At first glance, your choice of billing and subscription software might not seem super important.
As long as you find a platform that looks professional and handles the billing and analytics properly, you’ll be in good shape, right?
Unfortunately, that’s not the case.
Many SaaS entrepreneurs don’t spend much time considering which billing software will fit their needs for the long-term. They pick the platform that will work for their needs now — and the one that makes the smallest dent in their budget.
Entrepreneurs are usually smart to cut down on unnecessary overhead costs and avoid wasting any time getting their product launched.
The problem is that they often don’t realize just how quickly they’ll need a billing platform that can handle the complex billing needs of a growing SaaS business. Unfortunately, by the time they do, the task of switching billing platforms has turned into a huge headache. They find themselves trying to “build the plane while flying it,” as the saying goes.
It pays to make the right choice of billing platform from the start.
In this article, we’ll explain:
- Why SaaS billing gets so complex
- Why growth quickly exacerbates that complexity
- Why choosing a more agile billing platform right away saves money
- The perks of choosing a platform that specializes in SaaS needs
The Complexity of SaaS Billing
The marketplace has fully embraced the beauty of the subscription revenue model and all of the predictability that comes with it.
These days, you can buy a subscription for everything from socks and underwear to your dinner each night. And plenty of software programs have popped up to make it easy for businesses to charge customers for these services each month.
At first glance, it might seem like SaaS companies have similar billing needs as other subscription services. They usually charge a flat monthly rate, for one. And in many cases, they list a handful of monthly payment plan options for subscribers. But that’s where the similarities end.
In general, (unlike, say, a toothbrush subscription business), SaaS businesses tend to give their customers different payment options (monthly, quarterly, annually), and may also choose to take advantage of several types of pricing structures, such as charging based on usage or adding flat amounts for extra features on top of the monthly fee.
Even if it seems like your SaaS business’ needs will be super simple (or you’re trying consciously to keep them super simple), you should at least give yourself an easy option to change your pricing in the near future.
That’s because pricing needs tend to go through a lot of growing pains as a business matures.
Why Growth Brings More SaaS Billing Challenges
What most new SaaS entrepreneurs fail to realize is that pricing will almost certainly change over time, and change sooner than they think.
Here are just a few of the possible reasons you might find yourself wanting to change your pricing:
- Customers aren’t buying at the existing price points
- The product got more expensive to offer and maintain
- You need to change in order to appeal to a different target market
- Customers find the existing pricing too confusing
- Billing for the current pricing is too complex on the admin/analytics side
- You added new features that weren’t included at the original price (or you removed features that weren’t worth keeping)
- You landed a big client who wants to consume your software in a custom or unconventional way, and needs custom pricing to match
- You want to give certain incentives, discounts or promotions to certain customers or groups of customers
At Chargify, we’ve heard each one of these reasons from potential clients who call us when they outgrow their existing billing platform. And in most cases, SaaS clients haven’t changed their pricing structure a few times, it’s been many times— further complicating their accounting and customer support responsibilities each time.
Changing pricing is a simple task in most billing platforms. A few changes to the backend and on the public-facing website and your new pricing is up and running. If only it were that simple… Where it gets complicated is in the tracking and reporting, and in ensuring a consistent experience for existing clients.
Your existing customers signed up under old payment plans, and you will need to decide if and how to update their pricing structure in a way that doesn’t undermine their loyalty to your business. You might choose to grandfather them into their existing pricing, migrate them to the new plans, create a custom pricing plan just for tenured customers, etc. And you will need to decide how to communicate these changes to them — which can be a complicated job in and of itself.
But perhaps even more complicated are the resulting analytics. Can your billing platform accurately calculate churn and MRR the way you need it in light of all of those plan changes? Can you quickly and easily tell how much revenue is coming from each type of billing structure, and which pricing strategies are the most effective? How does the system handle clients switching from one billing style or plan to another?
Not all billing platforms can handle this level of variability.
Why Changing Billing Platforms Gets More Expensive Over Time
To make things worse, by the time SaaS companies realize they need a different billing platform — one that can handle their changing needs — they’re often at a point where it’s especially difficult to make a change.
First of all, this need for change often comes during a period of rapid growth, in which spare time and attention are generally in short supply.
But also, the longer a billing platform is used, the more entrenched it becomes in your operations. Each day you stay with your existing billing platform is another day of sunk costs into that platform. It takes time, for example, to do things like these:
- Connect your billing platform to your payment gateway and bank account and maintain that connection
- Connect the billing platform to your web site and any other integrations to third party programs, then maintain those connections
- Train your staff on how to use the billing platform and produce the reports you need
The bigger your team and operations get, the more people depend on your billing platform — and the more people will be disrupted when you make a change.
You may be starting to see why any savings you get from starting with a cheaper or less feature-rich billing platform, or even by trying to build a simple platform yourself, is quickly dwarfed by the costs and energy required to switch later.
Why You Need a Billing Software Specialized for SaaS
When you choose a billing platform that specializes in the needs of SaaS companies, you get more than just versatile subscription billing. You get a platform that will grow and evolve alongside your business.
At Chargify, we know that billing and subscription management can be difficult to manage and painful to scale, this is why we invest heavily in onboarding our merchants and supporting them as their business grows. We have seen firsthand how fast SaaS needs evolve, and we are committed to offering the latest features, integrations and security updates (like the upcoming revised Payment Services Directive (PSD2) in the EU) to satisfy the growing needs of our merchants.
In the end, it’s a good idea to stop thinking of SaaS pricing changes as something that might happen or something to try to avoid. Instead, start thinking of billing and pricing as crucial elements in managing and growing your business over time — and make sure you have the tools you need to achieve this.Don’t think of pricing changes as something that might happen or something to avoid. Start thinking of them as completely predictable and normal. Click To Tweet
As a SaaS entrepreneur, you’re focused on launching. You are where you are because you keep pushing forward, not wasting time deliberating over decisions that might not have a huge impact on your bottom line.
But don’t rush through the decision on your billing platform. You don’t want to have to do more work later as you’re also trying to manage a rapidly growing business.
If you want to know more about how Chargify handles subscription billing for SaaS companies, we’d be happy to chat. Chargify’s billing and subscription management platform is built specifically for rapidly-growing SaaS companies, helping them transform billing from a business blocker into a growth engine and competitive edge. Click here to contact one of our billing experts today.