The need to innovate comes as no surprise to leaders in the SaaS space. After all, they’re in the business of identifying a need and creating a product or service to fill it. Even the 2020 SaaS-trend predictions are eyeing innovation.
For example, Datapine—a Germany-based SaaS solution for lean business analytics—suggests many different industry trends have a focus on innovation, from a ‘mobile-first’ business perspective to the growing prevalence of micro-SaaS businesses.
And while innovating your offerings is at the forefront, it’s also critical to incorporate innovation into all other facets of a successful business. As your business scales, do you have the infrastructure in place to support it?
One critical part of the SaaS subscription business model is accurately and seamlessly billing your customers. Are you still using a legacy billing system? Perhaps that system appears sufficient, but ‘good enough’ might be holding your business back.
It’s time to explore how a dynamic automated billing system can support your business. Not only will subscription billing software streamline your billing process, but also it will impact your business as a whole.
Here are five ways a robust subscription billing platform will make your SaaS business a powerhouse.
1. Sharpened SaaS revenue predictability
Unlike a business that’s dependent on one-time purchases, recurring billing businesses receive smaller payments over an extended period. While recurring payments help customers circumnavigate a large purchase price barrier, those payments trickle in for the business.
However, these incoming payments from all your customers combine each month to create your MRR, which in turn gives a fuller picture of your business’s health.
That picture isn’t just for the here-and-now, though. A business that’s on a solid growth track needs to be able to predict its revenue stream in the future as well—a solid prediction based on existing customer data.
Comprehensive subscription billing software will provide your SaaS business with a financial report calendar, which takes your active customers and active subscriptions and forecasts all the projected invoices for the next year. This will show you, down to the day, how much you can expect to invoice and how much you can expect to collect from those invoices, giving your business plausible revenue predictability.
Having a solid grasp on your revenue and forecasting abilities is not only essential to gain insights on your business, but it’s also critical information when reaching out to investors and other external parties.
2. Increased retention/decreased churn
Increasing subscribers is important for the recurring business model, but keeping those customers happy and preventing churn is essential to your SaaS’s long-term health. Especially considering the cost of new customer acquisition has increased by more than 50% over the last five years, and it’s up to 25 times more costly than the price of retaining a customer.
Consider this: increasing your business’s customer retention by just 5% can increase its revenue by 25-95%.
Keeping customers happy and increasing your customer lifetime value (CLV) is wise for your business’s health, and a respectable CLV will also make your business more alluring for investors.
So how do you do this? One way is to eliminate barriers to payment that can occur when customers are invoiced incorrectly. Not only does an incorrect invoice undermine your business’s credibility, but it also creates a tremendous amount of frustration—particularly when a customer is overbilled.
The customer may be forgiving once or twice, but if mistakes are consistent, sooner or later, they’re going to churn out.
Automated subscription billing software eliminates costly mistakes such as this that can be introduced all too easily with manual processes.
3. Eliminate SaaS revenue leakage
When SaaS businesses are working with legacy and manual billing systems, it can be difficult to stay on top of timely billing and perform effective dunning management when payments fail. Unfortunately, this can lead to serious revenue leakage for your business.
There are many different reasons a payment may fail. The credit card on file might have expired or been declined, or there could be some glitch in the technological superhighway when payment is processed.
Amazingly though, as many as three-quarters of all retried payments will go through.
Robust subscription billing software performs automatic retry of failed payments, saving your team a tremendous amount of time and money normally required to chase down outstanding payments. Imagine, for example, a legacy system that requires someone to physically create a new invoice or contact the subscriber to recover a payment.
The right subscription billing platform will also offer a range of other automated processes to ensure effective dunning management, including automated emails to remind subscribers to update their payment information or to inform them payment will be retried.
Automating the payment process through subscription billing software can also significantly impact your business’s bottom line by reducing revenue leakage from unsynchronized data. For example, if your business decides to increase the price of its products or plans, effective billing software can ensure adjustments are made automatically across all accounts without having to perform manual adjustments to each.
When manual adjustments are required, accounts can slip through the cracks and it can take time to perform a full update—all the while your business is missing out on revenue.
4. Increased financial data integrity and insights with subscription billing software
The majority of subscription businesses have multiple products and features. Consequently, they wouldn’t do well with a one-size-fits-all reporting method. A dynamic subscription billing platform serves as the financial system of record—data that’s impervious to external changes.
For example, the data in a customer relationship management (CRM) system can be touched by many different people, such as salespeople who are making changes to conform to contract changes. However, the data captured in subscription billing software can’t be changed. Consequently, the software becomes the single source of truth (SSOT) from which you can build other projections.
The right subscription billing software will also provide your SaaS business with customizable, in-depth reporting, enabling you to change the reporting perspective as needed and look at your data from different levels of granularity.
For example, a report that looks at the total revenue from your products is important, but it’s also critical to be able to tap into general ledger (GL) codes to break the information down further to gain insights into your specific products. This will enable your business to make informed decisions that will impact your products and your business’s future.
Running reports by different segments can move the focus from plans to cohorts, or even single products. With greater financial transparency, you can see which plans, cohorts, or products are bringing in the most money, and which ones are slow-movers.
Armed with this information, you could, for instance, adjust a less popular plan to add value, offer coupons or discounts to encourage an increase in customer value within less active cohorts, or try bundling a sluggish product with a more popular one to increase your MRR.
5. Strengthened security and compliance
No matter where you look, there are stories of data breaches and cyber attacks that leave businesses and customers vulnerable, so much so it almost seems commonplace. However, the price tag of a data breach is often anything but common.
According to an IBM Security study, data breaches will cost the average business $3.92 million… and large enterprise businesses could take an even bigger financial hit.
For this reason, it’s understandable many businesses are wary when it comes to contracting out parts of their business.
Fortunately, there are strict guidelines in place to keep financial information secure. And recurring billing platforms that are PCI compliant have rigorous infrastructure designed to keep out malicious attacks and safeguard entrusted data.
Additionally, new revenue recognition standards are forcing subscription businesses to correctly track their income. ASC 606 requires businesses to split their income into two pots—earned revenue and deferred revenue. Tracking income between the two revenue streams is challenging if done manually. However, a robust subscription billing platform is designed to automatically track the recognition of revenue, from the beginning to the end of each month.
Scaling businesses need to look beyond their products to maintain their competitive edge, and having the right infrastructure to support that growth is essential.
Take a look at your current billing methods. Can they support your rise above the competition… or are they holding you back?