Monthly Archives: November 2011

Zuora investment validates growth of subscription billing market

Congratulations to Zuora, who announced new funding of $36M last week, bringing their total to over $80M. IDC has predicted that the cloud billing space is growing at over 60% per year, and this investment is a great validation of the market opportunity (and Zuora’s success, of course).

Zuora has done an excellent job evangelizing the ‘subscription economy’ and offering a solution for very large, enterprise customers seeking subscription billing solutions. There is, of course, lots of space for healthy competition as companies of all sizes move toward subscription models. This transition to recurring billing creates many challenges, with billing and customer care  issues that are best managed by specialists.

Simple pricing shouldn’t mean rigid pricing

Yesterday I expressed my preference for simple pricing – reducing the number of variations and options presented to an online purchaser. In my experience, simplifying the pricing choices helps increase conversion rates and decrease churn of online customers.

But it is important to not take this quest for simplicity to extremes. Some companies become so locked into ‘consumer style’ simple pricing that they aren’t able to provide more flexible pricing in a corporate or enterprise sales model. With more sophisticated buyers (willing and able to understand pricing options and match them to their needs) you need to be able to match your product or service to the particular requirements – and price points. Rigid pricing models and policies don’t fit well here.

When we sold our SaaS services to large businesses (purchasing for hundreds or thousands of users at once) we were able to easily tailor our pricing for different use cases within that user base. (e.g., we could have separate pricing for heavy vs. light users, or include all the features for power users, and offer a limited version to the rest.) Our competitors couldn’t do this – their billing system supported their online sales very well, but didn’t have the flexibility to customize pricing. This let us win more – and shorten the sales cycle.

So two lessons: think simplicity, but not at the cost of rigidity. And make sure that your subscription billing system is flexible and can offer pricing plans that include recurring and usage charges.

Make recurring pricing simpler!

Simpler is better.

I express this partly as a personal preference, and partly as a lesson learned from years of a/b and multivariate testing, and a lot of random experimentation.

As a personal preference – too many choices make me tired. Optimistically, I suffer from decision fatigue; pessimistically, I get bored easily. But as a consumer, I click away to another site.

We all find various ways to complicate subscription pricing. Add a setup fee, or an extra usage charge;  maybe try to squeak a few more bucks from an optional feature. It’s easy to rationalize – competitors do it; we worked really hard on this; it lowers our margins.

In a SaaS billing world, the goal is to maximize customer value – get customers, and keep them. Simplifying helps with both.

Let me give an example. In a previous life, we had (we thought) a nice simple pricing plan: $10 per month, with a $10 setup fee. Customers would sign up online, and be charged $20 ($10+$10). And then they would call to complain – we had charged them $20, not $10 – and while it was arithmetically correct it created an initial negative impression. Plus, there were too many calls to handle.

So, what happened when we removed the setup fee? First, our online conversion rates increased by over 40% – and “no hidden fees” became an important positioning statement. But second, our churn rate decreased – by eliminating an initial irritant, customer satisfaction increased. And so did revenues and customer lifetime value – and profits.

Fusebill supports flexible recurring billing plans - but that doesn’t mean you should always use them. Tomorrow we’ll talk about when they might be appropriate.

Subscription billing means dealing with failed credit cards

Presumably there aren’t many managers that sit around a boardroom table and say “our goal is to really piss off our loyal customers” or “how could we make the customer experience worse”.

And yet, and yet.

I have been a loyal subscriber (for a company that will be unnamed, for now) for years. Until last month, when my credit card expired and my account was turned off – with no notice, no warning, no grace period.

How does this happen? I can only guess, but I suspect that the unnamed company created a policy to deal with fraudulent credit cards (if attempted_charge fails, terminate account) and in the process affected good, but lazy customers whose cards weren’t updated.

Subscription billing means dealing with  credit cards that expire, or are temporarily declined, or are fraudulent – and knowing how to treat them differently.

Fusebill helps companies grow their subscription business by managing the customer lifecycle. And yes, Fusebill would have warned me BEFORE my card expired, allowed a suitable grace period to fix it,  and only terminated the account after repeated attempts at contact. All of which can be customized by our clients.