Now that technology companies are providing software solutions on a subscription basis as the norm, SaaS billing has become a critical strategy for processing recurring payments. But with the number of services and pricing plans offered by modern businesses, it can be hard to achieve accurate recurring billing and still provide a frictionless customer experience.
In this article, we'll cover the basics of SaaS billing, and help you understand how you can optimize the cash flow of your subscription business.
What Is SaaS Billing?
Buying software was once a simple transaction. You would find a store and exchange money for a CD-ROM. Today, the software is sold online, with customers often gaining access to a company's software or services through some type of subscription. This is what's known as "Software as a Service" — or SaaS billing.
This sounds simple enough until you consider the various options and pricing plans offered by SaaS companies.
Subscription billing requires three things to happen in the right sequence:
- Subscribers must choose a plan and a payment method
- Merchants must collect payment information from their subscribers
- Customer data must be stored for recurring billing and to manage upgrades or add-ons
Each of these steps requires a different system, which we'll explain below.
Payment Gateway
A payment gateway allows subscribers to enter their payment information securely. The payment gateway collects credit card data and other information, communicating to the bank about how much the customer should be charged.
Merchant Account
The merchant account is on the other side of the payment processing platform. At its simplest, the merchant account is simply the account in which subscribers' money is deposited.
Typically, the payment gateway provider also provides a merchant account, which minimizes the number of moving parts.
Subscription Management
A subscription management platform allows you to charge your subscribers on a recurring basis. Subscription billing software can help you manage your customers' payment details and even automate recurring payments so you can establish your desired billing cycle.
Many subscription management services will have a self-service system built-in, which allows subscribers to manage their own subscriptions, including upgrades and downgrades to their existing pricing plan.
The Benefits of SaaS Billing
Why should a company utilize a SaaS billing system? There are several reasons to consider using this pricing strategy, which includes the following:
A Recurring Billing Solution
First and foremost, you may simply need a way to manage your subscription-based services. A SaaS subscription platform can help you attract and retain more customers, providing them a valuable service in exchange for recurring payments.
Automate Your Billing Process
Manual data entry is not only prone to error; it can also waste significant time for you and your team. With the right tools, you can dramatically increase the functionality of your subscription services, automating core processes that relate to customer management, payment processing, invoicing, and more.
Accurate Revenue Recognition
Believe it or not, many companies offer a service without ever being fully and fairly compensated for it. SaaS can eliminate revenue leakage by ensuring that customer payment data is processed in an efficient, timely manner.
Access to Metrics
A SaaS billing solution can give you access to data throughout the customer lifecycle. These metrics can help you keep track of your company's information. With real-time notifications and alerts, users can make quick decisions based on up-to-the-minute business data.
These metrics are often incorporated into an enterprise resource planning (ERP) system that can help you streamline your processes and hone your business strategy.
Reduce Churn Rate
What is the churn rate? Churn refers to the number of customers you've lost during a given timeframe.
The churn rate can be determined by dividing the number of customers you lost during a quarter by the number of customers you had at the beginning of that period.
Using a SaaS billing platform can reduce churn by providing the right customer relationship management (CRM) tools, helping you stay in touch with customers and maintain active accounts.
Similarly, SaaS billing software can help with dunning management. Dunning refers to the process by which a business asks its customers for payment. Dunning commonly becomes necessary when a customer's credit card expires or the charge has been blocked by the bank.
Customer Retention
Finally, a SaaS pricing strategy can be an ideal way for companies to attract and retain customers. This business model ensures that you have a steady revenue stream, thanks to the commitments made by your subscribers.
This also allows you to grow your revenue by offering upgrades and new products to your customers, sometimes enticing them with promotional offers or other incentives. Maintaining customer loyalty can help to sustain your business long-term.
Best Subscription Business Billing Software
If you need to manage recurring payments for your subscription business, you may want the latest software to guide the process. Keep in mind that not every software provider will offer both a payment gateway and a merchant account (see above), so it's important to match your SaaS business needs with the right tools.
Stripe Billing
Stripe Billing is arguably one of the most popular SaaS billing systems used today. Users appreciate the following features:
- Easy setup
- Great introductory pricing models
- All-in-one solution with lots of integrations
These features have made Stripe Billing a great option for startup companies, though the pricing models tend to get steeper as your business grows.
However, many business owners appreciate the fact that Stripe charges no monthly fees, instead of charging a fee of 2.9% + $0.30 per transaction. Additional fees are associated with add-on services, such as fraud detection, instant payout, etc.
Braintree
Like Stripe, Braintree offers an all-in-one SaaS billing system, providing a payment gateway, merchant account, and subscription management system all in the same package.
As a subsidiary of PayPal, Braintree allows users to offer PayPal as a form of payment, which can be helpful for attracting customers. The service integrates with your existing merchant account, providing a comprehensive platform for managing your subscriptions.
Braintree users can expect to pay a fee of 2.9% + $0.30 per transaction. However, Braintree lacks some of the reporting capabilities of other products and apps, which can make it challenging to manage cash flow.
Chargebee
Chargebee is exclusively a subscription management platform, so you'll need to integrate with other services for merchant accounts or a payment gateway.
Thankfully, Chargebee integrates well with other products and offers additional benefits including:
- Flexible options for pricing and billing
- Easy setup
- A platform that's simple to customize with the API
The product's flexibility makes it ideal for companies looking to experiment with different pricing models and plans. Chargebee plans start at $249 per month. The company offers monthly and annual plans.
Recurly
Like Chargebee, Recurly is a subscription management platform, which means that users will have to find other solutions for a payment gateway and merchant account.
The benefit, however, is that users get flexible options and better reporting than most of the other services currently available. This can be great for SaaS businesses looking to offer tiered pricing plans or other flexible options for their subscribers.
Recurly's pricing plan starts at $149 per month, with an additional charge of 0.9% of business revenue.
Chargify
Chargify is also a subscription management platform that doesn't offer a payment gateway or merchant account. But what makes Chargify stand out is its commitment to B2B solutions.
Chargify is particularly useful for companies that handle multiple products and/or complex billing plans, as Chargify can handle the entire customer lifecycle. Users pay $149 per month for up to $10,000 in MRR, plus 1.5% for any overages.
Fast Payments, Happy Business
HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work. We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.
HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.