-transaction. The system handles charge initiation, payment processing, retry logic when charges fail, and the customer communications around all of it.

What's the difference between recurring billing and subscription billing?

The terms are often used interchangeably, but there's a subtle distinction. Subscription billing refers to the customer-facing arrangement ("I subscribe to this product for $X/month"). Recurring billing refers to the operational mechanism that makes it work (the automated charging, retries, and reconciliation that happen behind the scenes). Every subscription business uses recurring billing; not every recurring billing setup is a traditional subscription (e.g., usage-based metered billing is recurring but not a flat subscription).

What are the main types of recurring billing?

Four common models. Flat-rate: same charge every cycle regardless of usage (most B2C subscriptions). Tiered: charges vary by plan level, but each tier is fixed (most B2B SaaS). Usage-based or metered: charges scale with consumption (cloud infrastructure, API products). Hybrid: a base subscription plus usage overages (the most common model for mature SaaS as it grows). The right choice depends on whether your product value scales with usage or stays constant.

What happens when a recurring payment fails?

Without intervention, the customer's subscription typically lapses 15-30 days after the failed charge — and most of those customers churn without ever consciously deciding to leave. This is called involuntary churn, and Paddle research suggests it accounts for 20-40% of total churn in subscription businesses. The fix is a structured dunning system: smart retries for temporary failures, email + SMS sequences for failures that need customer action, and an escalation path before any hard cancellation. See our complete guide to dunning management for the end-to-end system.

How much revenue do subscription businesses lose to failed recurring payments?

Across hundreds of subscription businesses, Baremetrics data shows the average company loses around 9% of monthly recurring revenue to failed payments. For a business at $100K MRR, that's $9,000 a month — every month — walking out the door without any customer deciding to leave. Most of that is recoverable. Across the 148 Baremetrics customers using Recover for dunning automation in December 2024, $1.35 million was recovered in a single month.

How do you measure recurring billing performance?

Three metrics are essential. MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) measure the size of your recurring revenue base and its trend. Churn rate measures how much of that base you're losing — broken down into voluntary churn (customers who decide to leave) and involuntary churn (failed payments that weren't recovered). Customer Lifetime Value (CLV or LTV) measures the long-term value of a typical customer, which you compare against acquisition cost (CAC) to confirm the business model works. Subscription analytics platforms like Baremetrics track all of these out of the box.

What software is best for setting up recurring billing?

For early-stage businesses, the payment processor's built-in subscription capabilities (Stripe Billing, Braintree, Chargebee, Recurly) handle the core charging. As businesses scale, dedicated subscription billing platforms add invoicing, tax compliance, and revenue recognition. For analytics and revenue intelligence on top of whichever billing system you choose, Baremetrics integrates directly with major processors to provide MRR tracking, churn analysis, and dunning automation. The right stack typically combines a billing system, an analytics layer, and a dedicated dunning tool.

Is recurring billing right for every business?

Recurring billing makes sense when (a) your product delivers ongoing value rather than a one-time outcome, (b) customers will use it long enough that subscription economics work, and (c) you can sustain the customer-success investment that retention requires. It doesn't fit one-shot purchases, project-based work, or markets where customers are highly price-sensitive to predictable monthly commitments. The decision isn't just about cash flow — it's about whether your product and operating model are built for long customer relationships.

Conclusion: Recurring Billing Done Right

Recurring billing is the operational backbone of every subscription business — but the difference between businesses where it just works and businesses where it leaks revenue isn't the charging mechanism itself. It's everything that wraps around it: the analytics that show you which segments are growing, the churn measurement that distinguishes voluntary from involuntary losses, and the dunning system that recovers the failed payments that account for roughly 9% of MRR at the average subscription business.

For most subscription businesses, the highest-ROI improvement to recurring billing isn't picking a different processor or restructuring your pricing tiers. It's closing the involuntary-churn gap. Across 148 Baremetrics customers using Recover for dunning automation in December 2024, $1.35 million was reclaimed in a single month, with 82% of customers seeing the tool pay for itself within month one. The median customer earned a 410% return on their Baremetrics subscription in that period.

If your subscription business is running recurring billing today and you haven't yet looked at the failed-payment side, that's almost certainly where the largest single revenue recovery is available. Start with our complete guide to dunning management for the framework, our involuntary churn guide for the problem definition, and our dunning emails guide for the practical email side.

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