Money Matters

SaaS billing best practices: Hybrid billing and more

Subscription pricing models can have a massive impact on profitability. Follow these best practices to optimize your SaaS billing process for long-term growth.

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Selecting the most profitable subscription pricing model for your SaaS company is one of the biggest decisions across Finance, Product, and Sales. After all, using an inefficient or outdated SaaS billing process could cost your company market position, ARR, and customer churn. 

Luckily, by following a few simple SaaS billing best practices, you can optimize your SaaS billing process for long-term growth and profitability. And by using automated accounting software, you’ll be able to forecast different billing scenarios far into the future, allowing you to make your choice with total confidence. 

Let’s start by looking at some of the more popular subscription pricing models. 

The most common subscription pricing models, and the SaaS billing process you should use

Some SaaS companies that are new to the market stick with a flat-rate subscription pricing model. That approach has its merits: it’s simple, and its transparency will usually leave customers with fewer doubts about signing up. 

As companies expand, however, it makes sense to run forecasts to determine which subscription price model makes the most sense for your unique business. 

Here are three of the most popular subscription pricing models:

1. Feature tiers 

Feature tiers offer users a variety of predetermined feature bundles, with each ascending feature tier priced higher than the one below. This is an effective subscription price model for companies with audiences who tend to commit to longer contracts, such as corporate teams. The goal is that they’ll see the value in your service as time goes on and steadily upgrade to the top feature tier. 

2. Free trial period 

Offering users a free trial is a very effective way to lower their sales resistance. Just make sure you do everything possible to stay on the up and up. If you take their card info before the free trial, send them a brief courtesy email the week they will be charged. Attention to detail is one of the most important SaaS billing best practices you can follow.

3. Bundled pricing 

This is the subscription pricing model equivalent of a “choose your adventure” book. Customers can construct the experience they want from your brand by selecting a customized bundle of features they’d like access to. This pricing model is great for building customer loyalty or if you have widely divergent customer segments who use your products for different purposes.

What else is on the menu for subscription pricing models?

A closer look at the hybrid SaaS billing process

Hybrid billing allows SaaS finance leaders even more flexibility to “mix and match” to find the best pricing model for their unique situation. 

Using the robust forecasting abilities of automated accounting software, you’ll be able to run detailed analyses of these and other hybrid subscription pricing models: 

  • Hybrid billing usage thresholds: There are varying ways to approach this subscription pricing model, but the basic idea is that users pay for different preset amounts of service usage at the beginning of each billing period. Different brands will have various denominations of time they divide their offers into, so remember to do your due diligence and find the sweet spot for your company. 
  • Hybrid billing rollovers: With this subscription pricing model, users get app credits (or whatever your unique usage system is) that roll over from one billing period to the next. This is an effective way to build customer loyalty: users view it as fair treatment, and it also incentivizes them to keep coming back to use up their remaining credits.
  • Time-based hybrid billing: When you employ this hybrid billing process, users get access to your services for a set amount of time (1-3 months, usually) before their subscription renews, or they can choose to churn.

Remember that automated forecasting can be a tremendous help in navigating the complexities of hybrid billing. Let’s spend a moment discussing the SaaS billing process and some steps you can take to keep it running smoothly.

SaaS billing process: preventing common problems

Automating your SaaS billing process is always a good idea, but it’s vital to know a bit about the process itself first. Here are the main components: 

  • Payment gateway: Payment gateways are essential to the automated SaaS billing process. They’re apps that help businesses securely collect and encrypt users’ card info before sending it along for processing and approval. 
  • Merchant account: A merchant account is set up to house funds tied explicitly to your enterprise. It’s a critical part of your billing process because it helps keep your accounting tidy by avoiding account mixtures. 
  • Subscription management software: Perhaps the cornerstone of the entire SaaS billing process, your subscription management software helps streamline every aspect of your department. From automated billing to detailed metric readouts and much more, businesses are increasingly moving past manual processes to embrace automated subscription software.

Automate your SaaS billing process to supercharge any subscription pricing model

Hybrid billing and the SaaS billing process are complex enough: You don’t need to make things even harder on yourself and your team by using spreadsheets and outdated manual accounting methods.