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Getting Started with Subscription Billing and Management Software— A Definitive Guide

Subscription Billing and Management Software Guide

What is Subscription Billing and Management?

In layman terms, subscription/recurring billing is the process of billing your customers (aka subscribers) a specific amount on a recurring basis, as opposed to one-time billing. Anything that ranges from magazine subscriptions to music apps to CRM solutions, generally sport a subscription billing model.

And the process of managing your subscribers, their different plans and add-ons, their transactions, and billing cycles, is subscription management.

Great! Now let's begin.

Billing. A process that dates back to about 3000 BC, when the Mesopotamians used the cuneiform script on clay tablets to record transactions. And since then, they have remained an integral (albeit under-appreciated) component of business.

Apart from the obvious function of getting the cash register clinking, billing also plays a pivotal role in customer relationship. It ensures that the customer gets to know what they pay for, when, and why.

And in a business where it gets promoted from a one-off affair to a recurring event and is assigned the moniker of "Subscription Billing", it only becomes all the more noteworthy.

For a SaaS business, a billing software is like the hub of the subscription wheel that holds the multiple spokes (like subscription management, billing, invoicing and accounting, payment processing, fraud management, et cetera) together, ensuring that the wheel keeps spinning smoothly and steadily, so that your SaaS vehicle can efficiently climb the mountain of growth.

Yes, it's that crucial (no hyperbole intended).

And this crisp guide is all about helping you do just that - get on the right billing launchpad.

Chapter one

What is a Subscription Billing Software?

What is a Subscription Billing Software
(You need to set a strong base to build a ziggurat on it)

There are two main attributes for a subscription billing software:

The primary (and the obvious) attribute:

Enabling and streamlining the billing process for you, and thereby giving you the ability to realize the fruit of your labor - the labor of acquiring and serving your customers.

In less dramatic words - collecting payments from your customers, through a flexible range of payment options (credit cards, debit cards, PayPal, Amazon Payments, ACH, wire transfer, checks, cash, etc.).

TRINKETS
The only way to nail the right pricing slabs is by experimenting. Try out different combinations (free trial without card, free trial with card, paid trial, freemium...) and check which combination gives you maximum conversions (read this to know more).

The not-so-obvious, but equally significant attribute:

Taking care of the operational side of subscription management and billing (adding credits, extending the trial period, changing the billing date, offering a discount, activating/cancelling a subscription, etc.).

These are the tasks that are generally carried out by your sales/ marketing/customer support team, and are pivotal in managing your customer relationships.

A subscription billing software works on top of a payment gateway, and makes managing everything related to your pricing, subscriptions, payments, metrics, and customers a cake walk, so that all you have to do is just sit back and focus on your product.

Chapter two

Why do I Need a Billing Software When I Have a Payment Gateway Integration?

Subscription Billing Software Vs. Payment Gateway
(Because recurring billing is just one spoke of the subscription wheel)
"If there’s one reason we have done better than of our peers in the Internet space over the last six years, it is because we have focused like a laser on customer experience, and that really does matter, I think, in any business. It certainly matters online, where word of mouth is so very, very powerful." - Jeff Bezos, Founder and CEO, Amazon.com

That quote right there would pretty much justify the "why?". Customer experience is of foremost importance for any business, and this only gets amplified for a SaaS business, where terms like "Churn" and "Customer Retention" take the foreground.

And to excel at managing your customer relationships, a subscription billing software would be the go-to help kit. When your prime focus is to serve your customers' needs, a billing software equips you with all the necessary tools to do just that.

Agreed, both payment gateways and billing software deal with collecting payments, and many payment gateways provide solutions for recurring billing as well.

But, when it comes to your specific business needs, a payment gateway focuses on receiving payments and a subscription billing software focuses on managing your subscriptions (who are also your customers).

(Note: To know how a subscription billing software works hand-in-hand with a payment gateway, check out this easy-breezy explanation.)

So how else does a billing software “go the extra mile”?

As mentioned earlier, recurring billing is one of the many spokes of your subscription wheel.

While a payment gateway does a phenomenal job at keeping that spoke strong and steady, a subscription billing software takes care of that billing spoke and the other spokes as well: invoicing and accounting, accepting alternate payment methods (like PayPal, Amazon Payments, ACH and offline payments), keeping track of promotional coupons and discounts, carrying out metered/usage-based billing, sending automatic transactional emails, generating real-time revenue reports, to mention but a few.

TRINKETS
To be proactive in managing card expiry, you can set a webhook to notify you when a customer’s card is about expire, and notify your customers within your application, with a link to update the card details. Problem solved.

Last but not the least - Dunning Process Management. A subscription billing software recovers the revenue you would’ve lost otherwise (from declined card payments), and puts it in your pocket.

A few of the many perks of having this feature would be: not having to manually check accounts for declined charges, reducing your involuntary churn (which in turn shoots up your revenue), automatically letting the customers know about the declined payments, and easily keeping a track of all of these.

In essence, a subscription billing software makes your payment gateway smarter, and smarter is better.

Chapter three

Should I Build my Own Billing Software or Buy One?

Building Vs. Buying A Subscription Billing Software
(A scribe is meant to write chronicles in cuneiform, and not to build the stylus to write them)

A couple of arguments to ponder about, when taking the Make or Buy decision:

You spend so much time and energy in hiring top-notch developers, and they join your team with dreams of making a mark with their new job.

Now, will you respect the promise that you have made to them and let them work on your core product, or will you make them develop and maintain a billing platform - which is rather boring, truth be told?

Building a subscription billing platform will, in fact, make it a second product within your core product - a product that demands resources and thus adds to the overhead.

Developing the solution, testing and releasing the application, fixing the bugs, ensuring security, providing ongoing support and maintenance - are you ready to dedicate resources for all of these?

TRINKETS
With an exponential increase in the usage of alternative payment methods by customers, you have to make sure that you support multiple payment options (not just credit cards), if you don’t want to lose a huge chunk of customers.

Your business needs are going to change (and increase) from time to time. You might want to change your pricing or you might want to offer alternative payment options to your customers (in which case you’ll have to integrate with yet another payment gateway).

To make it all work in your in-house billing system, you’ll have to make use of your developers’ valuable time and mindshare. Are you up for consistently working on your billing system, to keep meeting your present and future needs and use cases?

You must also fulfill PCI DSS compliance requirements, if you have to deal with sensitive information like credit card details of your customers. Are you up for it?

We’ve got one word for you - RoI!

Your sheer focus and toil rightfully need to be spent on your core product, which, as we all know pretty well, isn’t billing. Why not let the “others” take care of it, the ones for whom billing is the core product? They’ll help you do a much better job at it, don’t you think?

Finally, billing is unsexy, and you deserve to work on that problem you’re actually trying to solve!

Chapter four
Criteria of a Good Subscription Billing Software
(The Code of Hammurabi for the ideal subscription billing software)

How Can I Spot a Good Billing Software?

A good subscription billing software ought to have the following aspects:

Integration: The billing software's integration process must be effortless and must have a robust API. It must also integrate easily with other third-party service providers.

Flexibility: The billing software must let you change/modify your plans and addons, create coupons, add one-time charges, upgrade/downgrade subscriptions, without giving you a migraine.

Payment Methods: The billing software must be able to support your chosen payment method (credit/debit cards, alternate payment methods, cash, bank deposits, checks, or Mesopotamian silver rings).

Analytics and Metrics: The billing software must provide you with actionable, real-time metrics and analytics reports, with data that truly make sense for your SaaS business (MRR, CMRR, and Churn, to name a few).

Scalability: The billing software must be capable of accommodating your growing needs and should grow along with your business - it must be ready to meet your evolving needs, as time progresses.

Consultative Support: The billing software must have a good and responsive customer support team to assist you throughout your journey. A team that offers you "consultative support", and acts as your extended billing team.

Card Data Portability: The billing software mustn't lock you in with all of your customers' critical credit card data, in case you’re going to switch to a different billing provider in the future.

Security: The billing software must be compliant with all the regulations relevant to your business. A PCI DSS Level 1 compliance is non-negotiable if you want to provide a secure payment option.

Payment Gateways: The billing software must support all your preferred payment gateways. Extra brownie points if it allows you to integrate multiple payment gateways.

Business Requirements: The billing software must support your specific business needs (Disclaimer: this is not a complete list): Adding multiple subscriptions to a single customer, computing and adding taxes to your charges, implementing a shopping cart that you have in mind, providing 24*7 billing support and multiple currency options (if you’re going global), etc.

Oh, before the final verdict, there’s one more key thing to do - read their customer reviews - you can’t get a better validation than hearing it from your own tribe.

Chapter five

Subscription Billing and Management Software - Checklist

To help you with Chapter 4, we also have a feature checklist for your reference:

Customer Management - Manages sign-ups, trials, upgrades/ downgrades, and cancellations.

TRINKETS
Have plan-specific features? You can make the features available to a specific set of customers exclusively through their customer portal.

Customer Portal - Provides a self-service customer portal that lets your customers manage their subscription by themselves

Billing - Offers a flexible billing frequency (daily/weekly/monthly/annually/whenever you want) and is prepared to handle billing exceptions/complexities (proration, credits, refunds, etc.)

Invoicing - Sends automatic, unambiguous invoices to customers when they subscribe for the first time, renew their subscription, or cancel their subscription

Pricing Plan Management - Lets you make changes in your plans while still being able to grandfather existing customers, add new plans, create/edit add-ons, and so on, without any hassles or second thoughts

Failed Transaction Management - Tracks failed payments and informs the customers about them. Also manages fraudulent/expired credit cards and transaction failures with the help of Dunning Management

Discount and Promotion Management - Lets you offer coupons and discounts, generate coupon sets, and keep track of the redeemed discounts

Customer Messaging for Billing and Error Handling - Records billing errors and automatically sends emails to customers at the right time

Support for Multiple Payment Gateways and Alternative Payment Methods - Lets you offer a wide variety of payment options to your customers

User Roles - Offers role-based access to let different members of your team take care of their work by themselves, without having to depend on your developers

Third Party Integration - Provides the option to integrate with third party applications

Event Triggers and Webhooks - Notifies you when prespecified events occur (eg., subscription created/cancelled, card expired, etc.)

Email Automation - Lets you configure automatic, customized, transactional emails to be sent to your customers

Hosted Payment Page - Provides easy-to-customize, plan-specific, and simple-to-integrate hosted pages (this feature depends on how you’re looking to integrate the billing software with your site. If you want a no-coding option, then hosted pages is the path to take)

Slick API - Has clean, flexible, and robust APIs to make your work efficient and effective (this is for those who don’t opt for the hosted page option)

Complete Billing Data Portability - Permits you to export your customer billing data at any time (gives you absolute ownership of your customer data)

If you find a billing software that meets all of these requirements (and fits in your budget), then congratulations! Your business has just found its match made in heaven (or in the “cloud”, to be precise)!
Further Reading