Your Guide To Better SaaS Subscription Management
Jul 20, 2022
As a growing SaaS company, you’ll already be familiar with subscription management - and you’re probably already using it.
A subscription model for SaaS is a great avenue to bring in more cash, on a consistent basis. It also helps to increase customer satisfaction inevitably leading to higher customer retention! What's not to like?
As the name suggests, this business model is based on subscriptions, which means customers are charged and services are delivered on a rolling basis. There is no service interruption and no need to be thinking about renewing your contract, it’s all automated.
Most SaaS businesses use it nowadays as it has many benefits - least of all, a recurring revenue stream, which makes for easier forecasting.
For a growing company, subscription management means more liquidity, less churn, and an overall better customer lifecycle.
In the B2B SaaS industry, a lot of key players already use it: Salesforce, Slack, Atlassian, or Zoom, to name a few.
You might already be using subscription management, but:
Are you taking full advantage of its benefits?
How can you optimize what you already are doing?
Keep reading to find out:
The different management options for your subscription-based business,
All the benefits of subscription management have for your SaaS business,
How to overcome the common challenges subscription-based SaaS encounters.
How Does SaaS Subscription Management Work?
1. SaaS Business: Subscription Management vs. Recurring Billing
Simply put, recurring billing is an automated system that enables customers to continue enjoying a product or service after they've signed up without having to make their purchase on a checkout page every time. Customers are billed at regular intervals - whether that be monthly or annually. It’s a good way to ensure cash flow without having to send out time-consuming payment reminder notifications.
There are two types of recurring payments: fixed and variable.
Fixed payments remain the same,
Variable payments may change based on usage.
On the other hand, although subscription management is similar to recurring billing it offers more flexibility to both customers and businesses.
Subscription management is commonly used by SaaS companies. Companies that use subscription management have the ability to offer trial periods, offer more affordable subscriptions and enable customers to amend their subscriptions accordingly.
Recurring billing enables a company to have a predictable cash flow and prevents delayed payments. However, subscription management may appeal to buyers due to its flexibility and security.
Although recurring billing and subscription management are both automated, the latter is more flexible and offers companies the choice to send invoices at the start of each billing cycle.
2. What Are The Types Of Subscription Models For Your SaaS Business
Every B2B SaaS company is different and what works for another company may not suit yours.
So when it comes to subscription management you need to be aware of all the options that exist to decide which one would be the best fit for your SaaS business right now.
Here is an overview of the most common types of subscription models :
Free trials: your customer can use your app for free for a given time period (7 days, 1 month) and then decide to purchase a subscription. It gives them an opportunity to try your services before they commit.
Free trials give subscribers time to build a relationship with your company and to understand the value your product brings to them. You also have the opportunity to receive feedback from users and incentivize future sign-ups and upsells with offers and discounts. They’re best if you’re doing self-serve and target smaller businesses.
However, there are some downsides to free trials. For one, offering free trials lengthens the customer lifecycle.
You can ask for credit card details from users: although it leads to 10% less sign-ups it does result in higher quality leads and conversion rates.
Freemium: your clients have access to a basic version of your product and need to pay to unlock extra features, like more personalization, a faster processing time - anything that makes their life easier. It’s a great way to get your customers used to your service and UX while showcasing the value you add.
Both freemium and free trial models are product-led strategies that enable the customer to experience your SaaS product for themselves.
It's important to consider your company's overall strategy and goals when choosing a free trial vs. freemium model. Choosing a freemium model helps companies to build brand awareness and acquire users at a low cost. This can be really appealing to investors and partners.
However, you need to take the size of your target market into consideration. According to Jason Lemkin, you'll need 50 million active users to see success with a freemium model.
Much like free trials, choosing a freemium model helps customers to build affinity with your brand. But you can end up losing revenue by supporting large volumes of customers to use your product without paying. It's important to develop a strategy to convert freemium users to paying users.
Fixed subscription: your client pays a flat fee to use your SaaS. It’s simple: everyone pays the same, everyone gets the same. If your service is pretty straightforward and/or you prefer selling an all-inclusive package, that’s the option for you.
Fixed subscriptions offer companies a predictable revenue stream and equality. However, the lack of flexibility may deter customers, and charging small and large accounts the same price may cause you to actually lose revenue.
Pay per user: your client pays depending on the number of people who use your app. It is usually counted in brackets: up to 5 users, up to 200 users - with an option for a 1-user license if you tailor to small businesses.
The pay-per-user model benefits customers as they only pay for the employees who actually use the product.
It can also help to reduce churn as when a large number of users are invested in the product it's more difficult to stop using it.
However, pay-per-user plans can become quite complicated and companies may attempt to cut costs by encouraging multiple employees to use the same account.
Pay as you go or usage-based pricing: your client pays depending on what they use - for example, storage. It allows you to target smaller businesses and support them as they grow.
Usage-based pricing appeals to customers as they only pay for what they use. Simple, right?
However, this also creates an unpredictable revenue stream. It's also important that customers are aware of their usage so they don't get any surprises when their bill arrives.
Zapier are notable users of this pricing model.
Subscription with add-ons: your client pays a set starting rate and then additional fees with every add-on they need, usually based on extra features.
This model helps users to tailor your product to suit their needs. This helps to increase:
Customer satisfaction as users only pay for what they need,
Customer relationships as users can choose different add ons and make their offers evolve over time.
With all these laid out, you have a better overview of what subscription management can look like for your SaaS business, now or in the future.
As you well know, every business is unique, so you will likely have to pick and choose a few of these to tailor your subscription model to your current SaaS business needs.
What are the benefits of SaaS subscription management?
Subscription management can be hugely beneficial for your Saas Business! We have listed 3 main benefits. Do you take full advantage of all of them?
When adopting a subscription model, you:
Improve cash flow with recurring and custom business models
Reduce involuntary churn and having to search for onboarding new customers
Gain flexibility with your pricing models
Improve your relationships with customers
Increase your customer lifetime value and upsells
1. Create Recurring And Custom Business Models For Your SaaS Business.
By delivering an ongoing service to your customers, you earn recurring payments from them.
This reliable income stream makes it easier for you to make some accurate financial forecasts in real-time. Being able to plan ahead will also enable you to improve your businesses’ cash management.
There is no interruption of service, which means every customer is charged on a rolling period. You get recurring payments on a monthly, quarterly or yearly basis. Most importantly, both sides gain peace of mind!
2. Reduce Involuntary Churn In Your SaaS Business.
Since your customer subscribers have access to your SaaS all the time, there is no gap in between their purchases, reducing your churn rate. Reducing your churn rate means a higher revenue stream, and a higher MRR - helping you reach your target metrics.
That also means you offer a seamless customer experience. Fostering your customer relationships leads to increased customer loyalty which in turn equals a better customer lifecycle.
You can also get better feedback from your clients, as they remain users of your SaaS over a longer period. All of this contributes to fostering a better relationship with your customers.
3. Offer Flexible Pricing Models In Your SaaS Business.
With a subscription management service, you can offer more personalization to your customers. By tailoring to their specific needs, you can increase your revenues.
A subscription model means you can offer the functionality of different billing and payment processing terms for different accounts. You can for instance decide to offer a one-time free trial to a corporate client, as well as a discount that will be carried over every year.
By making your pricing model more flexible, you can increase your monthly profits and MRR.
How to Overcome the Challenges Associated with Subscription Management Software for SaaS
While subscription models work really well, they also come with their own set of challenges. One of the pet-peeves of subscription business being churn rate, you have to make sure that your customers :
Pay you on time
Are satisfied with your SaaS
Here is what you need to pay attention to, in order to guarantee profitability and a good customer experience over time:
1. Implement A Scalable Subscription Billing Process
In a subscription-based SaaS business, failed payments are harder to notice and manage. Since subscription software automates the whole process, the payment gateway is usually done by credit card or direct debit and the transaction just goes through - in most cases.
However, sometimes the payment doesn’t go through. This can lead to involuntary churn if the issue isn’t fixed in time. In order to keep your CLV high and your churn rate low, your company should implement a subscription management and dunning process to deal with this.
A subscription management software will help you save payment details and streamline handling recurring revenue and customer subscriptions for you.
Chargebee is one of the tools that offer subscription management. If you have high volumes of invoices and struggle handling dunning, you can additionally implement an accounts receivables collections software.
With Upflow, you can synchronize your unpaid invoices so that you stay on top of what is owed and collect payments easily. Check out our Chargebee integration for more information!
With the right SaaS finance tech stack, you can automate your billing workflow, and keep track of the amounts due, when and by who, which means:
Your recurring payments arrive on time,
Your billing information is accurate.
On the other hand, charging a customer’s credit card or account with the wrong amount will put your relationship at risk - and increase your churn rate.
Transparency is of the utmost importance in subscription services: since you have their payment information, they need to trust you with their money. Notifying them in a timely manner of their next recurring payment is a good way to maintain this trust and prevent dunning.
If your customers uncover hidden cancellation fees - or even have to spend hours looking for a way to cancel their subscription - they would lose confidence in your business.
All in all, you cannot have a subscription model in your SaaS business that you manage manually. Having a subscription management system is a necessity.
2. Balance Between Flexibility And Complexity Of Subscriptions Offered
It’s tempting to want to offer everything to everyone. And, it can take a lot of tweaking to arrive at the right product/market fit with a subscription model.
Depending on your SaaS business and its specificities, you’ll want to present your offers in a way that makes sense to you income-wise and to your customer service-wise.
Good subscription management means letting your clients upgrade or downgrade their subscription plans and have different payment options. They should be able to do so immediately, as they need it. If they want to pause or use add-ons, your subscription model should also let them do that.
All of that at the right pricing, of course, to make it enticing for them to subscribe while making it profitable and sustainable for you.
Knowing your core offers, your customers and with good marketing, you will be able to balance your subscription management so everyone is satisfied.
3. Integrations With Your Existing Tools & Ecosystem
Like any tool, your subscription management software needs to fit in with your existing ecosystem. Stripe is a good example of a tool that offers basic subscription management while integrating itself with a lot of other tools and apps.
If you choose a subscription management software that requires you to change your existing tools - it might not be worth it. It’s important to know what your current needs are, all the while considering your future needs as you grow.
4. Improved Invoicing Process
As your business grows, invoicing becomes more complex. That complexity of invoicing can be managed by automating your Accounts Receivable process and by choosing the right billing system.
The same is true of subscription management tools. Your customers can all have different:
A good subscription management software will do the heavy lifting for you while you focus on improving your product and marketing it. It will also allow your customers to have self-service options when handling their subscription by giving them autonomy.
Your subscription model type will evolve with time.
Paying attention to failed payments will help to reduce involuntary churn.
While you can create personalized offers and increase your recurring revenues, you need to balance that flexibility with the complexity it leads to in your processes.
Good subscription management means having a proactive approach to dunning and billing, by implementing a scalable subscription billing process.
A subscription management software is necessary to manage your billing and the complexity of your offers as you grow. Said software has to integrate with your existing ecosystem.