There are many reasons why your business should ensure its recurring billing system offers catalog flexibility. From your basic daily operations to more high-level objectives, the functionality of your catalog can help or hinder your business.
It may seem like just a small element of a larger system, but it can quickly affect your efforts across the board. From team performance and customer perception, to reporting and future forecasting and success, catalog flexibility matters. The following is a prime example.
A prospect I was speaking with sells event rental management software solutions that help its customers manage live events such as concerts, conferences, and retreats. It also leases and sells hard goods that support its software, sells additional components and integrations to customize its subscriptions, and offers its customers a range of support services as needed.
While this SaaS (Software as a Service) business was experiencing impressive growth in the subscription space, it had a huge problem it needed to overcome: an inflexible catalog.
The restrictions this business was facing surrounding its catalog flexibility meant that it was unable to add one-time charges to its customers’ billing. Instead of charging a customer for the hardware or support service they purchased, the business was having to add an additional subscription to their bill for the amount of the product or service. It would then have to cancel this false subscription for subsequent billing.
As an alternative solution, the business would add and alter the price of one of its other recurring products to customers’ bills to account for one-time charges. This workaround process and lack of consistency created a number of issues for the business, both customer-facing and on the back end:
The customer experience:
When customers would receive their bills, the bills appeared to include multiple separate subscriptions at different price points rather than a single recurring subscription and any additional one-time purchases.
In the alternate scenario, it could have also shown a customer’s subscription and an unrelated recurring product standing in for what they actually purchased. This lack of billing transparency caused confusion for the business’s customers. Customers had to remember why they were being sent additional charges, as bill line items were improperly labeled.
The business’s inflexible catalog also made it impossible for it to align its billing periods in a predictable way. As a result, a customer might receive an additional bill, or they might see an additional charge on their bill months after they made a one-time purchase.
Situations like this can leave customers scratching their heads and making angry phone calls.
False churn:
Because the business was having to cancel all of the fake subscriptions and recurring products it was adding to stand in for its one-time charges, it appeared in its reporting that the business was quickly gaining and losing a lot of subscription business. This was ultimately creating a skewed overview of the business’s retention performance.
Insufficient reporting capabilities:
The third issue—and perhaps the most concerning—was the business’s speed and accuracy in terms of its back-end reporting capabilities. Because the business was only able to build out its recurring products rather than create true one-time charges, it wasn’t able to track its separate revenue streams.
This meant it was nearly impossible to determine exactly how much it was making from its specific services and product offerings.
To get even close to accomplishing this level of granularity in its reporting, team members would have to manually look at anomalies in the business’s recurring billing. Any time the price jumped up or down, they would have to sift through that data to figure out how much money was being made from one-time charges.
Not only did this create an incredible amount of time-consuming effort for the team members, it also posed the risk of creating an auditing nightmare.
The business knew it would have to find a more comprehensive recurring billing system with a flexible catalog solution if it was going to remain competitive and financially compliant. And it did.
Making the switch to a robust recurring billing platform
The game has changed for this business. The flexibility of the catalog system on its new recurring billing platform works seamlessly with its charge model, and any charge model it chooses to use going forward. This enables its team members to add a variety of purchase types onto their customers’ accounts and billing, including:
- recurring services
- one-time charges
- physical goods purchases
Items within each of these categories can be properly named on a customer’s account to reflect the actual purchase. Each purchase can behave exactly as the team member ascribes on a customer level.
For example, a customer might subscribe to the business’ software, but upon subscribing they may also require installation and a number of scanning devices. The recurring software subscription would appear on their subsequent bill, along with one-time charges for the installation and scanners.
Perhaps six months down the road, the customer will need some training for new staff, or custom reporting services. The business can add those one-time charges onto the subsequent recurring bill. If the customer requests a large volume of custom reporting as time goes on, the business could even choose to override the price of this typically one-time service to accommodate its customer’s needs.
All of the charges this business’ customers incur now align with their current billing period. Therefore, all of their bills arrive as and when expected. Thanks to proper labelling, it’s also transparent what the customer is being billed for. It’s a much nicer customer experience, and the business is even able to prorate charges for its customers to reflect value given over time.
On its back end, the business is able to report clearly on exactly how much money it’s making from things like:
- recurring services
- one-time charges
- physical goods sales
This enables the business to have a better understanding of where it’s succeeding—and perhaps failing—which offers insight opportunities for ongoing development.
This business example shows just a handful of the challenges an inflexible catalog can create, and how neatly these challenges can be overcome with the right billing platform and catalog system. But there are many more reasons to make catalog flexibility a priority for your business.
Alignment of value
Aligning value means pricing your products and services in a way that reflects the value you’re providing. In today’s modern subscription commerce space, you need to be able to price and bundle your subscription and product offerings in a charge model that makes sense for your customers. If you don’t, your competitor will.
Some businesses offer a very generic subscription product to the market, and their customers simply need to sign up. For example, Netflix charges a recurring monthly fee for its service, and customers get unlimited access to its streaming content. It’s a straightforward transaction, and nearly 140 million subscribers seem to agree that it makes sense.
However, other businesses provide more multifaceted offerings, such as complex financial services or functions within the IoT (Internet of Things) space. The customers they’re selling to need much more variability in how they build their subscriptions. These businesses must be able to align their value correctly with what their customers require.
Consider your cell phone plan. You likely pay a standard fee for your base plan, but you also have a usage product—your phone. If you go over your plan or base subscription, you’re going to be charged an additional fee.
This charge model makes sense for people who know they need a certain amount of this quantity product. But if they run over their base subscription, they need to be charged a volume or tiered charge.
A flexible catalog system will enable your business to mix and match different charge models on a single invoice or a single subscription. You can have a standard recurring fee for your base subscription, metered billing for any usage products, and the ability for customers to move up in tiers as needed.
For example, as a cell phone customer continues to go over their base plan, their usage may get cheaper as they go up in tiers. Instead of just being charged a set fee for every extra gigabyte used, they might expect a discount if they’re using larger amounts.
Choose a recurring billing platform that offers a lot of catalog and pricing flexibility so that your business can bring comprehensive products and services to market. This will enable your business to differentiate itself, and provide subscription products with a charge model that makes sense for customers.
It’s also useful if your pricing strategy or charge model can be unique per product and per customer.
Variability of plans at a customer level
In order to really meet your clients’ needs, your business has to be able to bundle and customize its products and services uniquely. This level of catalog flexibility ultimately enables you to bend to win business.
As previously stated, certain customers will only need your generic subscription, but others will need something more personalized.
A robust recurring billing platform will give you the ability to override certain catalog rules, which gives your business the ability to customize how your subscriptions are built on an individual level.
With a flexible catalog system, you’ll still have your generic catalog offerings—which will stay consistent—but you’ll also be able to:
- quickly and easily change the rules on how your offerings behave on a case-to-case basis
- override your pricing, entitlement, quantity, discounts given, and more
- tailor your customer accounts to appear as unique subscriptions, as opposed to using discounts and coupons
This level of variability is particularly useful if your business offers add-on products, or if it’s facing a competitor with a lower base rate.
Variability of plans is also really important for clients that do pre-negotiated contracts, and for those that offer variable terms and perhaps have a direct B2B sales line. Catalog agility will enable your business to build entirely ad hoc subscriptions. You’ll have the ability to replicate exactly what each client needs, essentially offering a unique catalog for each customer.
The ability to flex and bend to what your clients need instead of making them bend to suit your offerings is a definite differentiator from the generic offerings in the rest of the market.
Quick to market
The pace of business—and life for that matter—has never been faster. A modern recurring billing platform should give your business unlimited administrator abilities and the intuitive functionality it needs to perform catalog functions quickly and easily. This means team members should be able to manage your business’s catalog and pricing without technical support.
If the market shifts up or down, or if your competitor has a new product coming to market that you need to match, your team will be able to make the necessary changes through your catalog and be up and running in a matter of minutes. Flexibility and speed matter in terms of time to revenue.
Reporting capabilities
As was evident from the business example above, misnaming, miscategorizing, and lumping charges together leads to confusion when it comes to reporting on financials. A comprehensive recurring billing platform with a flexible catalog system should use general ledger codes to track balances. This will enable your business to separate its streams of revenue by any metric necessary.
Your business should be able to report on posted invoices separate from the cash sitting in the bank. It should also be able to report on earned revenue, or how much value you have provided to your customers over time. In the subscription space, revenue recognition is essential to being accounting compliant.
In terms of customer accounts, you should be able to track and report on the number of customers you’ve added each month, and you should be able to answer the following:
- How much new recurring revenue did we generate?
- Did any of our existing customers grow?
- Did they add on services, or did they upgrade their plans?
- What was our expansion and contraction? If there was a contraction, did these customers downgrade their plan or did they stop using a service feature?
A flexible catalog system will neatly separate and track your important sales and growth metrics to help your business really drill down and report on all of this and more.
Churn is probably the most important metric to keep track of in the subscription space. You need to be aware of how many customers are stopping use of your service, what the value was of those accounts, and whether you can follow up and potentially save them.
Reducing churn is a huge part of being successful in a subscription business. A flexible catalog system within a robust recurring billing platform eliminates the murkiness of false churn. It also enables your business to identify when and where it can retain customers.
The granular reporting that can be achieved as a result of a flexible catalog system can also give your business powerful information about its customers. The more you know about how your customers behave, the better you can serve them, and the more effective you’ll be at winning over new customers. A modern billing platform should answer the questions:
- Is there a certain customer cohort that’s bringing in a lot of cash?
- Are there a few customers that are bringing in most of our revenue, or is it evenly spread throughout our customer base?
- What are our sales by subscription, and which is our most attractive offering?
- Do our customers prefer to pay monthly or annually?
Answers to these questions and more will enable your subscription business to have a better understanding of where you’re succeeding the most, and how you can adjust to encourage more success.
Agile billing systems have the ability to consolidate and manage all the data from a recurring revenue business’s catalog—as well as its other business segments—into one place, acting as a financial system of record. When properly set up, the billing system can also act as a single source of truth (SSOT) for a business. This unique set of accurate data from across an entire business offers exceptional value in terms of forecasting and revenue predictability.
The right platform will enable your business to use the information from its current active customers and subscriptions to forecast all of your projected invoices over the long term. Your team will even be able to see, down to the day, how much it can expect to invoice and how much it can expect to collect from those invoices.
This level of detail when it comes to reporting can give your business a competitive edge when it comes to planning your next move.
It’s never too early or too late
Your accounts receivable is the one section of your business that’s bringing in money. Every other area of your business can be considered an expense.
Therefore, it’s vital to have a comprehensive recurring billing system in place that automates and simplifies the entire process. If you’re expecting growth, this means getting on board with a billing solution that offers a flexible catalog.
The ability to meet pricing and offering demands, provide top-level customer management and service, and produce accurate and useful reporting and forecasting will keep your business on track and ahead of the curve.
No matter how big or small your business—even if it hasn’t yet started making money—there’s an affordable solution that will set you up for success.
