Subscription Billing

Why You’re Failing at Subscription Billing

Cat Carroll

Recurring subscription billing is great for steady, predictable revenue, but it can quickly become more difficult than you bargained for—there are tons of variables, lots of moving parts, and plenty of potential for error. You’ll likely need to handle variable billing cycles, upgrades and downgrades, cancellations, adding new products and services, enrolling new customers, and much more.

Oh, and you have to follow complex accounting guidelines and security standards while doing it.

Since there’s so much that goes into subscription billing, it can be difficult to even identify where you’re going wrong, let alone figure out how to fix the problems.

Let’s look at some common pain points within the subscription billing process and how best to alleviate them.

You aren’t automating enough.

Manual subscription billing can be extremely time-consuming and labor-intensive (read: expensive). While manual billing may be feasible during the startup phase, it can quickly become simply impossible for finance teams to keep up as businesses scale and gain more customers.

Fortunately, automating your subscription billing can dramatically reduce the workload—by as much as 90%!

JustLogin, a leading cloud-based HR software solutions provider in Singapore, reduced its billing time from three billing clerks working for two straight weeks each month (including overtime) with complex billing operations to just a few total hours of recurring billing work per month.

Beyond simply saving work hours and money spent on billing department salaries, automating your subscription billing system can also:

  • Dramatically reduce the risk of human error,
  • Create easy-to-understand, branded invoices for your customers,
  • Minimize recurring revenue leaks and failed payments through automated dunning management and collections,
  • Allow for better data and forecasting, and
  • Create a single source of truth (SSOT) that benefits all departments within your SaaS subscription business.

The bottom line? The average return on investment (ROI) on automating your subscription billing is anywhere from $45-$100 (or more) per $1 spent on the subscription management system.

You’re treating all your customers the same.

Not every customer wants or needs the same things, so it’s crucial to have subscription billing software with a flexible catalog.

If you’re currently using legacy recurring billing software, you’re probably familiar with the clunky workarounds that are necessary without catalog flexibility. For example, if your customer needs to pay a one-time fee (such as an implementation fee) you may have to:

  • sign them up for a fake new subscription in your system at the same price point as the implementation fee, then
  • remember to cancel the fake subscription before the next month’s invoice, while
  • hoping the customer isn’t confused or upset when they see the charge on their invoice.

The best subscription billing software has a flexible catalog to enable you to offer multiple billing models, custom pricing and service bundles, discounts, and prorations for customers without having to use a clunky workaround.

Especially if you market to small-scale as well as enterprise customers, this flexible pricing and ability to customize offers can dramatically improve the customer experience and give you a competitive advantage.

Using billing system workarounds to process one-time charges or offer discounts in a rigid catalog system is not only inconvenient, it can also impact your business data and invalidate your analytics. Like in the example above, if you’re forced to create a new subscription for a customer each time you need to make a one-time charge and then cancel it immediately after, that can falsely inflate your churn rate and essentially make it impossible to make data-driven decisions—more on this later.

You’re thinking of your pricing all wrong—or not at all.

Speaking of a flexible product catalog, this agility also allows you to run pricing experiments to find the sweet spot between profit for your business and value for your customers.

Pricing your subscription offerings shouldn’t be a one-and-done task—you’ll need to continually evaluate your pricing strategy, create new bundles of products and services to meet customer demand, and keep an eye on competitors’ price points.

While pricing isn’t strictly a billing matter, the two go hand-in-hand in terms of creating and collecting revenue. If your pricing is too high, you’ll likely lose customers to your more affordable competitors. Conversely, if your prices are too low, you won’t be turning a profit—especially if you are relying on expensive manual subscription billing processes as we talked about earlier!

For example, Outseta, a SaaS platform, initially offered a freemium plan that the majority of its 5,000 users opted to use. Support requests from non-paying users were eating up the bandwidth of their 5-person support team, making it difficult to bring in any revenue. In need of a change, Outseta decided to scrap the freemium plan and offer only paid subscriptions. Thanks to this experiment, the business’s growth rate doubled, support requests from freemium users dropped substantially, and the team was able to focus their energies on support for paying customers and revenue generation.

However, it’s important to be systematic in your pricing experimentation. You may want to divide your customers into cohorts, test different pricing schemes on different groups, and then compare the data on sales, customer churn, and revenue churn to identify your ideal price point.

Sound like a lot of work?

With automated subscription billing solutions that provide catalog flexibility, it’s really not. Plus, with the potential to double your business’s growth rate on the line, can you afford not to spend time perfecting your pricing models?

You aren’t prioritizing compliance.

Compliance is certainly one of the less glamorous aspects of subscription billing, but it’s essential nonetheless. Failing to comply with Payment Card Industry (PCI) and Accounting Standards Codification (ASC) 606 standards can result in a SaaS business being shut down, or, in particularly egregious cases, jail time for the business owner.

The PCI Data Security Standard (DSS) is a set of rules designed to protect consumers’ sensitive credit card data from cyber criminals. For subscription businesses, secure data storage is especially important since credit card information is stored long-term for recurring payments—which makes SaaS businesses a particularly attractive target for hackers.

While you can opt to create your own secure virtual vault for your customers’ payment information, it’s much easier and safer to outsource this work by selecting a subscription billing software that has PCI-compliant data storage baked in.

Complying with ASC 606 guidelines isn’t necessarily the easiest thing to manage on your own, either. In fact, as your subscription business grows, it can become downright impossible for your accounting team to keep up with manual revenue recognition and remain ASC 606-compliant while processing your subscription billing.

Since compliance isn’t easy or glamorous, it can be tempting to let it fall by the wayside. But, as I mentioned, the consequences can be dire.

Fortunately, with a comprehensive recurring billing system, you can automate the entire process, including invoicing, receiving payments, securely storing payment details, automatically updating credit card information, and performing revenue recognition in compliance with the guidelines.

You aren’t letting data inform your business decisions.

Let’s face it—going with your gut feeling simply won’t cut it when it comes to making high-stakes business decisions. That’s where data comes in. Studies have shown that executives who used a data-driven approach were 3X more likely to report improved decision-making abilities than those who did not consult data.

But how do you know what data to consult? And where do you get the data that you need?

A subscription billing software solution not only provides accurate, real-time data, but it also serves as a single source of truth (SSOT) for all departments and generates contextualized reports with actionable insights that help you make informed data-driven decisions—no manual number-crunching necessary!

Modern, automated subscription billing software can help your business thrive.

All of the above-listed issues can be boiled down to one main cause of failure with recurring billing: not using the right tool to make the process efficient and error-free.

Fortunately, implementing a modern subscription management service designed to handle all aspects of recurring billing can alleviate all of those pain points. Turn your failing billing process into a well-oiled machine by reducing time and money spent on billing, virtually eliminating manual errors through automation, improving customer experience, and using data to make smart business decisions.

Written by:

Cat Carroll
Cat Carroll
Freelance Writer

Cat Carroll is a writer and editor from Seattle, Washington. She enjoys writing about a wide variety of topics, including the SaaS industry, travel, and home improvement. When she’s not writing, you can find her rock climbing, thrifting, or reading.