Billing is at the core of SaaS (Software as a Service), and subscription management will inevitably become more complex as your product grows. Besides, a faulty billing strategy can prevent you from developing an optimal pricing model, this way reducing your profit.
Relevant has developed over a hundred world-class software applications. We’ve built a SaaS recommendation engine that helps clients maximize savings on deposits. So rest assured, we follow the best practices for SaaS billing, and our teams are aware of the widespread mistakes and how to fix them.
And that is why we decided to share our experience. This post sheds light on the practices that will help you develop a competitive SaaS pricing model and integrate an effective billing system. Besides, we’ll tell you about useful SaaS subscription billing solutions along the way.
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Price can be a reason behind the project’s success or untimely demise. And it’s never easy to calculate the difference between the infrastructure costs and the money your customers will be willing to pay.
So, how can you develop a SaaS pricing model that will help you gain momentum and grow a loyal user-base?
A system for gathering and analyzing cost per tenant data is vital for choosing the right billing system for your SaaS business. That’s especially useful for services with multi-tiered, feature-packed subscriptions.
Let’s imagine that you offer four subscription plans. Analysis can show that the free tier generates the least revenue and too much infrastructure costs. At the same time, the most expensive plan has the least users, requires fewer resources to maintain, yet generates much more money.
Equipped with this data, you can start experimenting with moving certain features from the free tier to different plans. Some users will inevitably stop using your service, but it will ultimately improve your overall income.
Remember that tenant costs calculation isn’t accounting, and you shouldn’t expect your metering system to be 100% accurate. Instead, you should create a metrics collection model that simplifies the data analysis while giving enough insight.
Organizations rely on metering to create a SaaS billing strategy for different tiers. Here’s what you should focus on:
Once you see the figures, you can analyze how different features and strategies impact revenue and cost per tenant.
Cost analysis is different for single-tenant and multi-tenant environments. Here’s what you should consider in each.
It’s up to you to determine the optimal way to aggregate tenant costs. To make it easier, you can integrate a SaaS billing system that analyzes tenant activity.
Now, how do you find the right balance between revenue and value for the customer? Let’s look at the most popular SaaS pricing models for B2B (business-to-business) and B2C (business-to-customer):
There are no universal SaaS pricing model templates. You can create custom combinations by mixing models and practices that fit your business. Nonetheless, you have to be sure that the result won’t be too complicated for tenants.
You’ve implemented a metering model to calculate costs per tenant and developed a profitable pricing model. Now, you need to see how well it sits with your customers.
Here are the things you should factor in to arrive at a profitable business model:
As your product grows in demand, you should consider getting rid of the “unlimited” plans that offer a full package of features for a relatively small price.
Here’s the deal. You should base your pricing around value. This is the basic formula: the more features and possibilities your product provides, the more money you can ask. There’s a good chance customers who use your unlimited plans will pay much more than a hard cap you’ve put on it. How can you find out if they are willing to pay more?
Engaged and mature subscribers make a good target for promoting subscription upgrades. You can pinpoint these users based on the MRR churn rate and usage patterns for different tiers. Afterward, you can target them with specific email campaigns designed to convert them to upgrade existing plans or buy new features. Users with the lowest engagement levels, on the other hand, can become targets for re-engagement campaigns.
But here’s the deal: every interaction with a customer results in a reaction. Your marketing campaigns targeted at converting customers can have the opposite effect and lead to churn. That’s why you should consider using SaaS gamification platforms to enhance your marketing and support teams’ performance.
What’s next? Now, you can try different pricing strategies.
One of the most popular practices to determine value in the early days of online services was the 10-5-20 rule. This framework included continuously raising your prices by 5% and analyzing push back to test the limit of what customers were willing to pay for your app.
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Planning is the key to choosing the right billing system for your SaaS business. You need to predict your customer’s needs and pick the more appropriate solution given your resources, budget, and client base.
But building and sustaining a subscription management system can become just as difficult as developing the app it’s made for. Do you want to avoid this process entirely and focus on other aspects of your business?
Here’s a list of the best SaaS billing software you can buy to run effective management with minimal legwork:
Chargify is a SaaS subscription billing solution for B2B companies that automates quote-to-cash processes. This platform will help automate various types of payments and reverse duplicate transactions.
All of these processes are manageable thanks to an easy-to-use dashboard. The API architecture allows adding most CRMs and financial software, as well as other custom apps.
Chargebee is a subscription management platform for SaaS, PaaS, eCommerce businesses. This program can streamline your billing system and automate most mundane processes. On top of that, the platform offers in-depth costs and revenue metrics to help you develop an optimal SaaS pricing model.
You can set up email notifications and integrate many tools with Chargebee’s API. And, importantly, the support staff is knowledgeable and quick to answer your requests.
Salesforce CPQ allows companies to automate ordering and leverage multi-dimensional quoting. This billing solution is more focused on sales executives who want to get fast quotes and improve the discount management process. You can also use uniform template designs to accelerate the sale process. Additionally, you can use Salesforce CPQ to track and structure data for customer lifecycles.
SaaSOptics is a B2B-oriented subscription management platform with accurate analytical capabilities, dunning, and automated revenue recognition. It’s packed with various functions designed to save time on recurring billing.
This is easily among the best SaaS billing solutions for those willing to master it. The company even offers a designated representative for each account and has a responsive support team to help you adjust and set up the software.
Billsby offers one of the most straightforward SaaS subscription billing solutions. This software has a broad set of features and an easy setup process.
Billsby’s interface is intuitive thanks to easy navigation and drop-in checkouts. Moreover, the advanced API allows integration with various business tools.
FastSpring is a transparent and customizable subscription management system for SaaS businesses. It offers a wide variety of features for managing recurring payments, automated notifications, and special promotions. The platform also supports various international regulations and currencies.
You can customize everything related to transactions and visual presentation. On top of that, FastSpring can help you with integrating a subscription billing system into your SaaS app.
Stripe Billing is a mature platform for international businesses. It’s worth considering if you’re working in multiple trading areas with different laws, fees, and currencies.
The dashboard setting is configurable via the API. You can search for tenants and calculate their billing. Additionally, Stripe Billing offers comprehensible API documentation to make the integration with third-party apps easier.
Once your SaaS gets off the ground and money starts flowing in, you’ll have to add payment methods, invoicing options, payment recovery, and dunning management.
High-growth SaaS companies will eventually attract more international users, which means more tax laws and invoice rules. That’s when you’ll have to upgrade your SaaS billing system to keep up with the demand.
Here’s how you can improve the user experience in your subscription management software:
Adding new functionality to subscription management software takes a lot of time and resources. However, you can hire a software development company with the relevant experience to build on top of your current billing software for the SaaS app.
At its core, subscription billing software addresses the following questions:
However, the best SaaS billing solutions provide additional features. They can allow you to monitor everything related to tenant revenue and expenses. Finally, some platforms can help you pinpoint the value of your SaaS so you can develop an ideal pricing model.
You can upgrade your current SaaS billing solution or build it from scratch with a dedicated software developer who knows the ins and outs of billing management. Contact us if you want to learn more about billing solutions for SaaS.