SaaS Billing

SaaS Billing 

The global SaaS market was worth $272.49 billion in 2021, and it is expected to grow at a 12.5% CAGR over the next four years to $436.9 billion in 2025.

To keep up with the rapid growth, you need a SaaS billing solution.

Below, you’ll learn

• What SaaS billing is

• Why you need a SaaS billing solution

• Best practices for SaaS subscription billing

• The best billing service for your SaaS business

What is SaaS billing?

SaaS billing is a system for billing clients at predefined intervals (weekly, monthly, or annually), allowing companies to efficiently manage the billing process.

Why do you need a SaaS billing solution?

You need a SaaS billing solution because, as your company grows, your billing needs become more complex. The marketplace is always evolving, which means you constantly need to be testing and implementing new billing models without any inefficiencies or lag time.

On a micro level, you have to consider the invoicing and billing process for each customer. To encourage repeat business, it needs to be frictionless because customers don’t want to waste time every month. You also don’t want your staff to constantly be putting out fires, so an automated and smooth process is likely to result in cost savings for your organization.

When you’re first starting a subscription business, you might be able to get away with using an in-house solution or spreadsheets, but a SaaS billing solution—despite its costs—is likely to provide a much better return on investment (ROI) in the long run.

Best practices for SaaS subscription billing 

Here are five best practices for SaaS subscription billing that can help transform your company.

1. Automate repetitive tasks 

As a SaaS business, your to-do list is probably piling up with a lot of billing-related tasks, including:

• Starting a free trial and converting it into a paid subscription

• Pausing and postponing subscriptions

• Billing your customers

• Preventing involuntary churn (more on this in a bit)

• Moving subscription data between platforms

With a subpar SaaS billing solution, your accounting and finance team could be stuck doing some or all of the above tasks. But with a top-notch solution, you can redeploy your team to higher-value tasks that fully utilize their skill sets.

2. Reduce involuntary churn through a proven process

It’s somewhere between five and 25 times more expensive to acquire a new customer than to retain an existing one. With this in mind, losing a customer to involuntary churn—in other words, losing someone who doesn’t want to cancel their subscription—is one of the worst outcomes for your company.

So, a proven process that reduces involuntary churn is a must-have for your company. There are three common ways to slash involuntary churn rates: updating credit and debit card details, data-driven retries, and dunning. 

You want to look for subscription billing software that generates results; Recurly merchants, for example, see their involuntary churn rates drop from 6% to 1%, on average.

3. Get insights into what’s driving your company’s performance

Subscription business model metrics give you insights into what is driving your company’s performance, and a SaaS billing solution can make it much easier to access those metrics at any time.

For example, you want to know how much it’s costing you to acquire a customer and the lifetime value of each of them. You’d determine your customer acquisition cost (CAC), lifetime value (LTV), and LTV:CAC ratio. A growing SaaS business should have a 3:1 LTV:CAC ratio, which means that it generates $3 in profit for every $1 spent on customer acquisition. A company that doesn’t have that data is going to have to do a lot of guesswork with important decisions.

Look for subscription management software that has a dashboard with subscription business model metrics and key performance indicators.

4. Use subscription billing models that work for your company and your customers

Here are three commonly used subscription billing models:

• Fixed recurring models are used by companies that charge a fixed price for a single product or service on a recurring basis.

• Quantity-based models are used by companies that charge customers based on the quantity of the product or service that is consumed. An example of this model would be a streaming service that charges three cents for the first 100 minutes of streaming and two cents for every minute after the first 100.

• Usage-based models are used by companies that charge based on usage. A SaaS company that charges $10 per month for every “seat” is deploying a usage-based model.

Look for a SaaS billing solution that lets you use all of the above models—and easily shift between them—as the needs of your company and subscribers are guaranteed to change over time.

5. Get support for a global expansion

There is a global demand for SaaS solutions, so even if your SaaS business is only available in one market right now, that could change over time. With that in mind, it’s critical to have a SaaS billing solution that can support a global expansion.

What does this mean in practice? 

You need SaaS billing software that supports a large number of currencies and languages. Recurly, for example, supports over 140 currencies and 18 different languages.

Best billing service for your SaaS business 

A SaaS business needs a billing service with a lot of functions that meet current and future requirements. At the same time, you don’t want to get bogged down with unnecessary functionality.

Recurly has a lot of experience working with SaaS businesses, so our SaaS billing solution is designed to provide you with the features you need, without unnecessary bloat. You can run a simple operation in one market or deploy a number of subscription billing models across the world. Either way, Recurly has you covered.

With a typical time to launch of 46 days, you don’t have to worry about your competitors gaining ground as you get up and running.