Recurring Billing Explained: How It Works for SaaS

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

1. How to Set Up Recurring Billing With Stripe?

Use Stripe Billing to bill customers with subscriptions and capture your recurring payments globally. Here’s how to set it up:

Go to your account dashboard and assign a pricing plan to your product or service that you want to collect recurring payments for
Subscribe a customer to said pricing plan
When invoices are processed, customers receive emails detailing what they owe along with payment options (transfer, check, debit or credit card).

Setting up recurring payments with Stripe is free, but each recurring transaction costs 2.9% plus a flat rate of 0.30 USD.

2. How to Monitor Recurring Billing With Baremetrics?

Baremetrics is a subscription analytics platform, enabling businesses to monitor their customer’s recurring monthly revenue, lifetime revenue, and churn rate.

i. Monthly and Annual Recurring Revenue

Your ARR or Annual Recurring Revenue is your recurring revenue per annum. In a SaaS business, you’ll regularly see new customers joining and existing customers leaving, which can cause your monthly revenue to fluctuate.

MRR captures the movement to show whether or not your revenue is growing or shrinking, giving you an overview of the financial health of your business. It also makes it easier to forecast your future revenue so that you can make decisions about investing, scaling, or budgeting.

Check out this example of monitoring MRR and ARR in Baremetrics:

ii. Customer Lifetime Value

Your Customer Lifetime Value helps you measure how valuable a client is over time, then you can compare that to the cost of acquiring that customer (CAC). You need to have this data available at a glance to help plan out your marketing and sales.

iii. Churn Rate

Your churn rate measures the rate at which customers stop doing business with your organization (e.g., cancel subscriptions). Unsurprisingly, you need to keep churn rates low to maintain a healthy business.

Baremetrics also provides insight into dunning, helping companies recover revenue due to payment errors such as failed credit cards. On top of that, Baremetrics offers revenue and subscription forecasting tools for detailed insights into your financials.

Manually tracking new customers, upgrades, and lost customers is considerably challenging, especially if you offer customization or usage-based billing. So, it’s a good idea to use a recurring revenue analytics tool so you can actually see how much money you’re making.

Conclusion

Recurring revenue isn’t the only monetization method SaaS companies use, but it’s an effective one.

Frequently Asked Questions

What is recurring billing and how does it work for subscription businesses?

Recurring billing is a payment model where a merchant automatically charges a customer on a prearranged schedule, such as monthly or annually, after the customer provides their payment details and consent just once. For subscription businesses, this means revenue is collected without manual intervention on each cycle, which creates predictable cash flow and reduces the administrative burden of chasing payments. Most SaaS companies route this through a payment processor like Stripe, which handles the transaction, compliance, and customer notifications. The subscription continues until the customer cancels or a pre-agreed expiration date is reached, making recurring billing the operational backbone of any MRR-driven business.

What is the difference between recurring billing and subscription billing?

Recurring billing and subscription billing are closely related but not identical. Recurring billing is the broader payment mechanism where a customer is charged automatically on a fixed schedule, and it applies to everything from utility bills to gym memberships. Subscription billing is a specific application of recurring billing in which access to a product or service is granted in exchange for that repeating charge. For SaaS operators, the practical distinction matters because subscription billing typically layers in additional complexity such as tiered pricing, usage-based charges, mid-cycle upgrades, and trial periods, all of which create revenue movements like expansion MRR and contraction MRR that a simple recurring payment setup does not capture on its own.

What is the difference between fixed and variable recurring billing for SaaS companies?

Fixed recurring billing charges the same amount every cycle regardless of usage, which is common in flat-rate SaaS pricing where a customer pays a set monthly or annual fee for full access to a product. Variable recurring billing adjusts the charge based on consumption during the billing period, such as the number of active seats, API calls, or posts published, making it common in usage-based or seat-based pricing models. For SaaS founders, the choice between the two directly affects revenue predictability: fixed billing makes MRR easier to forecast, while variable billing can drive expansion revenue as customers grow but introduces more volatility in your monthly numbers and more complexity in tracking exactly what each customer owes.

What does recurring billing mean for involuntary churn and failed payments?

Recurring billing introduces a specific churn risk that has nothing to do with customer satisfaction: involuntary churn caused by failed payments. This happens when a credit card expires, a charge is declined, or a bank blocks a transaction, and the subscription lapses as a result rather than because the customer chose to leave. For subscription businesses, involuntary churn is often invisible until it has already eroded MRR. Baremetrics Recover addresses this directly by automatically retrying failed payments and triggering customer-facing recovery sequences, giving you visibility into the MRR at risk and a systematic way to recover revenue before it is permanently lost.

How do I track the key metrics generated by a recurring billing model?

Tracking the key metrics from a recurring billing model starts with connecting your payment processor data to a dedicated subscription analytics platform so that MRR movements, churn rate, LTV, and failed payment events are visible in real time rather than pieced together from raw transaction exports. Once your billing data is flowing in, you can separate new MRR from expansion MRR, contraction MRR, and churned MRR to understand exactly where revenue is growing or leaking each month. From there, LTV calculations let you benchmark the value of each customer segment against your acquisition costs, and revenue forecasting tools let you project future cash flow based on current subscription trends. Baremetrics connects directly to Stripe, Braintree, and Recurly to surface all of these metrics without any manual setup.

How can I benchmark my recurring billing performance against other SaaS companies?

Benchmarking your recurring billing performance means comparing your churn rate, MRR growth, and LTV against companies at a similar stage and in a similar market, not against generic industry averages that do not reflect subscription business dynamics. Baremetrics publishes open benchmark data drawn from hundreds of SaaS companies, which lets you see where your metrics sit relative to businesses with comparable MRR and pricing models. This is particularly useful when evaluating whether your monthly churn rate is a structural problem or within normal range for your growth stage, and it gives finance leads and founders a defensible, data-backed answer when investors ask how your subscription metrics compare to the market.

When should a SaaS company use recurring billing instead of a one-time payment model?

A SaaS company should use recurring billing when the value of the product is ongoing rather than delivered in a single transaction, which describes almost every software-as-a-service business delivering continuous access, updates, and support. Recurring billing supports predictable cash flow, makes LTV calculations meaningful, and creates the conditions for expansion revenue as customers upgrade or add seats over time. A one-time payment model can work for standalone software sold at a fixed price, but it removes the revenue visibility that MRR tracking provides and makes it significantly harder to forecast growth or identify churn trends early. For subscription businesses generating any meaningful monthly volume, the analytical and operational advantages of recurring billing compound quickly as the customer base scales.

What is Recurring Billing?

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