Recurring billing is a no-brainer if you own a SaaS business. It not only makes it easier for you to collect money without chasing customers for payment but also helps you build a more predictable revenue stream.
PayPal offers a recurring payment system that allows you to bill customers and collect outstanding payments without hassle.
Read on to learn how to set up recurring billing on PayPal.
Here’s what we’ll cover in this guide:
- What is PayPal Recurring Invoice Service?
- PayPal Recurring Billing Fees
- How to Set Up PayPal Recurring Invoices
- Cons of PayPal Recurring Invoices
What Is PayPal Recurring Invoice Service?
PayPal is one of the most popular payment gateways in the world. Known for facilitating payments globally, PayPal offers a recurring payments system that enables businesses to set up automated repeat payments.This allows companies to charge customers regularly for repeat services, whether that be a subscription for physical goods or a SaaS or recurring services.
Businesses can automatically send invoices and charge customers daily, weekly, monthly, or yearly. Customers can enjoy automatic repeat payments collected by PayPal without manually paying each pay period.
PayPal Recurring Billing Fees
You’ll need a PayPal business account to access the recurring billing system. While it’s free to set up a business account, the recurring payment service involves several extra billing costs.
First, the automatic billing service itself costs $10 a month.
However, if you only pay this fee, there’s no way to customize the checkout process. Instead, customers are routed to the PayPal page to pay. If you want to customize your checkout process, you’ll need PayPal Payments Pro, which costs an extra $30 a month.
On top of these costs, there are also payment processing fees to consider.
For US-based transactions, PayPal charges 2.9% plus $0.30. But if the customer uses American Express, transaction rates increase to 3.5% plus $0.30.
For transactions outside the US, PayPal charges 4.4% plus a fixed fee depending on the currency used.
If your customers are paying in a foreign currency, you also need to account for extra currency conversion fees, which can range from 3% to 3.75%.
How To Set Up PayPal Recurring Invoices
If you’re looking to enable subscription billing on PayPal to collect recurring payments more easily, follow these detailed steps.
1. Log In To Your Business Account
To access the PayPal recurring invoice solutions, you must have a Business Account.
If you don’t already have one, it’s free to create one.
For new users, simply apply for a Business Account with your email address. Follow the signup flow to create an account and then log in.
Active accounts can upgrade to a Business Account by heading to ‘Settings’ and choosing the ‘Upgrade’ option.
2. Start To Create a Subscription Plan
To set up your subscription service through PayPal, head to ‘Pay & Get Paid’ in the top menu above your payments dashboard.
Next, click ‘Subscriptions’ in the dropdown menu.
To start creating your subscription plan, simply hit ‘Create plan.’
3. Input Subscription Details for Your Product
On the next page, fill in the details related to the service or product you’re offering in your subscription plan.
- Input a product name for the plan you’re creating, along with a description and a recognizable product ID.
- Select the type of product you’re offering: physical products, digital products, or services.
- Choose the industry category that’s most relevant
- Copy and paste the product page URL from your website
- Add a direct link to an image for your product
4. Choose Your Plan Type
There are four payment types to choose from:
- Fixed pricing
- Quantity pricing
- Volume pricing
- Tiered pricing
Choose the Fixed price option if you want to offer flat pricing for all goods or services. This is a great option for subscribers signing up for a podcast, magazine, or monthly subscription box.
If you’d like to offer pricing models based on usage, try the quantity, volume, or tiered pricing options.
Quantity pricing lets customers pick the quantity they’d like to receive per billing cycle, such as 15, 30, or 60 coffee pods a month.
Volume pricing enables customers to choose the volume of goods or services they want based on variable pricing. For example, customers could choose five hours of music streaming for $10 a month, 10 hours for $15 a month, or 30 hours for $20 a month.
The Tiered pricing model offers a fixed price per unit within a certain range. For example, customers may pay $100 an hour for photography services for the first four hours, $50 an hour for four to seven hours, and $30 an hour for anything over seven hours.
5. Name and Describe Your Subscription Plan
In this section, you’ll need to add a name and description for your subscription service.
Your customers will see the plan name, but they won’t see the description.
6. Determine the Pricing Structure
In this section, you’ll outline payment terms for your automatic billing plan.
First, choose the currency your customers will pay in. If you’re billing across geographies, consider where most of your customers are. PayPal charges extra for foreign transactions, plus currency exchange fees for customers who pay in a different currency.
Select whether there’s a one-time setup fee and how much this is.
There’s also an option to add a trial period. Select the trial duration and input a price (optional).
Add in your tax rates in this section.
7. Select Billing Cycle
On the same page, enter the information about your billing frequency.
Choose billing durations: daily, weekly, monthly, or yearly. You can also limit the number of billing cycles that automatically occur.
Next, set the parameters for payment failure.
If PayPal tries to collect money but subscription payment attempts are unsuccessful due to insufficient funds, the system will keep trying. Choose how many intelligent payment retries the system should automatically go through before canceling the subscription.
8. Confirm and Turn On
Once you’ve filled out all the details of your plan, read through the summary to confirm the details are correct.
When you’re done, turn on the plan and add a subscription button to your website.
Cons of PayPal Recurring Invoices
While PayPal is one of the most popular payment processors, its recurring invoice system does have downfalls.
Most notably, it’s expensive.
You are subject to high transaction fees, and PayPal charges extra for having a global customer base.
If you’re starting a new business, shelling out a large portion of each sale makes it hard for you to grow.
The other major issue is that it directs customers away from your site. Unless you want to pay an extra $30 a month for PayPal Payments Pro, you won’t be able to customize checkout or keep customers on your website.
From a customer-facing perspective, you’re forcing your customers to use PayPal.
While there is some option to check out as a guest, this isn’t the easiest route. If customers want to subscribe to your services, especially if they’re outside the US and Canada, they’ll need a PayPal account. This could turn some users away.