It has long been established that recurring revenue builds sustainable wealth. After all, customers pay with a recurring fee monthly or annually—allowing business owners to forecast potential income and budget resources accordingly. With the continuous rise of automation, machine learning, and the application of SaaS and billing solutions and best practices proven over time, growing a subscription business has never been more streamlined than ever before.
However, it’s not just about sending invoices and crossing your fingers. It’s an art, a delicate dance between providing value and ensuring you get the revenue you deserve.
After all, effective billing is the backbone of customer satisfaction, business stability, and, of course, your bottom line. If you get your SaaS billing system in order, your subscription business is set for success.
Whether you’re a seasoned SaaS pro or just dipping your toes into the full subscription model waters, let’s explore how to make your billing process a masterpiece.
How does SaaS billing work?
SaaS companies rely greatly on generating monthly or annual recurring revenue, an aspect of the business that hinges on having robust billing processes. Of the 30,000 SaaS companies worldwide, the best SaaS players ensure that they operate on top of an airtight, tried-and-tested billing process.
As Mosaic puts it, SaaS billing and other subscription management tools are a lot like plumbing: Its main function is to ensure that a steady stream of income is flowing through your business and no revenue leakages need to be plugged shut.
What does this mean? Having a sound SaaS subscription and billing platform and process is crucial to ensure that your business maximizes and grows its recurring revenue.
In a nutshell: the SaaS billing model
Think of a SaaS subscription and SaaS billing solution as a well-orchestrated symphony, each note playing a crucial role in the subscription dance. Each step contributes to the end goal—which is getting paid:
- SaaS billing starts from the very outset of your customer’s engagement with your product. The moment they sign up—either for a free trial or a paid subscription right off the bat—the billing system spins its gears to work. When they do, they input their credit card or payment details into your database.
- The automated charging begins. Whether it’s a monthly or annual rendezvous, your system keeps time with the rhythm of the subscriber’s chosen billing cycle. As the billing cycle moves forward, the system seamlessly taps into the subscriber’s card, collecting recurring payments.
Tools involved in the SaaS billing process
Mileage might vary per business, but subscription businesses typically have a combination of the following tools set up:
- Payment gateways: this collects payments from your customers (e.g. Stripe, Paypal, etc.)
- Merchant account: where the payment gateway will send the money that you charge your customers.
- Subscription management platform (or SMP): this handles simple to complex logic (especially useful for SaaS companies that offer various pricing plans with extensive features).
- SaaS billing and analytics tool: While this is optional, it can do wonders in providing insights into how well your SaaS business is faring, and how you can maximize recurring revenue and reduce churn by analyzing data.
So whenever a customer signs up for a trial or pays for a subscription, your product will handle the request, which will then be dispatched over to your subscription management system or platform. Your SMP will then make sense of said request and process the billing logic according to the pricing plan your customer goes with.
Then, and only then, should you attempt to make a secure credit card consumption. Finally, the merchant account will confirm that the money has been processed and has been transferred to your bank account.
5 SaaS billing best practices
The importance of building a robust SaaS billing system can’t be overstated: it’s how your business ascertains revenue and growth after all. Poor billing processes run the risk of revenue leakage and customer churn.
Suffice it to say, that billing should be viewed as one of the main pillars of your SaaS business. To ensure you don’t run into any major billing troubles, here are some important points to keep in mind when building out your SaaS billing system.
1. Offer clear and sensible pricing
Clarity is your best friend in the world of SaaS pricing. Regardless if your company runs a traditional subscription billing or the more modern pay-as-you-go (PAYG) usage-based pricing structure, you need to clearly communicate the benefits of availing access to your product.
The same principle applies to complex billing systems like hybrid or multi-structure plans. SaaS magnates like Canva and HubSpot do a really great job at this—they direct customers to which subscription plan they should consider. This is something that SaaS companies of all sizes can look into implementing.
Here are some more tips to add to your checklist:
- Be upfront about what your users get and how much it costs. Think of it as creating a menu where each item has a clear description. No one likes hidden fees or mysterious charges. Transparency not only builds trust but sets the stage for a lasting customer relationship.
- Simplicity sells. Cut the fluff. SaaS-makers’ tendency to bloat pricing plans and flood the list of inclusions with unnecessary features can turn off prospective subscribers.
- Highlight the value. Communicate the best that subscribers can get from each plan to make it easier for them to decipher the difference.
2. Simplify the billing process for customers
Did you know that approximately 9% of B2B MRR goes down the drain with revenue leakage due to bad SaaS billing practices? It’s true, and the main culprit is the existence of overly complicated billing models for collecting payments.
To ensure that your SaaS company can seamlessly rake in your recurring revenue, it’s crucial to set up a clear and straightforward invoicing process. Simplify the whole shebang of billing, lessen the cognitive load—and make it as frictionless as possible. Your customers should navigate the recurring billing process with the ease of a Sunday morning. From sign-up to automatic charges, every step should be intuitive.
Some places you can start with:
- Be flexible. While you can’t please everybody, you can explore providing different tiers or plans to cater to a range of user needs.
- Offer multiple payment options. Check out this list of payment processors which offer flexible options tailored to subscription businesses.
- Set up free trials. Then make it easy for them to transition to a paid plan at the end of the free trial.
- Focus on making your user interface intuitive. Design a user-friendly interface for the entire billing process. Minimize the number of clicks required to complete payment-related actions.
- Look into one-click payment. Implement one-click payment options for returning customers. Prioritize convenience to encourage repeat business.
- Optimize for mobile. Ensure that the billing process is seamless even on mobile devices. Don’t forget to optimize for various screen sizes to accommodate diverse user preferences.
- Customer support should be easily accessible. Make sure that customer support is easily reachable for billing inquiries. Provide multiple channels, such as chat, email, or a dedicated support portal—omnichannel customer service is the key, as long as it’s done seamlessly. You can also look into outsourcing a dedicated customer support team.
3. Maximize MRR/ARR by leveraging usage data
Subscription models have revolutionized industries, offering companies predictable revenue and growth. The best SaaS companies constantly optimize for greater monthly or annual recurring revenues, and a huge part of that is looking at what the data tells us.
Don’t just collect data—harness it. Using analytics tools and your subscription management platform, you should be able to obtain a good idea of which changes you should make to maximize your MRR/ARR.
Examples of valuable data you can extract from your tools:
- Pinpoint which parts of the billing process and the entire customer journey that subscribers tend to drop off
- Identify any friction that increases the chances for churn.
- Track user engagement metrics to understand how actively customers are using your SaaS
- Monitor features accessed, time spent, and any patterns in usage behavior
- Use usage data to provide personalized recommendations for additional features or upgrades
4. Take preventive measures against revenue leakage
Though it can be tricky, especially at the start, the great thing about billing processes is that they can be automated—and all the best SaaS players do so. This not only increases productivity but also ensures that there is no significant amount of money being left on the table.
Revenue leakage is a real issue. In fact, according to MGI, 42% of companies — including SaaS companies — experience some form of revenue leakage. Leaks happen when businesses fail to identify blind spots such as stagnant payment updates or credit card declines. Revenue leakages are generally bad news for any business, but even more so for SaaS businesses.
To prevent this from happening, you can implement these tips:
- Employ an airtight and automated billing system. it should come with payment reminders, automatic invoicing, email alerts about credit card declines, and so on.
- Reduce the likelihood of involuntary churn due to outdated card details. Implement automated reminders for users to update their payment information before their card expires.
- Incorporate intelligent retry mechanisms for failed payments. You can do this by implementing dunning software.
- Notify users in advance about upcoming payments. Provide clear information on the amount, date, and purpose of the upcoming charge.
- Inform them about failed payments too. Include actionable steps or links to easily resolve payment issues.
- Provide proactive customer support. Respond promptly to user queries and assist in resolving payment issues.
5. When in doubt, ask your customers
Lastly, let’s talk about crowdsourcing feedback. It’s one of the most underrated methods of optimizing your business. After all, who better to tell you how to improve your SaaS business than your actual users, right?
Your customers are your best advisors. If you’re contemplating changes to your pricing model or considering new features, consult the people who matter most—the ones paying the bills.
Strategies to get feedback from subscribers:
- Create feedback loops. Encourage users to provide feedback on the billing process and use these insights to refine and improve the user experience continuously. These customer service survey tools are a great starting point.
- Integrate feedback forms directly into your billing platform. Prompt users to share their thoughts after key interactions, such as subscription sign-up or payment.
- Beta-test new features to selected subscribers. Invite a group of willing customers to beta test any changes or new features related to billing before a wide-scale rollout.
2 common issues of SaaS billing
As much as we’d love a seamless billing journey, the reality is that SaaS businesses often face hurdles that can disrupt the financial flow. Let’s shine a spotlight on three common issues that SaaS businesses often encounter:
Voluntary unsubscribes and churn spike
Here’s what only a few understand: SaaS is a long-term play. Companies that are not in it for the long run will be surprised to learn that SaaS takes so much just to maintain momentum and customer retention.
It is projected that the churn rate will likely accelerate—especially with the wider breadth of options to meet customer’s demands. There are a lot of reasons for voluntary churn, and frustration with billing systems may just be one of them. The important first step is to study the churn patterns and determine why subscribers are leaving. If billing is the main reason, there are some prevention strategies you can explore.
- Exit surveys: When users decide to cancel, offer them a chance to share their feedback through an exit survey. Understanding their reasons can provide valuable insights for improvement.
- Value reinforcement: Regularly communicate the value of your service to remind customers why they joined in the first place.
Involuntary churn chronicles
Involuntary churn occurs when payments fail due to expired cards, insufficient funds, or other issues. It’s like losing money in your sleep—quiet, but impactful. It’s called the Silent Revenue Killer for a reason.
In fact, you might be surprised to discover how much revenue you’re losing from subscribers who didn’t even mean to leave.
- Card update reminders: Prompt users to update their payment information before their card expires.
- Implement a failed payment recovery strategy. Recover Payments can help recover at least 50% of monthly lost revenue for subscription-based businesses. It is an integration that syncs with your payment processing systems and communication tools. Additionally, the solution comes with a payment recovery team that will handle and implement payment recovery campaigns.
Set sail for success with steady SaaS billing
The SaaS industry isn’t for the faint of heart. The journey is long, unforgiving, but ultimately rewarding. The best players in the market are those prepared and capable of going the extra mile to keep subscribers happy.
That’s only half the battle, though—a foolproof SaaS billing system can be an overwhelming process. Whether you’re orchestrating clear and sensible pricing strategies, simplifying the billing process for your customers, maximizing revenue through studying customer data well or safeguarding against revenue leakage, the goal is clear—to craft a smooth-sailing billing masterpiece. Transparency, simplicity, and a customer-centric approach are the winds that fill your sails.
This is where Recover Payments comes in as experts in failed payment recovery. Contact Recover Payments today and let us be your trusted navigators on this journey. Together, we’ll ensure your SaaS billing sails smoothly, your revenue flows steadily, and your success horizon expands.