SaaS Billing Tips to Maximize Revenues and Keep Customers Happy
August 17, 2021
As your Saas business grows, so does the importance of controlling your finances and revenue.
Whatever your reasons for controlling your company finances, we’re here to present you with actionable tips on how to do that.
Let’s start so you can improve your billing and increase revenue as soon as possible!
Table of Contents
Find the Right Pricing Model
If you have a subscription-based business, there is a wide variety of pricing models and strategies at your disposal, but knowing which one is the best is difficult.
To put it more bluntly, you have to nail the pricing of your product based on what your customers are willing to pay. Otherwise, they’ll cancel their subscription and start using a product with a better offer.
Let’s take a look at this table that compares the prices of different SaaS businesses offering email marketing:
Use CaseEmail ProviderFree planPaid plansBest tool for marketing automationActiveCampaignNoFrom $15/moMost intuitive toolMailerLiteYesFrom $15/moGreat value for moneySendinblueYesFrom $25/moBest range of advanced featuresGetResponseNoFrom $15/moMost generous freemium planMailchimpYesFrom $9.99/moGreat eCommerce automationsOmnisendYesFrom $16/moPay as you go usersMoosendYesFrom $10/moGreat eCommerce CRM featuresDripNoFrom $19/moGood transactional serviceMailjetYesFrom $9.65/mo
On the far right side, you can see the average prices for their monthly subscriptions. Notice how none of them go over $30 per month.
They might charge more since email marketing is one of the leading channels used in 2021, with over 60% of marketers using it regularly. It’s a fast and effective way to reach customers.
But these companies took into consideration their customer’s expectations about the pricing. They researched how much their customers were willing to pay for such a product, looked at companies with similar products and adjusted their prices to stay competitive.
When they had priced their products right, 61% of SaaS businesses increased their profit per customer, so it’s vitally important that you also put some thought into setting your pricing model.
But don’t stress too much if you don’t do it right the first time. The beauty of SaaS business models is that you can frequently adjust your prices to keep up with the changing market.
The more you learn about your customers, the easier it will become to perfectly match the price your customer is willing to pay.
Take a look at how MailGun does it.
MailGun is an email API provider with a usage-based pricing model. They used to offer a ‘’pay-as-you-go’’ pricing model where the customer was charged by the amount of use of the product, in other words, on the number of emails sent.
This model offers significant benefits to the customers, as they only pay for what they use.
On the other hand, because usage levels fluctuate, providers get variable payments each month. This makes it harder to predict revenue and manage cash flow.
MailGun has thought about these challenges, so their pay-as-you-go (Flex) tier has limited features. They also adopted a tiered pricing model, and their monthly paid plans have a lot more features.
Each plan comes with a set of features that build upon the previous tier, and prices increase accordingly. They clearly outline which features are available with each tier, so they can target various types of customers with different needs. It’s a clever way of expanding their market reach.
With the introduction of a tiered pricing plan, they can also manage their income stream in a more predictable way than with a usage-based model.
Finding a good pricing model can be difficult. But if you research your target market and your competition, you can have a better idea of where to start. And if the chosen pricing model doesn’t work for your SaaS business, you can always change it.
Related post: Understanding ACV for SaaS Business
Streamline Your Billing Processes
He hated their billing system because the in-house solution they used was buggy because the development team had to prioritize their actual product.
This is a common problem with most in-house billing systems. As you get more customers, they will demand more customized plans or payment options, and your in-house billing system won’t be able to handle such complexity.
With an in-house billing system, you might appreciate the fact that it gives you more control. But the additional issues are cost and difficulty to maintain an in-house solution, once your pricing models become more complex. This is not ideal for consistent business growth.
There are three main things an effective billing system needs to do:
- Collect payments
- Record payments for customers
- Record payments for the company
But ideally, you’ll want more than that, so consider other features such as analytics, dunning management, and handling different payment methods.
Your best option is to invest in a good third-party solution that will have all the features you need.
João Caxaria, a co-founder of Codacy, says that the best code is the one you don’t have to write, which means that it’s better to spend time integrating a billing system than to build your own.
Third-party solutions should easily account for anything you need for your pricing strategy, like adding discounts, billing dates, and different currencies.
There are many available tools out there, but they come in three categories that often overlap.
The first one is a payment gateway that enables providers to process the payments from their customers. The most common ones are Stripe, Paypal, Amazon Pay, Google Pay, and Apple Pay, among others.
Then, there is the merchant account, which is essentially a bank account for companies to make and accept payments. Most of the time merchant accounts are integrated with your payment gateway system, so often there’s no need to use separate solutions.
Finally, there are subscription management platforms that handle everything related to customer subscriptions.
One of them is Chargebee. They offer many different ways of managing subscription plans for maximum customization and flexibility. They also take care of discounts, upgrades, and downgrades.
When you combine all of these systems, you get a comprehensive billing process that will help you streamline your billing management. You’ll have a fully automated system so you can focus on things that matter.
Choose the Best Billing Period
The most common problem after creating a pricing model is deciding on the billing frequency. Should you choose a monthly or annual plan? What about quarterly invoicing or customized billing plans?
ProfitWell researched which billing periods most SaaS companies use, and the results aren’t surprising.
As you can see, almost 70% of companies charge monthly for their product. SaaS subscriptions depend on recurring revenue so the more often they receive payment from customers, the better. These shorter invoicing cycles ensure that they get paid more frequently.
Let’s look at some real examples of pricing plans and review the advantages of each billing period.
HubSpot only offers annual plans which come with a discount. They do this to provide more value and incentivize customers to commit to a longer plan.
One benefit of yearly plans to SaaS providers is upfront payments which improve cash flow. This ensures that you acquire customers who can afford your product
Other great benefits of yearly plans are lower churn rates and higher customer LTV. They give you more time to prove your value to the customer before the next billing cycle, so customers are less likely to churn.
Now, what about those who only offer monthly plans? Here’s an example from Github.
With monthly plans, they can reach more customers who can afford smaller monthly payments. This is great for attracting startups or SMBs as customers who have smaller budgets, want less commitment, and don’t want to worry about high upfront costs.
Now, what about that 18% of companies that use a hybrid model?
Those who adopt this model can get the best of both worlds.
They can target large companies that want annual plans which provide them simpler invoicing and budget planning. At the same time, they can attract smaller companies who want more flexibility and don’t have large budgets.
They understand that giving customers a choice to fit their needs will increase conversion rates.
Find Upselling Opportunities
When you already have users who frequently use your product and get value from it, you have a better chance of charging them more.
Look at what Dropbox does. They have a freemium account that allows up to 2GB of free storage to any user.
They’re banking on their users to quickly fill that free space and then send them subtle reminders about their storage limitations. Upgrades to a paid plan with more storage can be made with just one click.
Their next plan has up to 1TB of storage which is a dramatic increase, and the customers who quickly fill their storage limitation can be convinced to upgrade.
Their tactic is obviously working since they managed to convince almost 500 000 users to pay for their service.
You could follow their example and target freemium users. First, you need to limit your product’s features in those free plans so your customers can get the basic value of your product but leave them wanting more.
This is the perfect opportunity to remind your users what they can achieve with an upgraded plan.
Upselling opportunities are everywhere if you engage with your customers in the right way. Find what they need and give them more value than they expect, so they’ll be willing to spend more.
Limit Revenue Leakage
Revenue leakage can happen to anyone, in fact, it’s common for 42% of businesses to lose 2-5% of their revenue due to this problem.
It often happens because their billing systems get more complex, or they keep handling their invoicing manually.
Due to these root causes they’re not handling failed payments nor sending notifications about expired credit cards and delayed payment requests.
All of these inactions can potentially cause losses of tens of thousands of dollars. So, if you want to prevent revenue leakage, here’s what you can do.
Use systems that will send automatic and regular reminders to the customers about their upcoming payments. You should warn them about their financial obligations on time.
Involuntary churn happens because credit cards are declined or expired, and that is the most common cause of revenue leakage. When customers can’t process their payment, you’re not getting the money for the service you provide.
One of the most used ways to remind users of payment failures is through email. Look at the following example that you can learn from:
The tone of the email is friendly because this is a simple notification of what happened.
The company offers advice on how to rectify the issue and provides customer support if the customer has any additional questions. If you send automated emails like this, you can solve most problems with late payments.
Offer Various Payment Options
You should seriously consider giving your customers more payment options because your revenue could increase by 23%.
When you have more payment options, you speed up the purchase process, which in turn increases the number of sales.
Customers can choose how they want to pay, and if one payment option doesn’t work, they can opt for another one. If they’re already decided to part with their money, you shouldn’t allow them to change their minds.
So, explore the world of online payments and include some of the following methods:
- Credit cards
- Debit cards
- Wire transfer
- Digital wallet
Each of these methods has its pros and cons, but you have to put the customer's needs first. Your customers are the ones paying for your service, and the better you make this process, you can have more loyal customers and increase their LTV rate.
Your ultimate goal with different payment options is to provide a great customer experience.
Having multiple payment options is even more important for companies that serve international customers.
If you want to expand into new regions and grow your business, you have to consider the social and financial factors of the regions you sell your products in.
What if your customers prefer using digital wallets over credit cards because they want to avoid bank fees, and you don’t have that option? Simply put, they won’t pay for your service.
Having more payment options is convenient for your customers and provides more opportunities to grow your revenue.
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Adjust Your Prices When Needed
Let’s face it, if you’re already providing a great service and improving your product with new features, why shouldn’t you charge more? You’re giving more value to the customer, and your price could match that.
Almost 72% of SaaS companies see the benefits of regularly changing their pricing.
The most common reason is to improve revenue. Your customers are already paying for your service, so adding a dollar or two to the existing prices will not mean much to them, but it can mean a lot to your company.
Actually, it’s recommended that you change your prices as your company grows. The first reason is that your costs are rising.
If you want to increase the value of your product and expand your customer base, everything will require more funds, from marketing to development.
If you don’t change your prices, you’ll fail to cover the added costs that come with company growth.
To understand how changing your prices might impact your business, we’ll explore how Canny.io changed its prices.
Canny.io is a customer feedback management solution where customers can collect, analyze and respond to customer feedback.
As you can see from this graph, they had four different attempts with different outcomes.
On their fourth try, they finally managed to find their target customers with their pricing, and now their average revenue per user is five times higher than when they started.
In their first attempt, their $2/mo plan wasn’t received well. It only brought Canny minimal revenue, and the costs of acquiring customers were much bigger than they expected.
Some of their customers even told them to increase their prices because they were severely undercharging for their Small Team Plan.
After getting valuable feedback from their own customers, they could jump to their next attempt to adjust the pricing.
During the following two attempts, they learned that they needed to limit their available features and offer different prices.
Finally, we come to their fourth, successful attempt. Here’s what they eventually decided on:
They adopted scaled pricing but made it simpler for the customer to understand how the price changes with the number of tracked users.
Their prices are higher than in the first attempt but they can now target fewer customers with bigger budgets who have lower churn rates. This is why their revenue grew so fast.
What can you learn from this example? First, you must listen to your customer’s feedback after each attempt. This allows you to see where you’re failing and what you can change to optimize your pricing.
Finally, your pricing page should be simple and easy to understand, so your customers don’t have to think too hard about your offer.
Use Billing Insights to Forecast Revenue
Your billing system collects valuable data that you can use to forecast revenue and make better business decisions.
Financial analysis includes an overview of subscription plans and how often the customer is invoiced. With this forecast, you can estimate how much money is coming into a business regularly to predict cash flow for a future period.
Business intelligence tools like Trevor.io connect to your company database and can help provide insights into your business’ finances.
Having real-time information in one place can help you analyze your financial performance and dig into the underlying performance drivers.
Using these valuable insights should be a part of your regular financial analysis.
In a world where 4 out of every 10 startups have less than 3 months of available funds to run their business, billing and other aspects of your finances are even more important than ever.
When you take into account those challenges it’s important to do everything in your power to manage your revenue properly.
Luckily, you’ve already taken the first step by reading this article. Your next step is implementing these helpful billing tips to improve your revenue.
Good luck with growing your business!