SaaS Billing Alert: Subscription billing software is not always the answer
When it comes to SaaS billing it often seems like a no brainer - the billing system applicable is subscription billing. Wait a minute. It is not as straight forward as that.
Here are many situations where a regular subscription billing software fail badly, often leading to implementation failures coming after a lot of painful effort.
One time project milestones
Lets say there is a configuration or implementation service to be made along with every sale, and the payment of the configuration and implementation services are milestone based - Advance, on configuration and one month after going live. This would require a different invoice compared to the standard pay as you go monthly bill.
This survey on linked in shows clearly that subscription software (23%) even with use of extensions for this situation is not the default choice. A substantial percentage had reverted to manual or spreadsheets (23%) and the largest chunk was looking for alternatives (33%). A few seemed to have found the answer by choosing hybrid billing software (20%)
Usage based billing
Its becoming increasingly clear that customers prefer usage based billing that is in line with actual use of the system every period. Studies indicate that SaaS products that have become unicorns are choosing the usage billing route to success. Flat subscription values being usually leads to wasted and unused capacity and with tighter budgets looming, usage billing is the preferred option by customers. Usage billing could often be complex involving a base figure, tiered or volume pricing on top of it. Most subscription billing software cannot handle this complexity
When the sale involves complexity beyond a normal plan or a premium plan and is configured based on the choice of modular services. Regular plan based subscriptions software fail in these cases
High Value invoices
Most subscription billing software charge as a percentage of the sale, assuming that invoice values are low. When invoice values are high, the choice of invoice value based pricing will make the subscription billing software unreasonably expensive, and alternatives become necesssary.
Different engagements in the same bill, revenue recognition etc. are some of the other complexities that come up. Practical implications like needing to combine many bills covering one time services and periodic invoices, or complexities of extracting out revenue recognition reports based on the financial year in which the service occurs are common place. If not considered, it could cause a lot of bottlenecks later.
The implications of a bad fit are going manual or managing with spreadsheets. These are known to have problems related to revenue leakage, customer disputes, delayed billing and payments and high administrative costs. So whats the alternative?
Hybrid billing - which can handle different forms of engagements - one time, subscription, usage, project milestone and time/ expense is the recommended answer for the next decade. Hybrid billing removes the surprise element and allows you to engage differently across customer groups, yet have a unified process from contracts, deliverable specifications, execution completion and billing.
Choices are fewer but are worth considering. For higher end organizations products like Zuora are options and for smaller tech service providers products like Stragiliti are worth evaluating.
The most important thing is to consider all the use cases that you use for billing before you make the choice of your contracts and billing system. Its the heart of your operations and it definitely needs to be chosen with care.
The author is the founder and of Kallos Technologies, a company in operation since 2003 with presence in North America, Singapore and India with customers in over 12 countries. George has over 33 years of all round experience in the IT industry having worked in the US, Australia, Singapore, India and Canada. Prior to this he was the global of product management in Ramco Systems. Visit www.Stragiliti.net to view the products and services offered by Kallos Technologies.