This post has been updated; it was originally published 9/22/2020.
It’s no secret that the technology industry is transitioning away from traditional SaaS billing models and toward flexible, consumption-based billing. This is a development which benefits businesses and customers alike. (Reducing barriers to entry and driving product adoption are prime examples.)
However, in order for a SaaS provider to take full advantage of this increasingly popular business model, it’s imperative to follow 5 SaaS billing best practices.
- Price clearly and logically
- Simplify your billing process
- Use customer data to improve your revenue stream
- Leverage data usage to anticipate change
- Proactively prevent revenue leakage
If you’re considering implementing a consumption-based billing model, or if you’ve already done so and want to ensure you’re set up for long-term growth, this post is for you.
5 Steps to Make the Most of Usage-Based SaaS Billing
1. Price Clearly and Logically
At its core, a usage-based SaaS billing model allows customers to directly connect what they pay to the value they receive from your services. In order to do so, customers need to be able to easily understand your services and connect them with your prices. Overly complex pricing leads to frustrated customers, increased demands on customer service, and higher churn.
This doesn’t mean your pricing model can’t be complex. Take AWS, who pioneered events-based billing to great effect. Their audience (mostly developers) already excel at understanding complexities, so in most cases, their multi-attribute, usage-based pricing model wasn’t a deterrent. But AWS still went above and beyond by including a handy price calculator to help us non-developers avoid going cross-eyed when considering pricing options.
The key is ensuring your pricing model is logically tied to your value metric, so your customers can easily understand what they’ll pay and what they’ll get. You want to make it easy for customers to pick the right plan for them.
2. Simplify Your Billing Process
Streamlined billing processes are key to encouraging customers to pay invoices quickly. Fortunately, your subscription management software is here to help. Sophisticated SaaS billing software offers a host of features to simplify billing, from clear invoicing to automated follow up which facilitates proper payment. (When it comes to usage billing, “clear invoicing” means charging your customers when the payment is due while presenting their specific usage levels in a simple, digestible format.)
If you’re managing this process by hand, consider upgrading to subscription management software built specifically for B2B SaaS. This software will lighten the load on your team by providing these features right out of the box, including automated invoicing, advanced dunning functionality, and a variety of payment methods for your customers to choose from.
These automated features will streamline your entire billing process—from initial sign up to payment collection—putting both your customer (and your finance team) at ease.
Want to read more? Get the SaaS Churn Bible.
3. Use customer data to stabilize and grow your revenue stream—at the same time!
Demand naturally fluctuates over the course of a year based on market trends. Using your customers’ usage data to refine your portfolio of product offerings (and even your pricing model) can help reduce the impact of these ebbs and flows on your company’s monthly finances. Additionally, this data can work for you to increase customer loyalty, reduce churn, and even upsell products. Simply display real-time usage volumes in a customer dashboard to help them manage consumption and remind them just how much they use and rely on your services.
Then, use your customers’ usage statistics to provide personalized insights into the services that are delivering them the most value, and offer complimentary services, consumption-based discounts, or training on additional features that may benefit them. This same data can help your sales and account management teams know which customers to spend more time and effort upselling and which customers are already satisfied with their services.
4. Leverage Usage Data to Anticipate Change
Your SaaS billing systems are already collecting a ton of data about your customers and how they’re using your services. Use this data to better understand and track the impact your billing and pricing changes have on customer trends.
The right billing management system can help you forecast the impact your billing changes will have on customer product demands over time, project the impact of pricing changes, implement new processes (e.g. to prevent failed payments), visually present revenue projections to leadership, or even understand how different pricing incentives can impact customer demand. These are all powerful tools which should be a regular part of monitoring your business.
5. Proactively Prevent Revenue Leakage
Providing a service without getting paid for it is the antithesis of a usage-based billing model—or any business, for that matter.
The final (and perhaps most important) SaaS billing best practice is to enforce proper payments and facilitate billing-related communications before customers churn. This process is most easily set up and managed with a sophisticated subscription management system. Don’t rely on manual efforts. Instead, set up an automated dunning process that:
- Reminds customers of upcoming payments
- Invoices and facilitates payment collection
- Highlights upcoming credit card expirations
- Informs customers of overdue bills
Send communications based on your and your customer’s preferences, whether that’s email or on a customer dashboard.
The best way to leverage any SaaS billing model for growth
Implementing the right subscription management software is the most effective way to take full advantage of a usage-based billing model—or any SaaS billing model, for that matter. You need a way to automate key processes, so your team can focus less on tedious billing operations and more on growing your business. The right software will enhance the customer experience, too. (They don’t like struggling through manual processes any more than your team does.)
Chargify is the solution. Built for the evolving needs of fast-growth SaaS companies, we help businesses streamline billing operations and gain the agility they need to maintain their competitive advantage for years to come.
Talk to a billing expert about how we can help your organization make the most of your billing, starting today.