Subscription Billing Challenges

“One of the more complicated aspects of running a SaaS business is actually billing. Now people are often confused by that. They say, well, with SaaS, the customer pays the same amount every month. How hard could it be to figure out what should go on the bill? Well, SaaS companies are really good at making this pricing look simple on the website.

Discounts create Subscription Billing Challenges

But when you get under the covers, it’s anything but simple. So some of the things you need to consider are discounts, particularly for new customers. SaaS companies will often offer three months for free or 50% off, list price for the first six months, but the billing system’s got to be sophisticated enough to know that in month six, I got to go from charging 50% of list price to full list price.

Mid-Contract Changes complicate Subscription Billing

And those types of mid-contract changes are becoming more and more common, because SaaS companies don’t want you to pay the same amount every month. They want you to pay more. They want you to buy more seats. They want you to upgrade plans from good to better, from better to best. And every time one of those things happened, you’ve got this complex set of operations to figure out, well, we’re in month seven of a 12 month contract, so I’ve got to figure out how much you owe for the last five months.

Subscription Renewals create Subscription Billing Challenges

Renewals add a lot of complexity to billing as well. There’s typically a 5-10% price increase built into annual renewals. And with this request for retention, SaaS companies are trying to get their customers to renew earlier and earlier. So you might renew in month nine of a 12 month contract, but the new contract isn’t for another 12 months. It’s for 15 months, which creates complexity as well.

Billing Frequency

Another area to consider is billing frequency. Now, a lot of SaaS customers will pay for a full year in advance upfront, but others want to pay in quarterly installments. Or maybe they make an annual commitment, but they only want to pay every month. Then there’s some billing plans that don’t have anything to do with a calendar. They’re based on the account balance. So say when your account balance gets to $1,000, that’s when the bill gets sent, regardless of what day of the month it is.

Subscription Billing Challenges

So when you add all the stuff up, the discounts and incentives, the mid contract changes, preparations, the renewals, the billing frequencies. This gets quite complex, but it’s got to be done with an exacting level of precision because nothing creates more friction in a customer relationship than disputes about money. Inaccurate invoices can not only lower your cash flow, but they can delay sales deals and even lower your Net Promoter Score.”

Learn more about Ordway’s Subscription Billing Software.