How to build your SaaS billing and its KPIs

You could have the best SaaS product in the world, but if you haven’t fine-tuned your billing strategy and don’t know which KPIs to track, you’ll still have difficulty gaining long-term traction.

Taking the time to strategically build your billing and its KPIs is a crucial part of driving long-term revenue.

In this post, we’ll walk you through the “new school” method of SaaS billing.

We’ll also review essential billing best practices for finance leaders, how to create predictability across the buyer’s journey, the problems with manual billing, and more.

Keep reading if you’re ready to optimize this crucial accounting workflow.

Here’s what we’ll cover

Key points to remember

When you’re building your organization’s billing strategy, make sure you’re starting out with the right goals in mind.

The primary objective of your billing model is to drive recurring revenue. But to accomplish that, your approach should also:

Keep things simple

Your billing strategy should be frictionless and require as little effort as possible from your users. Customers don’t want to jump through hoops to pay for their software subscriptions.

Encourage product usage

Ask yourself, “If I were one of our users, would this billing model make me want to keep using the product?” A poorly executed billing strategy can drive users away if you’re not careful.

Incentivize your GTM to drive adoption

Your billing model should mesh with your overall go-to-market (GTM) strategy to drive ongoing user adoption.

If you can do all that, you’ll be well on your way. But there’s more to consider.

Creating predictability across the buyer’s journey

To set your company up for long-term billing success, you should decide on specific objectives and key performance indicators (KPIs) for each stage of the buyer’s journey.

For most SaaS and recurring revenue companies, the customer lifecycle can be divided into three sections.

1. Product-led growth

Many recurring revenue companies pursue a product-led growth (PLG) strategy.

In this approach to SaaS growth, the product builds its own momentum by fueling signups and subscription expansions, assisted by marketing. Organizations often combine PLG and sales-led growth tactics.

Your activation or signup numbers are the main KPI you’ll want to track at this stage.

2. Sales

After users have signed up for your product, you’ll want to focus on additional sales opportunities. For a PLG company, that usually means upselling and cross-selling your existing customers.

New subscription commitments should be your primary KPI for this point in the buyer’s journey.

3. Post-sales

For recurring revenue companies, the final step is to keep customers engaged for the long run.

To gauge the success of your post-sales customer relationships, track your net dollar retention, which shows how much revenue you retain from existing contracts.

Your customer renewal rate is another great metric to watch.

Next, you need to review your billing workflows and tech stack.

Are you still using legacy tools and processes?

If so, this “old school” approach to SaaS billing might be holding your company back.

Old school SaaS billing

Old school SaaS billing is manual, risky, and very labor-intensive. The odds of a billing error substantially increase when you rely on manual data entry and invoicing.

As an example, here’s a step-by-step breakdown of what usage billing looks like in a manual accounting department.

1. Track usage and record customer data.
2. Manually tally usage metrics and rates at the end of each month.
3. Calculate each user’s monthly charge based on usage levels.
4. Manually key that data into your invoice system–and hope a mistake isn’t made.
5. Create an invoice that itemizes entries for services and rates.
6. Repeat this entire process from beginning to end every month.

Over time, legacy billing becomes very expensive, regardless of your specific billing model. Between hours of manual work each month and fixing the inevitable employee errors, manual SaaS billing requires a serious commitment of time and resources.

Luckily, you’re only stuck with manual accounting workflows if you choose to be.

The new school workflow

Accounting AI and financial process automation have opened up a new world of efficiency around SaaS billing.

Let’s see what usage-based billing looks like when you bring accounting AI into the mix.

1. Automatically track and record customer usage data and price metering.
2. Instantly send that data to your billing system, with no double entry required.
3. Your billing system automatically calculates the correct bill for every customer.
4. Your billing system automatically generates correctly priced and itemized invoices.
5. Invoices are sent to customers with easy pay options or even autopay.

Automation makes usage billing–or any other billing model–a breeze to implement. No matter how your company bills its customers, the new school approach saves time, money, and hassle.

Types of billing models to consider

Knowing the different approaches to SaaS billing can help you tailor your billing strategy to your company’s goals and objectives.

Below are some popular billing methods that offer a simple and frictionless user experience.

Flat rate

Flat rate pricing is as simple as it gets.

Your customer pays a set price for a given amount of monthly use, which resets at the end of the billing period.

Threshold

Threshold billing offers customers different usage allotments at various price points.

As with flat rate billing, customers’ usage allotments are reset monthly.

Rollover

Rollover billing can be applied to flat rate or threshold pricing.

The basic idea is the same, except customers’ unused credits roll over to the next billing period.

Usage billing

Also called pay-as-you-go, usage billing allows customers to pay for as little or as much product usage as they need in a given billing cycle.

It’s transparent, and customers can come and go as they please.

However, you’ll need to ensure that your finance tech stack can handle usage SaaS billing.

Having the right enterprise tools in your department can set you up for success regardless of your specific billing strategy. Let’s take a look at two of the leading enterprise solutions on the market for startups. 

Read more: A straightforward pricing guide: models, strategies, examples

Enterprise tools to optimize your billing

SaaS finance leaders know that the best billing results come from a well-built tech stack.

Sage Ahead and WorkBoard are specifically built to give enterprises clarity and confidence in their decision-making and business workflows.

WorkBoard

WorkBoard is the leading enterprise strategy execution platform.

Customers can leverage advanced generative AI (GenAI) capabilities to align, measure, and execute on strategy more predictably and profitably.

WorkBoard helps companies align on their objectives and key results and drive the behaviors and operating model needed to achieve them.WorkBoard gives you:

• Detailed dashboards to build and track your objectives and key results (OKRs) for your billing strategy
• The ability to save 6-12 months of execution time on key objectives
• Cross-functional visibility into different teams’ performance, and much more

Sage Ahead

Sage Ahead uses GenAI to provide SaaS finance leaders with real-time business intelligence.

It’s expertly geared for the competitive startup landscape and has everything you need to establish product-market fit, optimize your GTM strategy, and build your company’s billing and KPIs.

Sage Ahead offers finance teams:

• Automated KPI dashboards and financial reports
• Low-variance GenAI billing forecasts
• 500+ frictionless billing scenarios to help you win your market, and much more

Get expert best practices for SaaS billing

SaaS finance is complex, and that’s especially true of billing workflows.

That’s why 2,000+ SaaS finance leaders, investors, and industry experts digitally gathered last month at the Modern SaaS Finance Forum to discuss what SaaS finance success looks like in 2024 and beyond.

Hosted by Sage Intacct, this full-day event was divided into 20-minute sessions led by peer finance professionals at some of today’s top SaaS, high-tech, and AI companies.

We received such great feedback that we’ve made the forum sessions available to download.

You can access them here.