Subscription billing models are increasingly being used in markets as diverse as soap, software, and sushi. Whether used for a pure service, a physical good or a hybrid, successful execution of a subscription strategy creates demands that challenge billing departments and CFOs. Successful CFOs turn this challenge to an opportunity and reinvent the billing system(s) as a key source of customer intelligence and insights.
What are some of the challenges of subscription billing?
Tom Martin, CFO of pricing intelligence vendor 360pi, says “When I joined the company we had a collection of spreadsheets tracking contract renewals, payments and revenues. It was an unsustainable approach for the kind of growth we’re now experiencing.” Problems typically fall into four areas.
Complete Guide to Subscription Billing.
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1) Subscription Billing Automation
The pure mechanical aspects of calculating bills, preparing invoices, charging credit cards and collecting payments can overwhelm teams and manual processes. Delays at any step lead to slow collections and reduced cash flow; errors create customer dissatisfaction – or revenue leakage.
Teams often respond through a patchwork of partial solutions – adding staff; adding review steps; partial automation through Quickbooks. Over time, an unwieldy process with too many steps and too much effort satisfies no one, and becomes an obstacle to growth.
Customer and competitive forces drive the need to create new price plans and bundles and tailor pricing to individual clients. When the marketing department wants to introduce a promotion that “just” combines three services into one price, or match a competitive offer with a discount for clients with the premium package, billing systems are a roadblock. It’s rarely a challenge to create one invoice with special pricing, once. Doing it at scale, repeatedly, and with ‘special’ pricing needs emerging day after day – that’s a challenge. Slow and inflexible billing systems leave the finance team as nay-sayers and perceived as roadblocks.
Successful subscription businesses thrive on metrics: customer lifetime value; customer acquisition costs; churn; lifetime. They segment these metrics by channel and geography; compare them across marketing programs and sales teams. Realistically, many businesses struggle to produce these numbers – and whatever else the CEO read about on the weekend – with any kind of frequency.
Subscription revenues are typically recognized over time; product revenues at time of shipping. Bundles? Hybrids? Many fancy spreadsheets proliferate as add-ons to the accounting system, attempting to track and recognize revenues accurately.
Fortunately, a new class of subscription billing systems by specialized companies like Fusebill has emerged. At a minimum, these solutions provide basic automation of recurring processes, freeing up resources and reducing errors. Offerings are largely distinguished by their ability to flexibly cope with changes and pricing paradigms; accurately track revenues, and offer customer insights.