We know that the subscription economy is the way of the future: recurring revenue over one-time sales; outcomes over products. But it’s one thing to theoretically know that, and another thing to operationalize it.
Whether you’re a pure subscription business or just have a piece of your business that’s dedicated to selling subscriptions, you need a subscription billing system that’s been created specifically to manage recurring billing, and all the potential operational complexities that come with it.
So how do you know if your billing system is doing the job? If you have recurring revenue and are experiencing any of the following issues, you need a better billing system…
With subscriptions, you’re not just dealing with a one-time cost. You’re dealing with multiple pricing options, with variations, over different periods of time. For example, you might be a product with monthly recurring services, a subscription with multi-year contracts, or a usage-based subscription service.
Most old billing systems simply aren’t designed to manage these scenarios. You need a billing system that can support all of your pricing variations and downstream impacts. For example, you should be able to easily sell a base edition, plus the cost for each additional user, plus any additional usage costs, all over the course of a term.
If you have a wide range of products and packages on offer — and regularly release new products — you need flexible subscription billing software that can keep up with all the options, and keep track of what customers buy.
In the non-recurring world, businesses still package their products and services — offering add-ons, cross-selling products, etc. — but they’re just selling at a single point in time: you sell once, bill once, receive payment, and recognize revenue. Done. With subscriptions, there are constant changes to the subscription — a customer will buy a subscription, add seats, pause a subscription, add-on a new service, etc. — and these changes cause billing to change: payments go up, you recognize more revenue, the revenue forecast changes. With downstream impact like this, you need a recurring billing system that can easily manage all of these changes.
A term is how you define your period of billing, whether it’s a month term, annual term, or some other period of time. When you have different contracts, these are billed differently. If you have any term subscription variation, you need a recurring billing system that will automatically track different payment schedules and manage bill runs accordingly.
You have one spreadsheet to track all the bills you need to send for payments owed (AR). Then another spreadsheet detailing who’s been billed but who hasn’t yet paid (aging payments). Then your Finance team has another spreadsheet for how much revenue they’re supposed to recognize — with an additional column for every month for how much revenue was actually recognized. Then three of your 100 customers decide to cancel while five other customers upgrade. So what happens? Lines are manually added, lines disappear, errors are made in entry, and suddenly you’re in the midst of a spreadsheet nightmare.
You shouldn’t need to pull from multiple sources to create a bill run or billing report. Instead, you need a system that automates this function. From the moment you send your first subscription, you should be able to set your payment terms and how often you want to recognize revenue (even daily! even if you charge subscribers annually!).
If you can’t accept payments, what kind of business are you running?! Your subscription billing system needs the ability to accept a wide variety of global payment methods and currencies, from Yuans and e-wallets in China to Rupees and credit cards in India. When you enable your customers to pay any way they want, you eliminate customer payment friction and increase customer satisfaction.
You don’t want your scaling business to be hamstrung by your finance team. By automating the billing process, a subscription billing system eliminates manual functions, so you don’t need to increase headcount in order to bill better and faster as your company grows.
Whether you’re launching into a new geographic area or launching a new segment, all departments within your organization need to scale in sync. If your engineers can launch a new product in six weeks, you need to be able to customize your billing system to support it.
Subscription billing can be complicated: price per user, flat fees, fees per usage blocks, monthly billing for annual contracts, etc. Nobody wants to be stuck weeding through a confusing invoice to try to understand their bill — and certainly nobody wants to be overcharged. Dissatisfied customers are a drain on your customer service department, and a churn risk.
Invoices are an important customer touchpoint, so it’s important to get them right. You need a recurring billing system that allows you to customize invoices for your subscribers. With the right recurring billing system, whatever you put in your product catalog can be shown to your customers; there’s full end-to-end visibility. Your branded invoices can be as simple or as complex as you want, boiled down to the basics or expanded to include every single line item.
If your CFO isn’t sure if your collections are accurate due to revenue leakage and billing errors, that’s a problem. Too many subscription businesses miss out on revenue by not making necessary changes to customers’ bills. A recurring billing system will fix the problem of revenue leakage without you having to dig through those spreadsheets to find the source of the issue.
You’ve got the customers and the revenue, but you can’t meet compliance requirements. Audit trails, accounting period closes — if you don’t have these things locked down, this can be a mark against you when you decide to go public.
If you have people’s credit card information, you must be in compliance. You need to meet PCI compliance, SOC 1 and 2 compliance, ISO 27001, and a list of other standards if you’re going to collect customers’ personal and payment information. Are you ready to dedicate a whole team to support that? The right recurring billing system can manage this area of compliance.
Okay, so that may sound a bit flippant, but it’s true: if you have subscribers, they want the ability to manage their subscriptions: upgrading, downgrading, updating payment information, etc. The whole point of a subscription is for customers to get the products and services that they want, when they want them, how they want them.
If your subscribers can’t easily self-manage their subscriptions this is a drain on your internal resources and potentially damaging to customer satisfaction and retention. On the other hand, a billing system that allows customers to upgrade their subscriptions is a boon to your bottom line. A recurring billing system that empowers subscribers to optimize their subscriptions for the outcomes they want? That’s happy business.