Service businesses tend to use recurring billing as a means of making money from their customers. There are two types of recurring billing solutions, which are either contractual and non-contractual. A business will use a contract when they are selling an essential service that is being used by their customer over and over again. A few examples of services like this are gym memberships, car insurance, cell phone services, and internet connections.
Some businesses may let the consumer end their contract early, but they will have to pay a huge cancellation fee in order to do so. As for non-contractual services, these are areas related to subscription services. For example, a magazine or newsletter subscription that you purchase does not have a contract attached to it.
You simply have the option to cancel the subscription service at any time you want without penalty. Many consumers like recurring payments that they can cancel at any time because they want to have complete control over their own funds without feeling any obligation towards a purchase.
So, which recurring billing solution is better? It all depends on the type of business. Businesses, like gyms and cell phone carriers, require customers to be dedicated to their service plan. It wouldn’t help much if customers could just leave anytime they wanted to and go with a competitor of the business that has cheaper rates. That would ultimately put the company out of business as soon as a cheaper competitor comes around. With contracts, they have a long term guarantee that their customers will stay with them.
This will also help the customers form an emotional relationship with the business and that will make them not want to go anywhere else. So, why don’t subscription services do the same thing? Well, subscription services serve a different purpose because these companies don’t make their primary revenue from the sales of their services. They make money from advertising the products and services of other companies. For example, when you open up a magazine you will see dozens of advertisements and insert cards in it.
You will notice that not all of these ads and insert cards are for that particular magazine. There are other companies that paid the magazine to advertise their products and services for them. Since recurring billing that is non-contractual will attract more people, then more people will be looking at those advertisements.
Then the companies that sponsor those ads will be happy and they will continue to pay that magazine for advertising their business. As you can see, the type of recurring billing that a company chooses should depend on the type of business they have in the first place.