Are you facing problems keeping your SaaS customers happy? Do you think you are suffering from lower organic growth? Are your customers churning?
If you answered yes to these questions, it might be time to evaluate your SaaS billing function to ensure you are not making mistakes that are driving your customers away. Improving customer acquisition and retention is a vital task for SaaS businesses, and optimizing the billing function can often help ease some issues that force customers to walk away from your business.
In order to understand the mistakes you may be making in billing, it’s essential to be aware of what your customers are looking for. No one wants to deal with a company that doesn’t clearly specify how much they will pay for using your services, or how frequently they will be charged? If your customers perceive your services as providing a low value compared to what they are paying, they will take their business to your competitors. Make sure your billing solution accepts payments, communicates about dues, and manages billing in the most efficient way.
Whether or not you have already set up your billing solution, if you can avoid these seven common SaaS billing mistakes, you’ll be on the right path to preventing new billing errors and keeping your customers happy.
1. Building an in-house billing engine
As a software company building your own billing engine may seem like a no-brainer. After all, your talented development team can craft a billing engine best suited to your needs, and you believe you’ll be saving thousands of dollars by not licensing a third-party software provider. But as an outstanding SaaS company poised to grow and scale, will your engineering and development teams be able to keep up with all the changes required in the billing function with pricing and product changes that are bound to arise with growth? Is it viable to take up your engineering team’s precious time from actual product development to building a billing system?
Another factor to keep in mind is how soon you want the billing engine ready. If you have a short timeline to go-to-market with your product, then building it in-house may not be ideal. It is a well-known fact that delays in development work are quite common. So are you willing to take the chances of a delayed launch of your billing engine and the resulting delay in your product launch? Your needs will also evolve between when you design your in-house billing engine and when you are ready to launch.
There are several other unforeseen billing issues that may arise like disputes on usage-based charges, requests for charge-backs, and refunds, etc. These billing issues should be dealt with by billing experts that take care of these billing issues associated with scaling and growing, and have years of experience dealing with every use case imaginable. It’s also important to remember that when you are accepting recurring payments, you must comply with regulations like Payment Card Industry Data Security Standard (PCI DSS). It is both a time-consuming and burdensome process for a business not equipped to deal with these tasks. So, it’s always favorable to go for billing experts like LogiSense to take care of compliance for you.
2. Having an over-complicated pricing model
Pricing is challenging to get right. You want to price your product in a way that you are competitive yet make enough money to make it a profitable undertaking. It is one of the most useful tools in a SaaS organization. Often SaaS companies modify their pricing structure multiple times or offer too many pricing packages which confuses customers. A good pricing model shouldn’t make it harder for the customers to choose the right package, rather it should have a simple pricing page that provides a clear idea about the product features and how much they will pay for each plan. This simplicity will make it easier for customers to choose the right package for them, and they will be more likely to convert. Do you want to set up a simple pricing strategy to avoid future billing issues and churn? Check out this helpful guide to understand which pricing model is best suited for your SaaS business.
3. Not notifying customers before processing charges
You may think that your customers know that there will be recurring charges when signing up, so they need not be provided an advanced notice when their credit card is charged. It is however a best practice to remind your customers about an impending charge so that there are no surprises, especially if it’s an annual contract renewal and you do not maintain constant communication with them. A sudden charge may catch your customers by surprise that renew annually, and you may be hit with a request for refunds or chargeback.
It is even more important to keep your customers informed if you are renewing their contracts at a higher rate. Not doing so makes you look unprofessional, and even worse your customer might think you were trying to trick them into paying more. If it was a relevant price hike, you shouldn’t be shy about it, instead, take this opportunity to upsell them or offer the option to upgrade or downgrade their services if the pricing package doesn’t suit them.
4. Not providing a description of the charges
With so many SaaS businesses choosing the subscription model, there is a high chance that your customers might be subscribed to multiple subscriptions. So if they receive a bill without an itemized list of invoiced items, they might be confused and will contact support for an explanation, spending avoidable time on both ends. This is especially important when they are charged based on their usage, and so the charges may vary from month to month.
Therefore, your bills should have a breakdown of the invoiced items, usage/ consumption summary, any invoice adjustment, credits, or refunds. You should also ensure that there are no errors or missing information to avoid any delays in payments.
5. Not implementing a dunning strategy
Dunning is the process where a business communicates with their customers that have failed to make a payment in order to collect the money owed. As SaaS businesses usually have a subscription-based recurring payment structure, it is vital for them to set up a system to notify customers that have failed to pay. When it comes to customer churn, it can either be due to cancellations or unintentional failed payments. These failed payments can be caused due to a variety of reasons like misplaced invoices, theft, card cancellations, or expirations. In fact, failed payments are the leading cause of involuntary churn. In these situations, if you haven’t set up automated dunning and your system denies customers access to your services until payment is made, it may lead to customer dissatisfaction and even churn.
A robust recurring billing platform like LogiSense will empower you with automated dunning features that notify customers of a failed payment and prompt them to take action. It should also ensure that failed payments do not occur by sending timely reminders before the payment due date. LogiSense allows you to automate the dunning process to ensure notifications are automated and resolutions happen quickly without having to cancel the account.
6. Making canceling difficult
We get it customer churn hurts and no one wants their customers to cancel. But it is a normal aspect of every business. For every customer that churns, you still get the opportunity to make their exit experience as seamless as possible so that they leave with a positive experience leaving the door for them to return open if they choose. Often SaaS customers like to try out free trial options before settling for a service they like, if this is the case you do not want to create a negative experience by making your customers jump through hoops to cancel. Also, be transparent about the charges owed and when the billing period will end so that there are no surprises for your customers.
It is important to not make it difficult for your customers to cancel your service. But it is equally important to ensure that you are not making it difficult for your customers to stay with your service. An agile billing system provides you with relevant data about your customers’ usage. Use this information to proactively provide customized services to your customers even if it means offering to downgrade their services due to low usage. It is ideal to be able to retain a customer at a lower pricing model than your customers churning.
7. Not setting up reporting
It is difficult for SaaS businesses to grow without quality analytics or reports to aid decision-making. If you still rely on spreadsheets or manual billing practices, you may not have reliable metrics readily available to provide you with actionable insights. These insights not only help you make informed decisions but also let you grow and scale your business. An intelligent billing software like LogiSense not only lets you visualize the system and account data through active dashboards but also helps you gain insights into consumer behavior and make meaningful predictions. Unless you are accurately tracking this data, you are leaving money on the table and missing out on untapped opportunities.
We hope this helped shed some light on some common billing mistakes SaaS companies are making and you are better prepared to avoid them.
Contact us today to learn more about how we can help remedy some of the pain you are experiencing with your current system