SaaS Billing Models – Best Practices

SaaS billing models refer to the pricing strategies that SaaS providers use to charge for their SaaS software applications accessible over the internet. The SaaS provider runs software online in a user-only network protected by a user’s firewall regulating access and preventing non-network users from accessing and viewing privileged information. A number of different industries use this software.

 

Users can access necessary software and get assistance without having to download and install the software. This means that it becomes less time consuming, but more efficient than traditional software models. Typically, there are two primary kinds of SaaS billing: subscription-based billing and fee billing.

SaaS Billing Models – Best Practices

Subscription Based Billing

To begin with, subscription-based model for SaaS billing allows SaaS users to access software application without having to make multiple payments. Clients often pay subscriptions upfront, allowing themselves a predetermined access for a certain period of time.

 

The amount of access could be determined by the amount of time or duration a client has access to the software application, like as a week, a month, quarterly, or annually. In some cases, the client may be charged based on the number of hours of usage.

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A client who pays per hour of usage is normally not a heavy user, or one looking for a temporary solution and does not want a long-term commitment to a single provider.

 

Users who prefer subscription-based SaaS billing models feel that it is much more convenient as they don’t have to worry about keeping track of payments and will often receive reminders to let them know a subscription is about to expire. So, they can make the necessary arrangements in time.

 

Users who know that they only need access to software for a certain period of time often find this software suitable for them. They, therefore, can depend on accessing it repeatedly. In addition, clients who opt for this billing model are often confident in the services offered by the SaaS provider, as they commit themselves to a term of software usage.

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Fee Model for SaaS Billing

A fee model, on the other hand, will normally require that users pay each time they access the software online. Clients who just need to access the software only a few times will often prefer this method of billing.

 

There are others searching for the best provider and will choose a fee-based billing because they are only there for a while and are not ready to commit to a single provider for an extended period of time.

 

Some SaaS software is specially designed for use as business tools and for organizations that sell products and services, so SaaS providers may opt to collect a small percentage revenues generated from clients’ businesses. The provider expects a certain percentage depending on various factors, such as the nature of the industry the client operates in, and the size of the client’s business.

 

In addition, these services may require usage fees or subscription payments SaaS billing models to supplement the commission received from revenues.

 

It is common for SaaS founders to misprice their SaaS offerings when they are just starting out. In the first few months of operation, your pricing is more likely to be affected by market dynamics and customer offer uptake. SaaS providers often don’t know what pricing model to adopt when they are just starting out. They are often caught up between a plan model and a linear scaling pricing.

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SaaS Billers vs Cloud Billers: And Why Clients Would Prefer SaaS Billers

While people often confuse SaaS billers and Cloud billers, the former are not only more sophisticated, but also scalable than the latter. Clients are more likely to contract a SaaS biller for software services online than sign-up for a flat fee because:

 

  • SaaS billers will offer a lot more support in terms of customization and integration to other business software applications

 

  • Have more robust, detailed, and sophisticated product catalogs

 

  • Tend to offer more process automation, covering the order-to-cash cycle and incorporate more vertical-industry specificity

 

  • Exhibit cloud characteristics, such as multi-tenancy; the ability to scale through virtualization; and open APIs; but more likely to be operated from robust, private/ more secure cloud environments (data centers where SaaS providers have an honest and genuine control over its platform)

 

  • Have a robust CRM or customer care component or a more robust ability to easily integrate with a call center environment or a larger CRM

 

  • Will also have capabilities like real-time rating, as well as charging to support more sophisticated services and hybrid pre-paid and post-paid service models

 

  • Support complex taxation capabilities (natively or through integration with other services)

 

  • Can integrate other components, such as POS systems, so that they can support businesses that exist in the real-world too, not just an online presence

 

  • Tend to provide more sophisticated analytics tools capable of generating fully customizable reports and dashboards

 

  • Is the kind of platform that even a smaller utility or telecom operator can build a business on and still be relatively certain that it will be able to scale as they grow and introduce more complex products requiring more analytics processing and usage.

 

Choosing a SaaS method of billing can be a tricky situation for any SaaS provider. Unlike conventional types of software businesses, subscription-based businesses will often depend on the revenues that their customers have generated at every predetermined billing cycle.

 

It is, therefore, upon companies to adopt pricing models that are effective and will help them acquire a larger number of clients and users, which should be at a lower cost per acquisition than their lifetime value. However, experimenting with pricing will help SaaS businesses understand their markets better and know how to best price their offers.

 

Conclusion

Typically, most startups often prefer the two pricing models (i.e. plan pricing and linear scaling pricing models). Typically, experimenting with pricing helps SaaS providers find the right footing for their SaaS companies.

 

Being too cheap would mean leaving money on the table and hindering your ability to acquire and retain new customers in the long-run. On the other hand, being too expensive means scaring away potential customers and inhibiting your ability to earn more via customer acquisition and customer retention.

 

Therefore, SaaS companies must determine which SaaS billing models are suitable for them and will help them acquire and retain new customers.

 

 

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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