Billings evolve with improved data and intelligence
Do you remember when companies paid one sum to purchase a piece of software which was then delivered via a CD package? Then if the desired feature wasn’t on that CD, or the software provider released a new version, companies would have to buy another disk set just to upgrade their system.
But times have changed. As software delivery transitioned from physical hardware to a downloadable, cloud-based model, the way companies consume and pay for these services evolved as well. That’s how the SaaS market was born.
Tech HQ recently spoke with Hillary Lovric, Vice President of Marketing at Chargify, on the changing nature of SaaS pricing and the emerging options for SaaS billing. Chargify is the leader in billing and subscription management for B2B SaaS. It has empowered SaaS businesses with the billing tools they need for sustainable growth since its founding in 2009.
“If you think of the evolution of billing, companies used to only be able to charge a single lump sum upfront fee, then the introduction of the subscription happened,” Lovric said. Companies are no longer limited in the way they can bill, which has led SaaS businesses to offer their customers a payment model which better suits cashflow on both sides. Lovric added that many SaaS companies are now proceeding past subscriptions to include complex, value-based and usage pricing models as well.
“Companies found that when they move to a subscription-based model, they can charge a smaller amount on a recurring basis, which can actually generate more revenue in the long run than a single upfront fee could,” she said. “A subscription model encourages customers to stay with a company longer. And that loyalty is rewarded with better access to the product’s functionality and the latest updates, which increases overall customer satisfaction.”
Lovric pointed out that customer satisfaction and the product catalogue should be at the heart of a SaaS billing system. Customers are more likely to stick around if upgrading their software is hassle-free. Arranging and making payments shouldn’t be a pain. At the same time, the billing method a company employs will play an important role in revenue generation. Being able to access and parse the appropriate data to determine the most suitable billing model is critical. For instance, understanding what model would best fit your customers’ expectations can be achieved by seeing your customers’ location, what products they’re buying, and more.
A company’s product catalogue lists what the company is selling, how those products are structured, how they relate to each other, and how they’re priced. A billing system then gathers all this information into a single platform, providing company leaders with a more accurate and extensive view of their business.
“Billing systems, and Chargify specifically, are tied directly into a company’s back office. People think billing is a necessary evil—that it’s just something that has to be done—but that’s not the case at all,” Lovric said. “Billing is an integral part of revenue generation, and the software you use to manage it, if used properly (to develop and manage your pricing structure, manage your customers, etc.), will have a meaningful impact on a company’s growth and success within their organisation.”
“A sophisticated billing system allows you to reduce costs and improve revenue collection by automating tedious, manual processes, which saves time and reduces the chance of error. It also allows companies to enter markets in new ways. Without a billing system (or with a very limited billing system), a company is often stuck pricing one way. But adopting the right software allows them to price and collect according to whatever market they’re serving” Lovric said. “These are all levers that can be pulled to differentiate your company against your competitor without having to write another line of code.”
Chargify was the first subscription management platform to bring business intelligence functionality into billing. When Chargify released Chargify Business Intelligence in May 2021, Lawpath, Australia’s leading online legal platform, was an early-access user of the new platform. When Lawpath was founded nine years ago, its billing ran on individual transactions and one-off payments. In 2014, it transitioned to a subscription model after implementing Chargify. This was a significant step up from how it had been operating before Chargify. However, as the company grew (gaining new users at a rate of 350-400 every day), the amount of customer data soon overwhelmed its data team, who needed a single source of truth. But Chargify BI changed that.
“[Chargify BI is] a significant improvement for us because we’ve got the clear source of data that we need. It provided us with such a clarity of how many people that we have coming in within the month, how many subscribers, upgrades and downgrades, and everything else in between,” said Tom Willis, Chief Marketing Officer and Co-Founder of Lawpath. “It solved a lot of headaches for us.”
Making sense of data, and demystifying it to provide the most relevant insights to stakeholders is one of a billing system’s most critical tasks.
“There’s no requirement or regulatory body that specifies you have to bill in a certain way, which means SaaS companies get to create a billing strategy that’s specifically tailored to their business model,” said Lovric, who is seeing more widespread adoption of a variety of billing options, from tiered access to complex multi-attribute usage models.
Lovric noted that the transition to usage-based billing in the SaaS market is growing fast. Those companies looking to adapt, but are still reluctant to dive right in, are moving toward usage billing in small steps. “I see unique combinations of pricing models, like a prepaid usage billing model, becoming much more widespread as companies begin shifting to a purely usage-based pricing structure,” she observed.
Revenue forecasting can be a challenge when it comes to billing on usage, since customers are billing in arrears depending on how much they used a service throughout the billing period. That’s a risk some may not have the stomach for yet.
“Allowing a customer to say, ‘I’ll commit to paying for a certain base level of usage and then burst over if needed (and moving into an overage charge), is what I see many SaaS companies implementing as the stopgap between subscriptions and usage,” Lovric said. “And being able to run calculations to see what your revenue would have been, then modelling that out and tracking over time to ensure your revenue is actually lining up with expectation is an impactful way to forecast when employing a fully usage-based model.”
A company using a billing system such as Chargify will be able to craft its workflow, pricing, and invoicing to provide a more satisfying experience for both staff and customers. Billing systems reduce the complications of the billing process while garnering intelligence from massive amounts of customer usage data which empowers leaders to improve and fine-tune the end-user experience even further.
When it comes to subscription management software that empowers SaaS businesses to move fast, iterate, and grow their business, think Chargify.