In the early stages of building and growing a software as a service (SaaS) business, founders often funnel everything into staying afloat. Late nights and saved or borrowed funds tend to play important roles.
And weekends? Forget about ‘em.
With the right skills, resources, and hard work, great SaaS start-ups can eventually take their first steps into scaling territory. At this point—hopefully—revenue begins to outpace expenses, and the business starts doing way better than just “breaking even.”
Check Out: Stax Bill’s Recurring Revenue Platform
However, with this transition comes a few growing pains. As the customer-count climbs, many SaaS teams find themselves struggling to keep pace. Tasks which were previously performed manually fail to scale alongside demand, and in-house business systems may no longer meet every need.
When scaling SaaS businesses hit a pain point, it’s important they act quickly to overcome it. Otherwise, it could become a sticking point that prevents progress.
Here are five of the most common pain points scaling businesses encounter, and some ideas for maneuvering around them.
1. Too Many Manual Processes in a Recurring Revenue Business
As team members scramble to keep up with the increase in customer accounts and subscriptions, manual processes quickly become the enemy. Without at least some automation of marketing, sales, billing, and account management, the team becomes overwhelmed. This can lead to customer churn, revenue leakage, and general drag in the scaling journey.
Many SaaS business leaders find hiring more resources helps temporarily, but still doesn’t completely solve the issue.
Tasks that can be automated tend to be tedious, time-consuming, and prone to human error when performed manually. Often, the better solution is a digital transformation—integrating software built to take over and optimize these tasks.
Marketing automation, customer relationship management (CRM), and recurring billing platforms are just a few of the software solutions many scaling SaaS businesses adopt to ensure their continued scalability. These solutions save time and resources while reducing errors, which leaves more room for increased customer satisfaction and revenue growth potential.
2. High Subscription Customer Churn Rate
Despite their best efforts, many scaling SaaS businesses experience a high churn rate. While the total number of customer accounts may be rising, retention percentages may drop.
Why? Scaling happens fast, creating pressure to meet both customer expectations and operational demand. Sometimes, customers can feel like their needs are left behind. The potential for churn—and lost revenue—is high.
Part of the problem may also be lack of insight. If a SaaS business doesn’t know why customers are leaving, then it’s hard to plug the leak. Surveys—especially exit surveys—may help shed light on where a product or service is falling short from the customer perspective.
Additionally, the more data available on a customer—and in one place—the easier it is to access and leverage for solutions. Integrated business platforms can serve as a business’s single source of truth. And a dependable source of accurate information can be incredibly useful for things like shedding light on customer behaviors that indicate they may soon churn out, such as a drop in usage.
In this scenario, your customer success and retention team can jump into action. After all, making the effort to retain customers not only increases their lifetime value to your company, but it’s also a lot less expensive than acquiring new customers.
Your team can reach out with a friendly “we miss you” email, encouraging usage and highlighting new features to increase the chance of retention. They might even pick up the phone and make a more human connection, depending on the situation.
3. Out of Control Recurring Revenue Leakage
Churn means lost revenue, but it’s not the only place it can happen. There are so many possible revenue leaks in recurring billing. Fortunately, there are just as many ways to fix them.
There are proactive measures recurring revenue businesses can take to prevent revenue leaks, such as:
- flagging recurring payments to avoid duplicate charge disputes
- using automatic card updaters to prevent failed payments from expired cards, and
- appropriately managing soft and hard card declines with effective dunning.
As with the pain points mentioned above, using automation software can make this work more efficient.
Intelligent recurring billing software also makes it easier to follow up with overdue payments, a commonly deferred task in scaling SaaS businesses just trying to keep operations running. Additionally, this software can be set up to collect payment and email receipts automatically, saving even more time and retaining revenue.
Many things can eat away at revenue: churn, operational budgets, and mismanaged billing efforts all play their part. For scaling businesses, however, it’s critical to collect every dollar earned to keep fueling the growth, and to do so with accurate record-keeping.
This data comes in handy for another big scaling SaaS business pain point: due diligence.
RELATED: How Manufacturers Can Use Servitization to Drive Recurring Revenue Growth
4. Insufficient Data for SaaS Due Diligence
As SaaS businesses scale, it isn’t uncommon for founders to start considering taking on investors or even selling. For this to happen, however, partners or buyers will request due diligence data.
Ben Murray, “The SaaS CFO,” explains this process thoroughly in his post How to Prepare for Preliminary SaaS Due Diligence. He says it isn’t uncommon for this to be the first moment SaaS leaders realize their financial data reporting falls short of expectation.
A lot of the time, growing SaaS businesses…come under scrutiny while they’re seeking capital. During their due diligence process, it can come up that they need to improve their financial operations in order to be able to provide the required data.”
He goes on to explain investors or buyers will want to see accurate records of things like sales, cash, and recurring revenue. They’ll also want not just past and current records, but future forecasts based on detailed data.
General ledgers tend to fall short of expectation here. Due diligence necessitates the provision of a well-formatted profit and loss statement and a delineation of revenue streams.
This requires rigorous accounting software that integrates with billing and CRM, or all-in-one subscription management and subscription billing software.
Why the need for CRM integration? Because investors or buyers may also want to see detailed customer data, as well as other information integrated billing software provides.
5. Inaccurate Revenue Recognition
As most good SaaS business leaders know, accurate revenue recognition is a key component of remaining in compliance with Generally Accepted Accounting Principles (GAAP), including the ASC 606 standard. In order to scale and/or attract investors or buyers, this compliance is critical.
For accurate SaaS revenue recognition at scale, there’s no questioning the need for robust recurring billing software. It’s simply impossible to keep up with daily recognition manually with hundreds or even thousands of accounts.
Billing software that automatically recognizes revenue and tracks and reports due diligence data smooths the scaling SaaS business journey.
Scale Pain-free by Adding Automation to Your Recurring Revenue Business Ideas
The common theme in these pain points, of course, is manual tasks. SaaS businesses are part of a unique model, where it can seem like customer numbers jump into the thousands almost overnight. When this happens, digital transformation through automated software is the only way to ensure accurate, compliant, scalable operations and record-keeping.
RELATED: 11 Stats that Show How SaaS and The Recurring Revenue Software Model is Really Doing
From customer success management to marketing to revenue recognition and billing, automated platforms exist to ease pain points and add efficiency to recurring revenue operations at scale.
For intelligent recurring billing software that positions your business for whatever heights the future holds, look no further than Stax Bill.
FAQ about Scaling Recurring Revenue Business
Q: What are some common pain points in scaling a recurring revenue business?
Scaling businesses often face issues such as coping with increased customer accounts, experiencing high churn rates, encountering revenue leaks, struggling with due diligence, and ensuring compliance with Generally Accepted Accounting Principles (GAAP).
Q: How can automation aid in overcoming the challenges of scaling a SaaS business?
Automation helps in managing tasks that are tedious and prone to human error when manually done. Marketing automation, CRM, and recurring billing platforms can increase efficiency, save time, and reduce errors, allowing for improved customer satisfaction and revenue growth.
Q: Why is customer churn a problem for scaling SaaS businesses?
Rapid scaling can put pressure on businesses to meet operational demands while fulfilling customer expectations. If customers feel neglected, the chance for customer churn increases, leading to lost revenue.
Q: What measures can be adopted to prevent revenue leaks in a recurring revenue business?
Businesses can flag recurring payments to avoid duplicate charge disputes, use automatic card updaters to prevent failed payments from expired cards, and manage soft and hard card declines efficiently. Using automation software and intelligent recurring billing software can make this process more efficient.
Q: How important is having accurate financial data reporting when scaling a SaaS business?
Accurate financial data is crucial during the due diligence process when seeking capital or considering selling. Investors and buyers would need to see detailed and reliable records of sales, cash flow, and recurring revenue, along with future forecasts based on the data.
Q: How does integration between different software systems benefit a scaling SaaS business?
Integration between systems like billing and CRM makes it easier to follow up with overdue payments, automate revenue collection, and send email receipts. It also provides detailed customer data and other information required by investors or potential buyers.
Q: Why is being compliant with Generally Accepted Accounting Principles (GAAP) important for a scaling SaaS business?
Compliance with GAAP, including the ASC 606 standard, is crucial for the recognition of accurate SaaS revenue at scale. It also enhances the business’s credibility, which is vital for attracting investors or potential buyers.
Q: How can robust recurring billing software aid a scaling SaaS business?
Such software can automatically recognize revenue and track and report due diligence data, making it easier for businesses to scale. It also reduces the reliance on manual recognition that can be challenging when dealing with hundreds or thousands of customer accounts.
