Billing for SaaS Companies
“SaaS has not killed the software market but is growing rapidly and pressuring legacy providers to include SaaS options or risk losing market traction. Subscriptions provide better entry-level pricing and the ability to add features as customers mature and gain value from the initial experience. This is especially critical for new entrants who want to lower financial barriers to new technology adoption and create sustainable, recurring revenue streams.” Gartner.
The SaaS market is expected to grow at a compound annual rate of 21% over the next five years and, according to management consultants BCG, characteristics of the winning formula for SaaS providers include: close management of acquisition and retention metrics; building a product portfolio with inherent cross-sell opportunities; a focus on acquiring the right customers, and continual attention to reducing overhead.
Those requirements place particular demands on SaaS providers and their billing and subscription management systems.
The importance of data security and customer privacy
The increased focus by regulators on data privacy—GDPR in the EU and the various state and federal laws in the US—and the high fines (up to 4% of annual global turnover for GDPR) mean SaaS providers need to make sure they avoid any data breaches, whether by mistake or through cyberattack.
Over 13 billion data records have been lost or stolen since 2013, and billing systems aren’t immune. In fact, they’re particularly prone to attack given the data they hold, such as customer details and payment information.
Credit card and other online payment methods are a magnet for fraudsters, meaning its essential billing systems comply with the Payment Card Industry Data Security Standard (PCI DSS) which requires merchants to protect cardholder data, implement strong access controls, and operate a vulnerability management program.
Another way a billing system can help is by auto removal of user accounts when no longer needed, to prevent attempted re-activation.
Multi-tenancy means more complicated billing requirements
Multi-tenancy—where customers share the same application, running on the same operating system, on the same hardware, with the same data-storage mechanism—is an increasingly popular SaaS delivery model. Although initial application development might take longer, it’s attractive to the SaaS vendor and user because costs are lower, and the product maintenance process is easier.
While billing for single-tenant service is usually straightforward, multi-tenancy makes for more complicated billing since resource usage—whether computational, bandwidth, or data—needs to be calculated for each customer and possibly for each application, location, or individual user. Some vendors might be tempted to use averages but will end up over-billing some customers and under-billing others.
Another consideration is that SaaS providers often vary products and pricing based on resource usage, which means they need an accurate way of billing consumption.
Modern billing systems support multi-tenant and usage-based billing through device-client association that monitors and measures infrastructure use by individual customers.
Improving acquisition rate
Good MI lies at the heart of up-selling and cross-selling. Understanding customer usage and behavior patterns is a good way to find new sales opportunities, and cohort analysis can identify groups of customers for new-business campaigns. Being able to slice and dice reports such as ARPU and product holdings provides valuable input to campaign management.
Billing software also needs to cope with acquisition strategies such as trials, freemium, variable and time-sensitive discounts, and one-time or evergreen coupons. And with such a high volume of prospects, automation can make sure opportunities aren’t missed: At the end of a trial, or discount period, customers are repeatedly prompted to convert using a simple sign-up page.
Managing customer support to reduce churn and increase customer satisfaction
Churn rates are an important indicator of long-term success. Reducing churn also increases customer lifetime value and provides a greater return on acquisition cost. Some analysts reckon an annual churn rate of 5-7% is acceptable for a SaaS business, and if that’s the case, about 30% of SaaS providers have an unacceptable churn rate. One way churn can be reduced is by delivering efficient and effective support.
Seventy percent of customers prefer self-service to speaking to a support representative, so a comprehensive FAQ and knowledge base, perhaps supported by live chat or a virtual assistant, can take care of many basic queries and reduce overhead by limiting the number of tickets raised and the number of back-office support personnel who need to be allocated to resolve them. However, if direct support is needed, it should be easy for customers to raise and update support tickets and query their status.
To optimize resource utilization and ensure queries are handled quickly, help desk and support systems need to be underpinned by powerful workflow to help the support technicians: ticket timers, automated escalation and alerting, event logs, detailed metrics, and easy access to the customer’s previous interaction so they can place support response in a historical context.
The billing system also needs to cope with service change requests such as customer cancellation; service interruption (e.g. customer on vacation); re-subscription; and new, amended, or removed features.
Billing systems shouldn’t be a barrier to a SaaS providers’ growth, but an important tool in their business management armory.
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