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Growth

SaaS Billing: How To Get It Right

Morgan Williams

Author

Morgan Williams

Date

November 25, 2022

Category

Growth

As every SaaS business owner knows, decreasing barriers to entry and driving product adoption makes a huge impact on revenue—and it all begins with your SaaS billing software.

Arguably, the most important feature of a billing system is that it helps you collect payments from your users. But a robust system can also do so much more! 

From incentivizing sign-ups to handling failed payments, your SaaS billing software is a crucial tool to help you scale your business and reach your growth targets.

No matter the size of your SaaS company, it’s essential that you deliver great value and an unmatched customer experience to build a sustainable business. 

Delivering superior customer service can be challenging if you struggle with billing difficulties. But that’s exactly what we’re here for, to help you overcome these challenges!

We’ve put together this comprehensive article to help you navigate your way through SaaS billing—including what it is, the different billing systems, and what challenges to look out for.

The SaaS Billing Process: What Is It and How Does It Work?

To put it simply, your business’s SaaS billing software enables your business to collect revenue through a recurring billing system. 

Ultimately, the goal of SaaS billing is to streamline your operations and automate your billing—but there are many more benefits than simply helping you collect payments. 

A comprehensive SaaS billing system means that you will have more time to spend scaling your business, while your customers have an accurate and reliable way to pay for your services. 

If you’re looking for a SaaS billing system, you shouldn’t base your decision on just the price of the software. Selecting the wrong SaaS billing software for your growing business can leave you with a system that ends up costing you valuable time and resources to maintain.

Here’s what you should consider when choosing a SaaS billing service for your business:

  • Ease of use: You shouldn’t have to read hundreds of pages of documentation just to understand how the system works. In business, time is money. The more time you and your employees need to spend learning or maintaining the system, the more it affects your productivity.
  • Speed of setup: It goes without saying that the faster you can set up your SaaS billing system, the sooner you can launch it and shift your focus back to your business.
  • Integrations: SaaS billing systems that require complex integrations can make it difficult to expand your system as your business scales. Look for up-to-date API integration and a plugin directory to ensure your SaaS billing can be seamlessly integrated with other software.

Subscription Management vs. SaaS Recurring Billing Software

Subscription management and recurring billing are often used interchangeably, with many SaaS business owners believing they both address the same things. They are in fact two different processes—although each is equally important.

Here are some of the key differences between subscription management and SaaS billing software:

  • SaaS billing software: This is a system that enables SaaS companies to invoice customers and receive payment on an ongoing basis.
  • Subscription management: This sits on top of your selected billing solution, supporting your billing software by addressing customer-related issues as they occur. It covers the entire subscription lifecycle, from before customers subscribe to after they cancel your service.

Here are three key reasons you should consider in favor of using subscription management software in addition to a SaaS billing system:

Incentivize sign-ups

Want to incentivize users to sign up for your platform? 

SaaS subscription management software enables you to offer discounts or free trials to users who show an interest in your product, but aren’t ready to purchase it. 

If customers don’t sign up after the free trial, your team can decide whether to extend their trial or offer them a discount, ensuring your business is doing everything it can to capture a new paying customer.

Offer a seamless user experience

After a customer has signed up, your SaaS subscription management software has the potential to streamline their entire experience with your brand. 

Subscription management software offers a range of powerful features, including upgrading or downgrading subscription tiers, sending upcoming payment reminders, and upselling opportunities to users.

Ultimately, these subscription management features allow your customers to have more control over their subscriptions, which can help increase retention and reduce churn.

Get feedback from customers

Of course, no SaaS company wants their customers to cancel their service, but the reality is that customers are constantly signing up and churning. 

When a customer cancels your service, your subscription management system can automatically request feedback about their experience.

You can then use this information to streamline the customer lifecycle and improve your platform for other users.

What Are The Different Types of SaaS Billing Models?

Your SaaS billing model should always strike a balance between customer satisfaction and growing your bottom line. 

Along with growing your revenue, your business’s pricing strategy should also consider market conditions, competitor products, and affordability for your customers.

We’ve looked at some of the most popular SaaS pricing models to help you make an informed decision about what type of subscription management system is right for your company:

1. Per-user pricing model

In a per-user pricing model, SaaS businesses charge a fee for each user who makes use of the software. 

This model follows the same logic as traditional software services, where the services would be priced according to how many copies were installed on different computers.

The primary challenge of per-user pricing models is that they frequently limit how many active users can join the subscription and this can detract from the value that your SaaS company provides.

​​2. Per-feature pricing plans

Per-feature pricing plans are popular across various SaaS businesses, because they sort pricing tiers by the number of features that are needed to deliver that service. 

For example, the lowest tier of a cloud-based storage system might only offer storage, while higher tiers may offer additional security features/

The greatest benefit of this model is that customers are given a clear incentive to upgrade their package to unlock new features. 

Simultaneously, resource-intensive features can be properly compensated when they are only available to users on higher tiers.

The main challenge for SaaS businesses wanting to implement per-feature pricing plans is figuring out which features to allocate to which plans—effectively, they need to predict what their users want, and what they are willing to pay more for. 

Basic plans that are too comprehensive won’t give users an incentive to upgrade, while basic plans that are too sparse may drive your users to competitors who offer more features for the same price.

3. Flat rate pricing

Flat rate pricing is often the most straightforward way for a SaaS business to sell its product. In this model, the product is offered at a single price point with a single set of features.

While SaaS subscription pricing tiers can become complex, the biggest benefit of flat rate pricing is that it’s easy to communicate and easy for customers to understand. 

Because you’re offering a single product at a single price, it also makes it easier to streamline your marketing efforts to communicate a clearly-defined offer.

4. The freemium model

SaaS businesses offering a freemium model give users access to basic features at no cost, while allowing them to upgrade to a tier with additional services. 

For startup SaaS businesses, this pricing plan is a great option to lower the barrier to entry by increasing initial adoption. It's also important to understand the difference between freemium vs. free trials.

However, users on free plans can directly impact your business’s bottom line. With this model, paid users are effectively subsidizing free users, so your paid users need to generate enough revenue to offset the loss. 

Key Features to Look Out for in a SaaS Billing System

When businesses are looking to streamline their recurring payments and subscription management systems, it’s vital to select the right SaaS billing system for their needs. 

While a good system can optimize operations, the wrong subscription management platform and billing system can turn online payment collections into a nightmare.

Here are some of the key features you should look for when selecting a new SaaS billing system:

Analytics

Your SaaS billing system should give you data about your customer retention and churn so that you can use these insights to optimize your monthly recurring revenue. 

Without these built-in analytics, reports will have to be compiled manually, or even worse—your SaaS business won’t have sufficient data to inform its next move.

Integrations

Depending on the unique functionalities your business need, your SaaS billing system should be able to seamlessly plug into a range of other platforms. 

Your billing system should integrate with the in-house systems your company uses for a streamlined experience.

Revenue recognition

Revenue recognition is a key aspect of a SaaS billing system and is the process of converting cash from bookings into revenue. 

It is in line with the generally accepted accounting principle (GAAP) that a SaaS or any other business can only recognize revenue once it has earned it.

For example, if a SaaS business sells an annual subscription for $12,000, it can’t recognize this full amount as revenue until the service has been completed a year later. It can only recognize $1,000 as monthly recurring revenue.

Revenue recognition can become increasingly complex as users may:

  • Upgrade or downgrade their tier before the end date.
  • Cancel their subscription before the end date.
  • Not be able to pay for their subscription.

Handling failed payments (Dunning)

The inability to pay for services is one of the most significant causes of churn for SaaS businesses. Your SaaS billing system should be able to automatically reattempt failed payments, send users reminders, and cancel services to users with unpaid fees.

How to Leverage Your SaaS Billing System to Boost Monthly Revenue

Many business owners think that their SaaS billing system primarily exists to accept payments. While this is true, you can maximize your return on investment by utilizing all the features that your billing software offers.

Along with ensuring seamless payments, your billing model can also help you communicate with your customers, and provide them with a streamlined user experience. Here’s how to get the most out of your billing system:

1. Make sure pricing is clear and easy to understand

For your customers to feel comfortable paying for your service, they need to understand the value your business provides. A seamless SaaS billing model supports this by giving your customers a clear overview of your pricing and features, while helping you form a relationship with your customers/

Complicated pricing or tiers can quickly frustrate your customers, increase the demands on your customer service team, and increase your churn rate. 

This doesn’t mean your pricing model can’t be complex if your business requires it, but you should put additional effort into your communications (infographics, calculators, or charts can come in handy here) to ensure that your pricing is clear to customers when they’re considering their options.

2. Keep the billing process simple

Customers paying their invoices quickly is what keeps the lights on at SaaS businesses, and your subscription management software should streamline this process and make it easy for customers to pay. 

Your SaaS billing software should offer various features, from straightforward invoicing to automated follow-ups to help facilitate seamless payment. 

If your SaaS business is currently managing this process manually, investing in SaaS billing software can streamline your entire process and free up your team’s time. This leads to faster payment and a more productive team.

3. Use available data to improve monthly revenue and identify trends

The analytics provided by your SaaS billing software can help you leverage the insights you gain from customer data to optimize your product offering, pricing model, and growth strategy. 

Effectively utilizing this data can also help you boost customer loyalty, decrease churn, offer complimentary services, and upsell your customers to upgraded packages. 

This data can also empower your sales team with knowledge about which customers are satisfied with their service and which customers are lowering their usage levels—giving them valuable insight into which customers to upsell to.

4. Automate billing

In today’s fast-paced digital world, automated billing has become a necessity for SaaS businesses. Without the increased accuracy that automated invoicing affords, it can be difficult for your business to remain competitive in the market.

While many SaaS companies start out using manual processes (like spreadsheets or basic billing software), these are challenging to scale as your business grows and your customer base expands. 

The additional pressure on your billing team may lead to human error, which has a knock-on effect on customer satisfaction. Eventually, your business will reach a tipping point where automated billing is non-optional.

Selecting SaaS billing software that offers automated recurring billing eliminates the risk of human error, alleviates the strain of manual billing, and leads to greater customer satisfaction.

Some of the automated features your SaaS billing software should offer include:

  • Recurring invoicing.
  • Payment reminders.
  • Dunning notifications.
  • Process invoices through various payment methods.
  • Invoices based on your various pricing models.

While there are countless automated recurring billing systems available on the market, it’s essential that you select one that’s right for your business. 

Along with considering what your business needs immediately, you should also consider what your business may need in the future as you scale and grow your customer base.

Supercharge Your Business’s Billing with Lemon Squeezy

Every SaaS business has unique needs and there are countless factors to consider when selecting a billing system. Along with growing your business’s revenue, your billing system needs to give users a streamlined experience to avoid churn.

So, which billing system is the best choice for your business? It all comes down to your growth strategy, product, and user preferences. 

No matter what stage of the journey your business is in, we’re here to help you reach success, faster!

Our SaaS billing systems help you incentivize sign-ups, provide an unmatched user experience, reduce churn, and increase your bottom line.

Ready to take your business to the next level of success? Get started with Lemon Squeezy today!

SaaS Billing: Frequently Asked Questions (FAQs) 

What is SaaS billing software?

SaaS billing software enables your customers to pay for your SaaS product on an ongoing basis. Here are some of the key features to look for in a billing system:

  • Integrations that allow it to scale with your business.
  • The ability to accept various payment methods.
  • Ease of use for your internal team.
  • The ability to handle failed payments (dunning).
  • Revenue recognition capabilities.

What is the difference between SaaS billing software and a subscription management system?

While billing software enables your business to streamline user payments, your subscription management system manages the entire customer lifecycle to ensure a seamless user experience.

Some of the features of subscription management software include:

  • The ability to offer free trials.
  • The ability to offer select users discounts.
  • Sending users payment notifications.
  • Allowing users to upgrade or downgrade their service.
  • Automatically requesting feedback from customers who churn.

How do you price SaaS products?

Along with growing your revenue, your business’s pricing strategy should also consider market conditions, competitor products, and affordability for your customers. 

Here are some of the most common billing models for SaaS products:

  • Per-user pricing plans.
  • Per-feature pricing plans.
  • Flat rate pricing.
  • A freemium model.

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