Understanding the Credit Based Subscription Model & Its Best Practices

With the customer expectations evolving, the need for billing flexibility is rising too. Charging customers fixed prices isn’t the way to go for services with fluctuating usage patterns. It undermines their service usage, and has a negative impact on their price-to-value perception.

That’s why credit based subscription model is gaining traction with businesses. Implementing this model the correct way makes billing fair, effective, and a potential tool for subscriber retention. Businesses benefit from advanced payments, while subscribers get to connect their charges with the received value better.

In this blog, let’s discuss the credit based subscription model in detail—what it is, how it works, and its best practices.

What is a Credit Based Subscription Model?

The credit based subscription model is the one in which companies sell tokens known as credits to customers. Customers purchase these credits upfront, and then use them as they wish to access various services provided by the company.

Think about an online editing software that allows customers to buy credits. Each of its features is priced by a certain credit amount. Subscribers can pay for a bunch of credits each month to access the software. They can utilize their credits for only those editing features in the software that they need.

So credits become a currency using which the customers can buy their desired services. They are not required to pay for every feature in the software they’re subscribed to. This gives them more control over their charges, making billing fairer.

Some examples of businesses using the credit based pricing model are cloud-storage services, generative AI companies, digital content communities, and e-learning platforms. Customers can use their credits to buy storage units, API calls, gated content, online courses, and more. Their usage varies according to the type of service.

Two Common Types of Credit Based Subscriptions

Subscription businesses commonly offer credits in these two ways:

• Recurring Credits Plan

Credits are obtained through subscription. Businesses may offer various credit bundles monthly, such as 100 credits for $50. Customers receive credits according to their subscription cycle, such as monthly or quarterly.

They may utilize them as per need. If some of their credits remain unused at the end of a cycle, they may be transferred to the other cycle. Credits may also expire depending on the subscription rules set up.

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• One-Time Credit Purchase Within Subscription

In this approach, customers subscribe to a subscription tier that offers them access to a specific set of services. But, they can also purchase credits as a one-time purchase whenever they feel the need. They can use these credits to buy services or features not included in their own plan.

With this flexibility, customers don’t have to shift to the more expensive plan completely. They may remain in their own plan and purchase only those additional services which they require. Further, they can top up on credits by purchasing more whenever needed.

Companies benefit from this practice as they not only earn revenue from their subscription plans, but also profit by selling credits.

Benefits of the Credit Based Subscription Model

There are numerous benefits that businesses derive from this model. These are some major ones:

• Flexible Billing

If a business offers dynamic services with greatly varying usage, they can implement the credit based subscription system. With this system, they can adapt billing to the changing needs of their customers.

This way, they can keep up with the evolving trends and satisfy their customers better. They can also avoid cutting short the potential of their service by assigning it a static price.

• Predictable Revenue

Achieving flexibility in billing doesn’t mean that revenue has to become less predictable. While that might be the case with some usage-based models, it isn’t so in the credit based subscription model.

In fact, businesses can achieve both revenue consistency and flexibility with this model. That is because customers essentially subscribe to credits. They have to pay upfront for these credits on a regular basis, such as monthly.

How many credits customers become entitled to depends upon their subscription plan. For example, a business might be offering three plans side by side: the basic one with 100 credits, the advanced with 200 credits, and the ultra with 300 credits.

Thus, businesses benefit from customers’ upfront payments, and earn revenue that is predictable.

• Greater Upselling Chances

Suppose a customer is subscribed to a 100 credits per month plan. But they use up their credits before the month ends. Or, while browsing the service, they find some appealing features that require more credits to unlock.

These scenarios increase upsell opportunities for businesses. They encourage customers to change to a plan that offers more credit quantity, facilitating the generation of more revenue.

• Unified Service Bundles

With the credit based subscription system, businesses don’t necessarily have to divide their services in isolated bundles. They can offer a single and unified package that makes access to all of its services easy.

That is because customers still require a certain amount of credits to access each service. They cannot access all of them unless they pay accordingly. Therefore, companies don’t need to put in extra effort to divide services by bundles.

• Reduced Churn

Customers can see a clearer alignment between their charges and the value they receive. They can measure the value of each service or feature using their virtual currency i.e. credits. This enhances their subscription experience and promotes retention.

Moreover, if customers buy a set of credits, they are more likely to stay until they have utilized it.

• More Natural Customer Consumption

Customers aren’t forced to utilize certain features. They are simply given credits so that they can explore a service and spend on its features freely. This results in consumption that is done willingly, and further enhances service experience.

10 Best Practices for Implementing the Credit Based Subscription Model

The credit based model definitely offers various advantages, but only if it is implemented right. Inefficient implementation can make the model seem too complicated for customers to understand and trust.

So here are some best practices that a business should consider when setting up the credit based subscription model:

1. Clearly define credit value for customers

Make sure your credit based subscription strategy doesn’t become too complicated. Otherwise, it can discourage customers from signing up. Clearly highlight the value of your offered credits. Customers must know what these credits can unlock for them.

For instance, if 5 credits unlock a lesson for them on an e-learning platform, it must be clearly communicated.

2. Set up plans that offer different credit quantities

It is best to let customers choose how many credits they want. Offering only a single plan with a fixed set of credits can kill flexibility. Different credit tiers can be established, and customers can subscribe to either based on their need. This also increases upsell chances, as customers can move to higher tiers as their needs advance.

3. Strike a balance between credit rollover and expiry

It is essential for businesses to decide whether to allow unused credits to roll over or expire. Rolling over means transferring the unused credits of an ended subscription period to the next period. It is a strategy that creates goodwill between the business and its customers, as it lets them preserve their previous credits for future use.

However, the business might also adopt a different strategy in which it expires customers’ leftover credits. This strategy can encourage customers to use their credits fast, boosting engagement.

There can be a third approach for this too that strikes a balance between both these strategies. And that can be carried out by offering grace periods. A business can offer a 5-day grace period to its customers for utilizing their leftover credits. After this duration, their credits expire.

This strategy makes customers feel valued, and at the same time urges them to increase their usage.

4. Allow credit top up

Customers might use all of their credits before their subscription cycle ends. In this case, they should be allowed to buy more credits for a fee. Enabling top ups is important to retain customers, as their service usage would be interrupted otherwise.

It’s also a great option for customers who want to stay in their current credit plan as they rarely require extra credits.

5. Let customers track credits easily

Customers must be able to see and monitor their credit usage. For instance, they must be able to view their total, used, and remaining credits. This adds more clarity to their subscription experience, and lets them budget better.

6. Offer volume discounts on credits

If a customer (likely a B2B client) purchases credits in large quantities, they can be given volume-based discounts to encourage higher purchases. Since discounts are always customer-friendly, they help boost retention as well.

7. Offer personalized credit rewards

Customers can be given loyalty rewards when their credit usage exceeds a certain limit. For instance, they can be given 5 credits for free upon the utilization of 100 credits. Moreover, businesses can give out free credits on special occasions too, such as on customers’ birthdays.

8. Monitor credit usage

Businesses must monitor their customers’ credit usage as well to gain insights on their purchasing patterns. They can find out their most popular services, on which customers spend the most credits, and least popular too. These insights can help them enhance service prices even more.

9. Give Expiration Reminders

It is a good practice to let customers know whenever their credits are near expiry. This way, credit deduction doesn’t come as unexpected to them. Similarly, as customers are utilizing services, they can be notified when their credits are running low, and when they must top up to continue.

10. Integrate with advanced subscription billing software

Integrating with billing software like SubscriptionFlow is a must for successful implementation of the credit based system. This software automates billing cycles, offers portals where customers can view credit activity, lets businesses track credit usage, helps in credit adjustment, and does a lot more for smooth subscription operations.

How SubscriptionFlow Supports Credit Based Subscriptions

SubscriptionFlow offers powerful features that help implement the credit based subscription model seamlessly. These features include:

• Tiered plan support for creating flexible credit tiers
• Automatic renewals and top ups
• Flexible expiry and rollover rules
• Grace periods for customer convenience
• Customer portals for monitoring credit activity
• Credit usage tracking for intelligent planning
• Personalized credit reward support

Unlock all these features, and many more. Get onboard SubscriptionFlow, and manage your credit based subscriptions the smart way.