The definition of a recurring payment already gives you an indication of the differences between recurring payments and subscription sales. But to properly understand what subscription sales are, a definition of what a subscription is is necessary.
A subscription is a contract in which a customer agrees to pay a periodic amount to a seller in exchange for access to services or for the acquisition of products.
The terms of a subscription contract define:
- the service or product to be provided,
- the amount the customer will have to pay periodically
- and the payment schedule.
Subscriptions are often of long duration and can last for several years. Subscriptions can be renewed automatically until the customer decides to cancel or change them for another subscription.
A subscription is characterized by:
- The amount of the recurring payment it initiates. This amount can be fixed but can also vary. Particularly depending on the use of the products/services provided. This is then referred to as a subscription with a "pay-as-you-go" payment. The amount of a subscription can also change in tiers after defined periods. This is then referred to as a subscription with an "evolving" amount.
- Its periodicity: it defines the frequency of recurring payments (often monthly, quarterly or annually).
- Its duration: it determines how long the subscriber will continue to pay the agreed amount periodically.
- The products and services to which it gives access.