by Abigail Endsley
This blog post was originally published on 09/03/2019.
Let’s face it: with the number of fires SaaS workers manage on a daily basis, the last thing anyone wants to spend their time on is choosing a billing software.
More often than not, SaaS leaders pick a platform that meets their current needs for the lowest cost before moving on to more pressing concerns. The problem is, a SaaS business can outgrow its billing platform—especially if that platform wasn’t designed for SaaS in the first place. By the time they realize how poorly their billing software meets the complex need of a growing SaaS business, they’re so entrenched in the platform that even the thought of switching is enough to cause a migraine
It pays to make the right choice of billing platform from the start. In this article, we’ll explain:
- Why SaaS billing is so complex
- How fast growth exacerbates this complexity
- The benefits of choosing an agile billing platform from the start
The Complexity of SaaS Billing
Subscription billing makes everyone happy—whether you’re the customer benefitting from regular consumption or the businesses benefitting from predictable, recurring revenue. It’s no wonder this model has officially taken over the marketplace.
At first glance, it might seem like a SaaS company’s billing needs are no different than any other subscription service. Just compare your favorite meal delivery service and compare it to your go-to project management app: both likely charge a flat monthly rate at a handful of differently-priced tiers of service. But that’s where the similarities end.
In general, unlike a subscription for a physical product (ie. box-of-the-month) , SaaS businesses (especially B2B SaaS businesses) tend to offer their customers more complex pricing options.
B2B SaaS consumers benefit from highly customized pricing structures, like:
- Choosing their preferred renewal period (monthly, quarterly, annually)
- Multiple subscriptions from different pricing tiers
- Usage- and Events-Based Billing options
- Flat-rate, recurring fees for extra features
- Custom pricing for enterprise-level clients
An example of a SaaS subscription service’s pricing page. The sheer number of options makes pricing immensely complex.
This additional billing complexity enables companies to link price to value, which can drastically improve client experience. But it can also make those in charge of billing want to pull their hair out (especially if your company’s “billing system” is little more than a homegrown solution built with duct tape, spit, and spreadsheets).
As if to add insult to injury for the SaaS billing professional, the billing needs of a SaaS business are rarely stable. While the business may launch with fairly straightforward pricing, as profits rise and demands (and client size) grow, their pricing inevitably needs a tune-up to reflect recent business changes, like:
- Intentionally moving up market
- Product maintenance becoming more expensive
- Adding (or removing) features
- Launching pricing incentives, discounts, or promotions
- Existing pricing may becoming confusing for customers
Pricing changes are a necessary part of running a SaaS business. The potential clients we talk to on a daily basis are often B2B SaaS businesses who have already begun the healthy process of updating their pricing every few months, and are now feeling the pain of outgrowing their existing billing platform.
Your billing software should make this process easier, not more complicated. If this is not the case, it’s time for a change.
3 Growing Pains of SaaS Billing
In most billing platforms, making a price change is a relatively straightforward task. Just a few tweaks to the backend and the public-facing website, and your new pricing is deployed. But it’s not as simple as that. The more your business grows, the harder it is to manage complex billing models, ensure a consistent customer experience, and track and report your billing data.
1. Managing Complex Billing Models
As a SaaS business moves up market, so does the expectation for them to offer customized, value-based pricing to their clients. However, without a flexible SaaS billing software like Chargify, this can be difficult to pull off.
For example, you may be looking to land enterprise-level clients. They’re excited about what you have to offer, but can’t find a pricing tier that truly meets their needs. Your most expensive option includes services they won’t use, meaning their finance team will never approve the expense. They only want to pay for what’s going to be used.
Enter Events-Based Billing, which enables your company to set up a complex, multidimensional billing model (without having to build it yourself). Now, you can rate each individual value-packed action your client consumes, providing them with a custom bill based on their exact usage. This win-win situation grants you the power to capture those up-market clients while providing them absolutely no waste or overages with your product.
This type of complex billing functionality simply isn’t available in your run-of-the-mill subscription billing platforms, but is crucial for anyone who wants to stay ahead of the curve and bill like an industry leader.
Want to read more? Learn how to avoid leaving SaaS revenue on the table.
2. Ensuring a Consistent Customer Experience
No one likes change—especially if that change impacts their wallet. Your existing customers signed up for your service under a certain pricing model, which means if you want to update your pricing (as you should to achieve optimal growth), you’ll need to decide if (and how) to update their pricing structure in a way that increases customer delight.
This may look like grandfathering them into their existing pricing, migrating them to a new plan, creating custom pricing just for tenured customers, etc. These options—while great for the customer—aren’t always easy to implement on the back-end, especially if your software doesn’t accommodate your preferred mitigation method.
3. Tracking and Reporting on Billing Data
Perhaps even more complicated than managing complex billing and client relationships are the resulting data challenges a growing SaaS business can encounter.
Can your billing platform accurately calculate churn and MRR the way you need in light of regular pricing changes? Can you quickly and easily tell how much revenue is coming from each individual billing structure and which pricing strategies are the most effective? Does your billing software accurately report on customers switching from one pricing model to another?
You need a billing system with a native analytics suite robust enough to handle these reporting needs while remaining flexible enough to handle reporting hurdles you haven’t yet encountered.
Changing Billing Software Is No Fun
To make things worse, by the time SaaS companies realize they’re outgrowing their current billing software, they’re often at a point where change would be especially painful.
First of all, if they’re on the hunt for a new system, it’s typically due to a recent period of rapid growth in which spare time and attention are in short supply. But also, the longer a business relies on one billing software, the more entrenched it becomes in their day-to-day operations.
It takes time to connect (and maintain connections) between your billing platform and your payment gateway, bank account, website, and other third-party programs. You also probably spent a lot of time training your staff on how to use your current billing system to maintain the functions you need—from accounts receivable to dunning to analytics and reporting. And the more your company grows, the more likely it is to have a large number of employees in the software, and the more disruption a shift will cause.
Bottom line: Every day you stay with your existing billing platform leads to increased dependence on more sunk costs into that system—but making a change can seem equally painful.
In light of these impending challenges, it’s clear that any savings you get from starting with a cheaper, less feature-rich billing platform (or even by building your own) is quickly dwarfed by the costs and energy you’ll pay later—whether you choose to stay or not.
Save yourself a migraine. Choose a billing software specialized for SaaS.
In the end, it’s a good idea to stop thinking of SaaS pricing changes as something that “might” happen or a pitfall to avoid. Instead, think of changes to your billing and pricing as crucial elements in managing and growing your business over time—and equip your team with the tools you need to achieve it.
Call us biased, but as a SaaS business ourselves (offering a billing software designed for SaaS), we get it. We know how difficult it can be to manage and scale SaaS billing. That’s why you need a billing software built to handle your specific needs—both now and in the future.
Many billing providers are quick to offer customized assistance at the start. (After all, they have growth goals too, which your business will help them reach.) But we’ve seen firsthand how fast the needs of a SaaS business evolve. You and your affected teams need to be confident that your billing partner is committed to offering you best-in-class ongoing support, industry-leading integrations, compliance with the latest security updates, and impactful feature updates.
Look for software with a good track record and a product roadmap built around solving any limitations their customers experience. A billing software dedicated to SaaS growth will likely be regularly releasing new features which make their lives better (like Chargify’s recent releases of Events-Based Billing and Business Intelligence). Beware of the billing behemoths who have stagnated and spend more in marketing to gain new business than on improving the product itself.
And finally, don’t rush the decision. We know as a SaaS leader, you’re focused on growth. You are where you are because you keep pushing forward, not wasting time deliberating over decisions that don’t have a large, immediate impact on your bottom line. But as we’ve seen, while the wrong fit might not have a large immediate impact, getting stuck with clunky, limiting billing software will only create more work later as you try to manage your rapidly growing business.
Looking for billing software that’s built for SaaS?
Chargify’s billing and subscription management platform is built specifically for rapidly-growing SaaS companies. For over 10 years, we’ve been helping SaaS businesses transform billing from a business blocker into a growth engine and competitive edge. Learn more about Chargify from our website or by speaking to one of our billing experts today.