What is billing cadence?

Billing cadence is the frequency and time pattern at which a business charges its customers for utilization of various products/services. It is the schedule that determines when invoices are generated and payments are collected from the customer base. Billing cadence involves several critical components, including how often billing occurs, the timing when billing takes place in each cycle, and consistency to ensure a predictable pattern that can be beneficial for both customers and the business.

Here the frequency of billing depends on the billing model. The timing indicates when the billing must take place, and consistency allows businesses to devise strategies based on the predictable billing pattern. Cadences are crucial to the billing processes of subscription-based businesses, project-based businesses, and service-based businesses.

Opting for the right billing cadence for your product or service holds importance as it defines your influence on the customers and builds brand reputation. It impacts how customers react to your pricing and view your services. If they do not know when to anticipate the bill, or your payment process is intricate, or the billing cycle is not aligned with the value proposition, customers are likely to miss payments and feel frustrated. This in turn can negatively influence your customer acquisition efforts, rendering customers dissatisfied with the services offered.

Components of Billing Cadence

Frequency: It determines how often invoices are issued to customers. Some common intervals are weekly, annually, quarterly, or monthly. The frequency choice has a critical role in cash flow management, customer journey, and satisfaction.

Timing: It defines the exact date when billing occurs, such as the 1st of each month. When timing is consistent, it helps to anticipate charges, and businesses can manage finances accordingly.

Consistency: A regular billing pattern allows predictability of revenue streams and ensures smooth management of planning expenses.

Example of SaaS Billing Cadence

Monthly Billing

In this type of billing cadence, customers are charged on a per-month basis on the same date of each calendar month. Suppose $50/month CRM plan charges customers on the signup date and renews monthly with a predictable revenue and budget forecasting.

This type of billing facilitates small to medium SaaS market players, keeping a balance between cash flow and customer flexibility.

Annual Billing

In an annual billing cadence, customers are charged once per year with a discount; for instance, let’s say $500 per year vs. $700 per year if paid in monthly installments. For instance, Adobe promotes its annual plan by offering discounts. This type of billing allows upfront cash flow and locks in customers for a longer period of time.

Quarterly Billing

In a quarterly billing cadence, customers are charged every 3 to 6 months. This type of billing is preferred in digital marketing services, enterprise software, etc. What makes this billing preferable is that it balances predictability with fewer payment events, thereby attracting businesses that budget and report quarterly.

Weekly/Usage-Based Billing

Some subscription applications, such as fitness apps and educational SaaS, bill customers weekly. In the same way, customers are charged as they hit usage thresholds. For example, an API SaaS may charge $0.02 each for every 500 API calls, rather than at the month’s end.

What are usage-based billing cadences?

Usage-based billing cadences are considerable ways of charging your customers for the consumption of products/services offered. This can be combined with other billing cadences, such as per-month or annual billing plans.

Pay-as-you-go: It is the most basic billing cadence, where customers must pay for what they utilize. This type of billing is for customers who require a variable amount of a service.

Tiered pricing: It provides different pricing tiers based on usage levels and features access, with higher volumes meaning lower prices. It suits the needs of customers who use large-scale, advanced versions of your services/products.

Per-user pricing: It creates a usage-based cadence where the number of users who are accessing a product/service is counted. It is suited to businesses with a high number of employees or team accounts. Examples include project management tools, CRM tools, and more.

What are some other types of billing cadence?

Event-based billing cadences

This type of billing cadence varies from other types as it is not associated with a specific timeframe. In fact, customers are charged per event that occurs, such as a project milestone, a service call, and more. Some further categories are

Per-metric billing: It ties to services usage such as API calls made, marketing contacts created, etc.

Per-transaction billing: It is commonly used in payment platforms like Stripe or PayPal, where customers are liable to pay a fixed percentage of each purchase made using the platform.

Milestone-based billing: It works well for project-based businesses like construction companies, consulting firms, etc. Customers are liable to pay a fixed amount after completion of each milestone.

Event-based billing differs from usage-based billing as it is tied to a specific event that triggers the billing process. Whereas, in usage-based billing, actual usage of a service/product defines what customers must pay.

Hybrid billing cadence

The hybrid model combines every type of pricing structure, such as usage-based, event-based, subscription-based, etc. This allows businesses to capture value from different aspects of their service while providing customers with flexibility and options that align with usage patterns.

This billing integrates several pricing structures simultaneously. Subscription-based components allow predictable recurring revenue via fixed monthly or annual fees for core platform access. Usage-based elements charge customers based on consumption metrics such as storage, API calls, and more.

SaaS Product Example: Customer Communication Platform

Suppose a SaaS platform helps businesses manage customer communications across multiple channels. This platform demonstrates how hybrid billing addresses diverse customer needs while maximizing revenue opportunities.

Base Subscription Tiers:

• Starter Plan: $29/month for up to 1,000 contacts and basic features
• Professional Plan: $99/month for up to 10,000 contacts with advanced analytics
• Enterprise Plan: $299/month for unlimited contacts with premium features

Usage-Based Components:

• Email sends: $0.001 per email beyond the monthly allowance (Starter gets 5,000, Professional gets 25,000, and Enterprise gets 100,000).
• SMS messages: $0.05 per SMS (not included in base plans)
• API calls: $0.0001 per call, beyond 100,000 monthly free calls
• Data storage: $0.10 per GB, beyond the included amount

Event-Based Charges:

• Webhook deliveries: $0.001 per webhook delivered to external systems
• A/B test creation: $5 per test campaign setup
• Custom integrations: $50 one-time setup fee per integration

What are some billing cadence best practices?

Billing cadence best practices include understanding customer needs, assessing revenue goals, aligning cadence with value offered, considering operational complexities, and establishing clear billing terms.

Here are details of each of the mentioned best practices:

Understanding customer needs

In the context of billing cadence, considering customer needs means analyzing how customers prefer to pay, when they have budget availability, and what payment frequencies align with their business operations and cash flow patterns. This practice involves gathering insights into customer behavior, preferences, and constraints to design billing schedules that improve customer experience. Price sensitivity and perceived value must be taken into consideration, and testing must be conducted to offer varying cadences for products/services offered.

Assessing revenue goals

The revenue goals aspect of billing cadence best practices focuses on aligning your billing frequency with your current business growth stage and financial objectives. Depending on where you are in your business’s growth, you may need to prioritize higher revenue over attracting more customers or vice versa.

 Longer billing cycles enable upfront cash for major investments and also guarantee longer retention; however, they create gaps in cash flow. This approach is workable if you need immediate capital for growth initiatives, product development, etc.

Conversely, shorter billing cycles create more steady cash flow, but they’re labor-intensive to manage and facilitate higher churn. Monthly billing provides consistent revenue streams that help with operational planning and budgeting, though it requires more administrative overhead and gives customers more frequent opportunities to cancel.

• Growth-stage alignment

If your main goal is to grow revenue or introduce new customers to your product, you can make purchases risk-free by offering shorter cadences. This reduces the psychological barrier to entry for new customers who may be hesitant to commit to longer-term contracts.

To support your loyal customers and increase customer lifetime value, you should offer longer cadences with a slight incentive. This can maximize revenue from existing customers and may improve cash flow, thereby reducing churn through longer commitments.

Aligning cadence value with value delivery

With higher-perceived-value products, longer billing cycles are more preferable. This can include products such as personal or professional development courses, software with high difficulty levels, and products with more room for customization. On the other hand, if the value is immediate and customers can abruptly begin using your product, shorter billing cycles are considerable.

In the case of products with highly variable usage, where users have control over effort and time spent on them, event-based or usage-based billing is more appropriate.

Operational complexities

In a complex business ecosystem, consideration of different billing cadences and their impact on day-to-day operations is crucial. Prolonged billing cycles can lead to a high risk of non-payment and require loads of manual work for payment collection. However, shorter billing cycles often require more frequent invoicing and can be costly as well as time-consuming. It is also crucial to take into account any discounts you are offering and incentives attached to your product for longer cycle cadences.

Establishment of clear billing terms

For billing process optimization, it is important to outline payment terms, late fees, or any related discounts. It is best to communicate these policies to your teams and customers, thus avoiding miscommunication and ensuring consistent billing practices. It is also recommended to program your billing intricacies into your billing software for automatic execution of cycles.

How can SubscriptionFlow automate billing cadences?

SubscriptionFlow automates billing cadence through its subscription management platform. It renders flexible billing intervals and cadences, automated billing and payment processing, advanced automation features, smart invoice management, and integration capabilities.

Here are details of each of the mentioned features:

Flexible billing intervals

SubscriptionFlow allows businesses to set up flexible subscription plans with various billing cadences, including, for example, weekly, monthly, or annual charges. The software enables calendar date billing, which indicates that you can bill subscribers on any given date on the calendar, thereby allowing flexibility with payments.

Using this software, you can manage subscriptions of customers and automate recurring billing and payments. Moreover, customers can be billed weekly, quarterly, and annually.

Automated payment processing

SubscriptionFlow provides granular flexibility at every stage, right from the adaptive pricing models to customizable billing intervals, hosted payment pages, and integrated shopping carts. Recurring payments tied to subscriptions are effectively processed via purpose-built subscription payment processors. The software bills customers based on subscription plans, even in the case of proration. Thus, it leaves no room for inaccuracy in billing processes.

Advanced automation features

You can program email engagement triggered in response to new signups, bill and charge your customers automatically, and set up dunning logic that plugs revenue leaks. This involves automated payment retry mechanisms and dunning management to handle payment failures in an effective way. Our platform can automatically retry failed payments and send targeted email sequences to recover revenue from payment failures.

Smart invoice management

Businesses can set up smart invoice creation; these invoices are custom-made and are simple to understand, making payments easier. With smart Pay Now buttons embedded into each invoice, payment collection can become hassle-free.

 Integration capabilities

SubscriptionFlow enables smooth integration capabilities to incorporate ERPs, CRMs, and other tools to strengthen all business-related processes. With integration options such as HubSpot, Shopify, and more, billing cadences are managed in a proficient manner with existing business systems.