SaaS (aka Software as a Service) is having its moment in the spotlight, captivating the tech world and beyond. It’s not just a fleeting trend; it’s a booming market that's projected to rake in a whopping $250 billion in 2023. It seems like everyone wants a piece of this lucrative digital pie. And the AI boom came in clutch, with everyone, from startups to tech giants, being able to implement their vision into a SaaS just like that.
That being said, for every successful SaaS business raking in millions, several others can’t get a hold of their customer payment collections. This is the feared process known as SaaS billing.
Like any other business, SaaS startups and businesses need to have a good grasp of their cash flow and revenue. If you employ poor SaaS billing practices, revenue leaks will hit you left, right, and center. On top of that, you’ll end up wasting more time and resources on fixing these problems. And, there goes all the time you could be investing in growing your new project.
Thus, we think this guide is necessary for new and established SaaS companies alike. We’ll delve into how SaaS billing works, which are the different billing models available, and how to choose the best one for your business needs.
We’ll also let you in on a few little secret tips and tricks on optimizing your SaaS billing process, which will allow your business to thrive! If you’re in the SaaS business and looking for a reliable SaaS billing platform, consider signing up with Whop.
Whop is the top online marketplace for all digital goods, including SaaS software, and offers plenty of benefits, such as real-time analytics, flexible payment options to cater to your business needs, as well as 24/7 customer support to solve all your issues.
Understanding SaaS Billing
Before we dive deeper into the more advanced concepts of SaaS billing, let’s have a look at a few essentials. SaaS billing primarily works through subscriptions and recurring payments. This is quite the contrast to traditional one-time payments from a business standpoint.
You see, SaaS businesses are constantly forced to deal with invoices, manage different SaaS subscription plans, and adhere to all local laws and regulations regarding payments. Plus, there’s always the worry that payments just won’t go through.
Another aspect that SaaS companies need to constantly look out for is the balance of their customer acquisition and customer retention rates. While the good old one-off payment software businesses almost solely use customer acquisition as a success metric, SaaS businesses need to make sure these same customers come back to continue their subscriptions.
To do so, they employ different SaaS billing models. There are quite a few of these, so bear with us and let’s check them out:
- Monthly Billing - Almost every SaaS company will offer monthly payments as an option. Think of your monthly Slack subscription or even your Netflix one. They’re using the exact same method. For SaaS customers, monthly billing puts flexibility at the forefront. However, on the business side of things, you’ll need to put in more effort to issue heaps of invoices monthly and maintain a high customer retention rate to remain profitable.
- Annual Billing - Annual payments take away the hassle of dealing with invoices and subscription management on a monthly basis but can be deterring for customers who don’t want to commit for so long. That’s why most annual billing plans come with a discounted price to entice customers since the business can guarantee a higher revenue from the start of the year.
- Pay-as-you-go Billing - This billing model allows customers to pay for certain services they want to use without any recurring payments. This is usually achieved through credits or tokens, which are naturally overpriced compared to monthly or annual billing but provide a lower entry barrier to those who prefer a non-committal approach.
- Tier-based Billing - Another very common billing model is a tiered system, where the SaaS business will offer multiple payment tiers, each with its own features or number of users. This payment model allows customers to start out with a lower fee and potentially move up if they find value in the higher tiers.
- Usage-based Billing - Some customers may have different usage rates for a specific software during different times of the year. That’s where usage-based payments come in; SaaS businesses can charge customers a flat fee at the start of each subscription cycle and an additional usage fee at the end of it.
- Features-based Billing - Payments based on features are particularly helpful for SaaS businesses with a multitude of features in their software. Not all customers will want or need every single feature, so this billing model allows them to choose which features they want to pay for instead of being charged for the entire software.
- Freemium Billing - Freemium billing is excellent for customers who want to ensure your software is valuable to them before committing to a subscription. Through free access for a short period, each customer can thoroughly test your software, and if it’s good, it’ll encourage them to continue with the paid version.
SaaS businesses will usually offer one or maybe a few different billing models that better suit their product and target audience. There’s an argument for offering a variety of different billing models so you can cater to more types of buyers. However, this comes with additional hassle and potential issues during the SaaS billing process.
For the majority of SaaS companies out there, monthly billing or a tiered system will ensure maximum flexibility for customers and few issues for the company. SaaS businesses that sell B2B, or those with mature and highly sought-after software, can offer annual billing exclusively to allow for more stability in terms of revenue.
Pay-as-you-go and usage-based payments are often the go-to for cloud computing services, while platforms with plenty of add-ons and features should look at pricing per feature. Finally, if you want to attract a large audience -which is especially useful for software like mobile apps- consider a freemium model for your SaaS software.
What Does the SaaS Billing Process Include?
In essence, the SaaS billing process consists of getting customers to sign up for your platform, issuing invoices, and collecting their payments. However, in actuality, it’s a much more complicated procedure with several steps and things that can go wrong.
When you secure a new customer for your SaaS platform, they’ll inevitably need to pick their billing option. Regardless of whether you offer one or multiple billing models, you must be 100% transparent. The customer needs to comprehend all aspects of the billing process. What they get, how much they’re charged, when payments are collected, and all that jazz.
Once they select a billing plan, they’ll provide their personal and billing information and start the subscription cycle. And when they authorize the payment, it’ll need to be processed safely through their payment provider, and you’ll need to issue them an invoice. It sounds simple, but let me tell you, it’s far from that. All of these require security and accuracy to avoid any issues that could cause disputes and customer dissatisfaction.
One thing to take into account is the flexibility of the subscription plans you offer in any given subscription cycle. We think it goes without saying, but customers must be able to manage their subscription plan. Their needs may change, enabling them to opt for a downgrade or upgrade to a higher tier with more features and more users.
It’s also important to keep your customers updated on any pricing changes or additional services you may offer. Plus, notifying them when their subscription automatically renews or when there’s a change to their billing model can prevent issues and disputes.
SaaS Billing Challenges & Issues
As you can see, SaaS billing isn’t as simple as it seems at first glance. Frankly, it can be a huge pain before you’ve secured repeat customers – kind of like every other business. Plus, several issues might occur from even the smallest of mistakes. SaaS businesses also have a lot of challenges to face regarding billing on a daily basis.
Churn is a very important parameter for all SaaS businesses, as it reflects the amount of customers that don’t renew their subscriptions. Simply put, your churn rate is the opposite metric of customer acquisition rate, and it accounts for significant revenue losses if it’s not minimized.
Churn can be separated into two subtypes: voluntary or active churn and involuntary or passive churn.
Active churn refers to customers who willingly cancel their SaaS subscription before it runs out or choose to not renew it.
Passive churn is the number of unintentionally canceled subscriptions that can occur due to payment failures, expiration of credit or debit cards, and other unforeseen circumstances.
Both voluntary and involuntary churn can impact a SaaS business significantly. However, most companies tend to focus on active churn, as it signals that a customer is unhappy with the product. Comparatively, passive churn occurs due to outside factors, which can easily be minimized by using a good SaaS billing service.
Inaccuracies during the SaaS billing process are going to happen. There’s really nothing you can do to avoid them 100%, as there’ll always be a small error in data entry or a minor glitch in the billing system. These inaccuracies often lead to more serious problems for the business, like failed payments and incorrect invoicing, which in turn lead to overbilled or underbilled customers.
Billing mistakes can also cause a lot of discontent among both new and existing customers and make them question the business’ reliability. In extreme cases, it can lead to monetary disputes and even legal trouble, which can cause irreparable damage to your company’s reputation.
Problems in the payment process are usually caused by declined transactions, lack of funds, or expired credit cards and can potentially cause a lot of damage to your SaaS business, primarily through involuntary churn.
Customers on an automatic subscription billing cycle will lose access to your SaaS software if their payment fails, and they might not even realize it.
Also, even the smallest hurdle when paying can have a significant impact on a customer’s perception of your platform and their overall experience. That’s why most SaaS businesses strive to make the subscription payment process as seamless and hassle-free as possible.
And let’s not forget that every declined payment is a net loss in revenue. If your company has to constantly deal with payment issues, its cash flow will be impacted, and it’ll need to pour in more money and time to fix these problems.
With so many pricing models, you’ll probably feel overwhelmed as to which one you should choose for your SaaS company. We get it. Before launch, you’ll need to research the market and determine which pricing model matches best with their target audience.
Giving access to price tiers with different features will allow the business’ customers to choose which plan fits them best and what features they truly need. SaaS businesses should also provide pricing flexibility to accommodate different types of audiences, such as enterprises or non-profit organizations.
As always, the pricing scheme should be properly optimized to ensure maximum revenue for the business, as well as customer value. The value perception of a business’ customer base can easily sway the pricing scheme of a SaaS product, as it’s easy for them to look towards other options if they feel the asking price doesn’t represent good value.
How SaaS Payment Software Deals with Billing Issues
As we mentioned above, SaaS companies’ sworn enemy is billing issues. That’s where dedicated SaaS billing software comes in to save the day by automating the entire billing process. So, we’d basically call these SaaS for SaaS? That sounds about right!
Each SaaS billing software can be programmed to perform a set of purposeful checks to prevent errors when a customer tries to pay for their subscription. Every time a payment fails to go through, the payment software will automatically detect it and try to resolve it by notifying the customer.
You can also program it to try to recollect the failed payments during a specific time period, which means the customer won’t lose out on the service due to things like insufficient funds. This takes away a large portion of passive churn, a SaaS retention metric that hurts businesses significantly.
More advanced SaaS payment platforms can even provide personalized strategies for trying to collect customer payments based on how each client usually completes a transaction or why the payment failed in the first place.
All in all, SaaS billing software can take the customer experience to the next level. It provides several quality-of-life options and solutions for billing mistakes and failed payments, and makes sure that every transaction is safe and secure, all at the same time. Plus, you can then utilize all data tracking the software does to optimize your pricing and revenue and improve your scalability and growth potential. That’s a win-win any day of the week!
Choosing the Best SaaS Billing Software
So, you’ve decided to try out a SaaS billing platform for your business. Well, this was only the beginning. There are so many factors for picking the best one. Here are some bite-sized factors to help you pick the perfect SaaS billing software for your company:
#1. Billing Model Variety & Flexibility
Offering various billing models should be a priority, especially if you haven’t decided which one fits your business. You can A/B test a few different ones, such as a subscription model or a usage-based model, before committing to one.
It’s also very important for your SaaS billing software to offer flexibility in case you want to offer multiple billing models. For example, if you plan to target both the B2B and B2C markets, having a flexible system is basically a prerequisite so that you can account for different customers.
#2. Subscription Management
We’ve already talked about the importance of automating your company’s SaaS billing process, and managing your customers’ subscriptions is the most important part of it.
Whether you work on a recurring billing model or a subscription model, your billing software needs to be able to conduct the entire payment process automatically without you having to put in the time and effort. Save that up for growing your product.
If you use a subscription-based model, the software also needs to deal with aspects like free trials, different subscription tiers, and upgrades or downgrades in between billing cycles.
#3. Integration with Payment Gateways
SaaS billing software that has good integration with various payment gateways will allow your business to facilitate seamless transactions with no issues. It’ll also enable you to provide various payment methods to accommodate all types of customers and their needs.
Effortless payments from international customers will also distinguish a great billing software from a good one. If you plan to launch your product worldwide (which you should if you want unlimited growth potential), you need to accommodate for the different international laws and tax regulations regarding payments, and excellent billing software will help you with that.
#4. Dunning Management
Dunning is the systematic communication and payment collection to customers who have failed payments for different reasons. As we already mentioned, payment failures are the number one reason for losing customers to passive churn.
However, these customers don’t necessarily want to cancel your subscription; they may just have issues with their payment method or have run out of funds without even knowing about it.
That’s where SaaS billing platforms come in and utilize dunning to send reminders to those customers to complete their payments. The best SaaS billing software will come up with unique ways to manage dunning and minimize involuntary churn for your business.
#5. Customizable Invoicing
The top SaaS billing software will offer a streamlined invoicing process that will significantly lower the effort and time your staff needs to put into them. Plus, it’ll prevent most mistakes that can cause customer issues that often lead to disputes and general customer discontent.
Also, providing customizable invoices is a key aspect that distinguishes the best billing platforms. SaaS businesses usually want branded invoices that have a specific layout or even personalized invoices for different types of customers.
The best software will offer tons of alternatives for custom invoices to choose from or even give you the option to design a new one that fits your needs.
Ensuring the safety of your customers’ data and payment information is very important and will improve their overall experience and perception of the company. Strong data encryption and compliance with data protection protocols like GDPR will secure all personal data from your customers and prevent any leaks.
Also, it’s paramount to make sure all transactions and financial information are secure both when payments occur and while payment data is stored. Payment security compliance protocols, such as the PCI DSS, are essential for all SaaS businesses that handle payments, regardless of location, number of processed transactions, or payment methods.
#7. Scalability Options
Look, every business wants to grow to its full potential. So, pick a SaaS billing software that grows with you. Or, rather, choose one that can handle your growth. Once your customer base starts to get into the hundreds or thousands, you need your billing platform to be able to handle a larger number of invoices and payments without issues.
You may need to pay a premium for additional invoicing, but that’s nothing compared to the heaps of extra revenue it’ll help you make. Also, the ability to scale down is key; if you find your business swimming in too deep waters or just don’t need some features anymore, you need the option to downgrade your billing software.
#8. Streamlined UI
While not essential in the actual SaaS billing process, a user-friendly interface is a very important quality-of-life feature. The best SaaS billing software will include intuitive menu designs and a well-executed dashboard, which is essential as it contains all the important data and metrics for your business.
Also, being easy to grasp and efficient will make it effortless for all your staff members to navigate and will ensure your workflow is maximized. Finally, proper documentation and training support from the software company will help ease your team into the software and assist them with anything they have trouble with.
#9. Customer Support Availability
You never know when something might go wrong with your SaaS billing software. Just like your SaaS company, minor errors are inevitable. So, you need to have access to the billing software’s customer support team at all times.
Look for teams of knowledgeable representatives who can deal with tough issues under pressure, as they are the only ones who can help you solve any sudden problems that may come up.
Additionally, 24/7 availability is a must, especially if your business operates after hours, where one problem could halt your entire handling process for hours.
How to Use Whop for SaaS Billing
So, what can Whop offer to your business in terms of SaaS billing? Whop is the single best online marketplace for all entrepreneurs who want a place to sell and advertise their digital products. Whop offers a great SaaS subscription management service that will automate and take care of your entire SaaS billing process.
Firstly, Whop is very easy to integrate into your established business thanks to its simple and user-friendly API. The Whop subscription management suite focuses on minimizing involuntary churn and maximizing customer retention through real-time analytics and clever use of cancellation offers, upsells, and discount codes.
Plus, you can forget about having to deal with customer disputes thanks to the handy Whop “Dispute Fighter” tool, which takes care of all customer issues automatically! With Whop, your business will also be able to process payments from all around the world, with over 135 local currencies and even a few cryptocurrencies supported.
Here’s how you can sign up and start using Whop for your SaaS billing process:
- Visit whop.com/sell and click the “Sign Up” button.
- Create your account using your email address or login using one of your social media accounts.
- Put in the name of your business and Twitter (or X) handle.
- Choose what your business sells. If nothing resonates with it, pick the “Something Else” option.
- Once you’re done, you’ll land on the Whop main dashboard, where you can customize all your settings and add the SaaS product that you want to sell on Whop.
Best SaaS Billing Payment Options
Cherry-picking the payment methods you want to support for your SaaS billing is not as straightforward as it might seem. Having multiple options is key, as you’ll need to accommodate all your customers, wherever they are.
At the same time, your payment methods need to be reliable and process transactions smoothly to avoid any issues that may lead to involuntary churn. Some essential payment methods you can consider include:
- Credit/Debit Card - Not having the option to pay by card is a major red flag. Most folks solely use their credit or debit cards for transactions. So, yes, they are a guaranteed inclusion in your payment gateway. Just make sure you can support different card vendors, such as VISA, MasterCard, American Express, and others, to ensure none of your customers gets left out.
- Bank Transfer - The second most popular payment option for all online transactions is bank transfers. The B2B market, in particular, prefers paying for your SaaS product via bank transfer. They either have partnerships or benefits with specific banks, or it just helps a ton with all the accounting malarkey. It’s also worth supporting an ACH system to facilitate small transactions from domestic clients.
- Digital Wallet - Digital wallets currently reign supreme for online payments. Plus, since you’re offering software or digital products, not embracing digital payment methods might put some customers off. Apps like PayPal and Venmo, as well as mobile wallets such as Apple Pay and Google Pay, are pretty much essential for your SaaS business – especially if you plan to market to a worldwide market.
- Cryptocurrency - Cryptos are definitely a worthy addition to your belt of payment options for your SaaS billing, as they allow for fast worldwide transactions with minimal fees and increased privacy. And they’ll bring in an audience of tech folks, which could increase your acquisition rate. Plus, if you use Whop for your SaaS subscription management, you’ll find plenty of popular cryptos, such as Bitcoin and Ethereum.
Tips & Tricks to Streamline Your SaaS Billing Process
We’re almost at the end! Before that, though, let’s take a look at a few tips and helpful insights to make your SaaS billing process effortless and hassle-free:
- Automate Payment Collections & Invoices - If you’re just starting out and only have a few customers, then you’re probably taking care of invoicing manually. That’s alright! However, once your business picks up the pace, you’ll need to create automation for invoices and payment collections to avoid mistakes that lead to customer churn. Not to mention, you’ll get to allocate your team’s efforts to grow the business even more.
- Offer Flexibility to Your Customers - This can be anything from offering different billing plans and tier systems that allow for easy upgrades to providing multiple payment options for your services. Customers love flexibility, and a SaaS business that offers them variety will definitely have an increased perceived value in their eyes.
- Look at Your Analytics - Using a SaaS billing software like Whop will give you access to tons of analytics and subscription metrics. You can look for issues and problems with billing, and even study your customers’ behavior to help you make your next move. Metrics like Churn Rate, Customer Lifetime Value (CLV), and Monthly Recurring Revenue (MRR) are key for all SaaS businesses and are part of most billing software.
- Ask for Customer Feedback - Businesses are nothing without their customers. They are the ones who believe in your product or service and will pay good money for it, so you need to rely on their feedback. Whenever you lose customers to active churn, give them a short questionnaire on why they chose to cancel their membership. Some of the feedback you get may actually help you improve your SaaS business and win them back.
Pick Whop as your SaaS Billing Platform
As we discussed, the SaaS billing process hides several challenges and issues that can arise from the smallest mistakes. That’s why it’s paramount to use an automatic SaaS billing software to handle payments, subscriptions, and invoices to allow you and your team the freedom to focus on growing your SaaS business even further.
👉Ready to start using an automated SaaS subscription management platform? Then sign up with Whop and start selling today! It only requires a few minutes of your time to join thousands of entrepreneurs who’ve created successful SaaS businesses using Whop. Choose Whop for its amazing array of features for SaaS billing and subscription management that will help your company rise to the top!