One of the things that recurring revenue companies use to differentiate is the seemingly endless variety of their SaaS billing models to create a friction-free client experience. Different companies often have different approaches to billing their customers for the same product or service to win their market. And in today's world, hybrid billing, or combining two or more billing types, is growing in popularity.
With such a wealth of options around how SaaS companies charge customers, how do you know if your subscription billing strategy is everything it could be? If you're a bit unsure, you're hardly alone.
Let’s begin with a quick overview of some common SaaS billing challenges SaaS companies face.
3 common SaaS billing challenges
It's not uncommon for finance leaders to struggle with SaaS billing issues such as:
1. Uncertainty around billing models
SaaS CFOs need to accurately answer a handful of important questions when selecting their billing model. Which one lends itself to their company's services? Do you have subsets of people with different personal or professional needs within your customer base who will want different feature tiers?
2. Limited forecasting range and accuracy
Relying on manual forecasting and spreadsheet accounting is a poor way to select your billing model. Automated forecasting can allow you to see how different billing models will pan out over extended ranges of time, so you can confidently and objectively weigh your options.
3. The vital link between billing and metrics
Automation will also allow you to keep an incredibly close eye on all of your most important KPIs. You'll need to monitor your metrics to see how they're affected when implementing a new billing model or retooling an existing one.
In this post below, we will touch on all of these SaaS billing challenges (and more). Figuring out your subscription billing can be challenging, but it doesn't necessarily have to be.
How automated accounting can help you overcome SaaS billing challenges
If everything is running smoothly, your customers should barely even register the billing process for your services. Recurring payments should stay where they belong: in the background of your users' experience with your product or service.
Automated accounting can help you streamline your SaaS billing process in numerous ways, including:
- Making buying the natural choice: When deciding how to charge your customers, one of your top priorities should always be to reduce sales hesitancy at all costs. A company's billing model can be a major point of hesitation for prospects, especially for companies with bigger-ticket service items and accompanying signup costs. Analyze your target audience as closely as possible, and ask yourself: what makes things seamless for them and profitable for us?
- Leverage your data to full effect: Automation gives you hyper-clarity around your usage data, so you can double down on what's working and take a closer look at what's been underperforming recently.
- Reduce billing-related churn: Involuntary churn is a large potential revenue thief and directly relates to the billing process. After a billing pivot or policy update, a certain amount of churn is expected, but you'll need to ensure it doesn't get out of hand. Automated accounting will enable you to proactively monitor your churn rates in depth so you can address potential problems before they form.
Now that you know more about what you're aiming for overall with respect to your billing, let's look at some potential pricing models.
Common SaaS billing models
Remember that there’s no “one-size-fits-all” approach to SaaS billing models. Having said that, here are some established favorites of many companies:
- Usage-based billing: By far one of the most common billing methods, usage-based billing involves only charging customers for how much of your service they use. Customers naturally tend to be big fans of this arrangement because they see it as honest and straightforward, which can help deepen their goodwill for your company.
- Tiered billing: Tiered pricing involves segmenting your product or service's features into different pricing tiers (usually 2-4 for simplicity). Next to usage-based billing, tiered pricing is one of the most commonly adopted pricing models for SaaS companies.
- User-based pricing: User-based pricing is popular among SaaS companies catering to schools or corporate teams. If you opt for this method, consider offering discounts for larger user groups to incentivize more user onboarding.
- Freemium: This involves giving customers an unpaid trial period (usually anywhere from one to four weeks) before their card is automatically charged for the next billing cycle. It's a great way to bypass customer resistance during the buying cycle and can be combined with any of the above approaches we've discussed.
- Hybrid billing: Hybrid billing is precisely what it sounds like–a combination of two or more of the pricing models we've touched on above. The possibilities are limitless, and this approach is a fantastic way to achieve the "best of all possible worlds" effect with your SaaS billing.
Clarity about which recurring revenue pricing models are on the menu is essential. But do you know how to optimize them using a 21st-century take on accounting?
Automated, accurate forecasting and reporting
As we mentioned at the beginning of this post, one of the wonderful aspects of SaaS billing is the sheer variety of possibilities it contains. But that's a double-edged sword because it can also create an overwhelming number of paths forward. Automation helps you streamline your department and remove the guesswork from your billing:
- Look before you leap: Cloud-based accounting software lets SaaS companies gauge the various effects of pricing models far into the future. This means you can run forecasts for different billing methods and hybrid billing scenarios until you have total confidence in your choice. When you're in front of your board explaining your latest pricing moves, won't it feel nice to have actual data and concrete revenue projections?
- Expertly monitor your accounting ecosystem: Recurring billing doesn't exist in a vacuum. The way you get a total sense of the impact and effectiveness of your pricing strategy is to monitor its relationship with your broader ecosystem of SaaS KPIs. Automated reporting makes this practically effortless, and role-based dashboards give each of your finance leaders all the data they need in a single consolidated view. Spend your time strategizing, not gathering information.
- Get detailed revenue readouts: Categorize and analyze your billing and revenue data. Instantly view your billing and sales data based on transaction type, customer subset, and other distinctions, allowing you to strategize and plan most effectively.
Automation lets you see what lies at the end of each possible pricing road before you commit to traveling down it. In terms of strategic advantages, what more could you ask for?
Bill with confidence and clarity
Sage can help you find that elusive point of SaaS billing perfection, where your billing model does everything possible to maximize your revenue while benefiting your users. To learn even more, check out our webinar on building and accurately forecasting a usage-based billing business.