Saas billing: everything you need to know about saas billing in 2020

Everything you need to know about SaaS Billing in 2020

SaaS Billing

Software as a Service, or SaaS, is one of the three main categories of cloud computing, and the most common with consumer-level products alongside Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). Simply put, the "as-a-service" translates to service over the internet.

SaaS is a third-party application available over the internet, with no physical connection to any one device. Microsoft Office 365 and Amazon Web Services are SaaS, providing software solutions over the internet.

For businesses, there's SaaS for customer relationship management, sales management, cost management, HR management, marketing, billing, and collaboration.

Why is SaaS Growing Faster than ever?

Number of SaaS Apps Used by Company Size

In the traditional model, you had to choose the arduous task of developing your software for CRM, Sales Management Tools, Marketing Tools, etc., that would require staff, cost, and months in time. In SaaS, the third-party software application is already set up and configured in the cloud or server. All you need to do is sign up for a monthly/quarterly/yearly subscription plan and start using the products within seconds.

"CUSTOMERS LIKE SAAS" because SaaS products are easy to use; they are less expensive and increase your team’s productivity. Google Docs, Microsoft Office 365, and Adobe Creative Cloud are an excellent example of B2C SaaS products.

"DEVELOPERS LIKE SAAS" because SaaS platforms come with libraries, tutorials, developer portals, API documentation, developer support channel, and installation guides, which make their user's job easier.

Here are a few more reasons:
• Easy to acquire and install apps that developers like or wish to install.
• Easy to use an app within the process and UI of the platform.
• Easy to handle various applications within a console.
• Easy to obtain the right assistance when the developers have concerns regarding their implementation.

"ENTREPRENEUR LIKE SAAS" because of the SaaS billing model, i.e., subscription and recurring based. As SaaS revenues are predictable, it is easier for investors to decide to invest in companies.

What is SaaS Billing? Everything You Need to Know in 2020

SaaS billing is typically called 'Subscription billing' or 'Recurring billing.' Simply put, SaaS billing software is a system that automatically deducts payments from customers on a recurring basis for the usage of a product or service.

How to Choose the Right SaaS Billing Pricing Model?

Choosing the right SaaS billing model and pricing structure is crucial for any SaaS businesses that are getting started. Before you start pricing your SaaS products, you need to keep several things in mind:

1. How much value your product offers- The first and the most crucial part about pricing your SaaS product is to look at how much value it provides.

2. Competitors Pricing- Find out what your competitors are charging and try to keep your pricing the same as your competitors; this is called a competitive pricing strategy. It is one of the widely used strategies adopted by many SaaS companies globally. Ensure that you've got the same or more features in comparison to your competitors to justify the pricing.

3. Stage of your Business- You always need to keep in mind that before you set the price of your product, there's a bias against most SaaS startups because, as a customer, it's riskier to with an early-stage startup in comparison to a more established one. The reason behind this is simple; the customer wants to make sure that you're still around in five years. They need to see what other companies you've helped, and this is why most of the SaaS Startup fails in their early days because they don't have a strong customer base to showcase.

Top SaaS Pricing/Billing Models to Consider for your SaaS Products in 2020

In 2020, most SaaS companies are probably underpricing their product because they fear not getting enough sales.

What they don't know is the process only works when you've got an enormous investment, which could adjust your losses, and you may be able to raise the prices in the future for your product when it has been well-established in the market.

If you don't have much investment, then there's a 99.9% chance you can't survive in the SaaS industry, underpricing products for the long term.

With a SaaS business where you are hoping to sell it (in which revenue & growth are usually way more important than profit anyway), or you're building a company that has a model dependent on network effects and capturing the market quickly. Always make sure to think about the amount of value you're adding to your customer's life. You can justify charging your customers a higher price. We've curated a list of top SaaS pricing models that you may want to consider for your SaaS products:

1. Value-Based Pricing Model

A value-based pricing model ("also known as value pricing") means charging your customers only what they are willing to pay. Value-based pricing (or value pricing) is the most highly recommended pricing technique used by many SaaS Companies & billing platforms.

Value-based pricing is a simple concept to understand. Still, it isn't easy to implement it in reality because every customer has a different WTP (willingness to pay).

Advantages of Value Based Pricing Model

✔ Higher prices therefore increase in profits
✔ Higher customer loyalty
✔ Higher-quality products
✔ More satisfied customers
✔ Higher supply & demand

Disadvantages of Value Based Pricing Model

✖ Needs a deep understanding of customers
✖ Needs consistent dedication
✖ Requires massive resources and time
✖ Not scalable
✖ Low pricing competition

2. Tiered Pricing Model

In the tiered based pricing model, the price per unit varies based on the number of units. There are usually three or four pricing plans, where each plan has different pricing and features. The more advanced the features and functionalities offered, the higher the price point.

How to calculate Tiered Based Pricings?

Suppose you are a Software development company and you sell software licenses to customers. For example, the license 1-10 costs $50 each, licenses 11-50 cost $40 each, and licenses 51+ cost $30 each. If a customer buys 55 licenses, then the customer will be billed as follows:

Tiered Based Pricing Model (Example Software Licenses)

1-10 Licenses $500
11-50 Licenses $1600
51-55 Licenses $150
Total $2250

Here’s how to calculate

[{10 x $50} + {40 x $40} + {5 x $30}] = $2250

Advantages of Tiered Based Pricing Model

✔ More Affordable for customers
✔ Attract more customers
✔ Quantity options with discounts
✔ Easier to implement
✔ Easier to group up different features into 'tiers'

Disadvantages of Tiered Based Pricing Model

✖ Too much choice can confuse buyers
✖ Few features in the first tier
✖ Not suitable for all SaaS product or service
✖ Difficult for small businesses to manage

3. Flat Rate Pricing Model

Unlike value-based or tiered based SaaS billing models, the Flat Rate pricing model strategy includes charging a fixed rate for a product or service instead of charging by the number of features or the number of users. Flat rate pricing is one of the most common pricing strategies among the SaaS companies. Every customer gets the exact set of features on the same plan. However, it has its advantages and drawbacks.

Advantages of Flat Rate Pricing Model

✔ Fair prices
✔ Controls purchasing decision
✔ Improves productivity
✔ Eliminate pricing hassles
✔ Improves the quality of the services

Disadvantages of Flat Rate Pricing Model

✖ Cost challenges
✖ Reduced income
✖ Less growth
✖ Not recommended for the long term according to SaaS experts
✖ No loyalties from customer’s end

4. Per User Pricing Model

The per-user pricing model is another popular SaaS pricing model adopted by companies that charge the customers for each user of its products. The per-user pricing model helps companies who are just getting started but eventually want to increase their users over time. Salesforce, an American cloud-based CRM Company, uses this pricing model, and they are killing it.

Flat Rate Pricing Model – Salesforce Pricing

Advantages of Per User Pricing Model

✔ Highly-predictable revenue generation
✔ More profit
✔ Great for users
✔ No upsells or shady features addition
✔ Flexibility

Disadvantages of Per User Pricing Model

✖ Higher chances of account abuse (multiple users using the same account – Canva for example)
✖ Very hard to downgrade as a user
✖ Easy to churn by limiting adoption
✖ Difficult to get the right pricing
✖ Not preferable by customers (customer prefers feature-based pricing over the per-user pricing model)

5. Feature Based Pricing Model

In a feature-based pricing model, a SaaS company sets different pricing plans according to the features available in each plan. The more the features of a plan, the higher it will cost. Freshdesk- an online cloud-based customer service uses feature-based SaaS billing service as their pricing model.

Feature Based Pricing Model – Freshdesk Pricing

Advantages of Feature Based Pricing Model

✔ Transparent
✔ Helps in figuring out the right pricing tiers
✔ Attracts new customers
✔ Encourage updates
✔ Easy to scale and grow

Disadvantages of Feature Based Pricing Model

✖ Unjustified prices
✖ Useless features
✖ Unhappy customers
✖ Highly-competitive

6. Pay As You Go Pricing Model

Pay As You Go Model is one of the hardest SaaS billing models to implement for both users and SaaS service providers. Pay As You Go model charges users based on a certain amount of usage of cloud products. Some of the best examples of Pay As You Go Pricing Model are Microsoft’s Azure, Google Cloud, and Amazon Web Services Pricing.

Pay As You Go Pricing Model – Google Cloud Pricing

Advantages of Pay As You Go Pricing Model

✔ No wasted resources
✔ Wide range of solutions
✔ Pay on a per-user basis
✔ Minimal setup charges
✔ No long-term commitments

Disadvantages of Pay As You Go Pricing Model

✖ Requires time and resources
✖ Terrible customers
✖ Tough to predict revenue
✖ Customer churn
✖ Easy cancellation

7. Freemium Pricing Model (Optional)

The freemium pricing model in SaaS is the strategy where a SaaS provider offers a basic set of services to its customers without any charges or for free. It can be set up for a lifetime or for a certain amount of time, depending on the company's goals. Slack simplified team management and Communication Company uses this Freemium pricing model in its pricing strategy.

Freemium Pricing Model – Slack Pricing

Advantages of Freemium Pricing Model

✔ Save marketing costs
✔ Long term customers
✔ Free leads
✔ Guaranteed loyalty from customers
✔ Gather customer feedback
✔ Test new products

Disadvantages of Freemium Pricing Model

✖ Difficult to convert free users
✖ Low-performance
✖ Product exploitation
✖ No customer support
✖ Does not generate enough revenues

These are some of the best and widely used SaaS billing models among many top SaaS companies. As we said earlier, before setting up the right price for your product, remember three things: the value you are offering, your competitor's prices, and the stage of your business.

Top SaaS Billing Softwares/Platforms to use in 2020

We’ve compiled a list of top SaaS billing service providers in 2020 that you can use for your SaaS products or services. We know how important it is for owners and entrepreneurs to handle the payment transactions for running a successful SaaS business. That is why we’ve included the most trustworthy and reliable SaaS billing solutions.

1. Payvoice

Payvoice – Stripe Subscription Management Software

Payvoice allows modern recurring revenue-based businesses to integrate with their Stripe products and plans and will enable you to create beautiful subscription portals from any number of those plans. Payvoice helps SaaS startups create subscription billing and management to process recurring subscription payments. Create embeddable multi-plan subscription pages and manage subscriptions without any coding.

Payvoice Features

1. Subscription Pages: Create embeddable multi-plan subscription pages that you can customize quickly.
2. Self-Service Subscription Management: Allow your users to manage their subscriptions without any coding.
3. Customer Portal: Allow your users to access to their Stripe customer profiles and manage their subscriptions.
4. Get a Unified View: Allow your team to manage all your subscriptions and customer data in one place.
5. Scale Easily with Larger Teams: Add as many users as your team needs to help you manage your subscription plans.
6. Experiment with Different Pricing Options: Create different pricing pages easily to see what works best for your business.

PROS of Using Payvoice SaaS Billing Platform: -

✔ Create embeddable multi-plan subscription pages
✔ Manage Subscription without any Coding
✔ Allow your team to manage all subscriptions and customers data at one place
✔ Create different pricing pages
✔ Create as many pricing pages you need
✔ Protect your Stripe data by giving limited access to your team
✔ Run Stripe sync

2. Stripe Billing

Stripe SaaS Billing Platform

The most ambitious companies design billing around the consumer experience; Stripe billing does that. Stripe Billing is a brand-new collection of tools to develop as well as scale your recurring business model. Stripe Billing fully automates recurring payments while adding unique invoice functions. Plus, you get an effective user interface to check brand-new prices conveniently. Charge your customers with one-off billings or automatically on a subscription basis. Go global with support for various settlement methods.

Stripe Billing Features

1. Building Blocks for Billing: The Stripe Invoicing API is straightforward to integrate into existing sites, mobile apps, or even CRM systems. Developers can utilize out-of-the-box performance to begin promptly or use an API foundation to create fully customized membership pricing models.

2. End-to-End billing: No code required. As soon as you're set-up, you can create and manage memberships and billings and see detailed monetary reports directly from the dashboard. Stripe does not restrict the number of members you can add and also sustains granular roles and authorizations.

3. Effortlessly design and test pricing: Iterate on your rates as quickly as you enhance your product with Stripe's flexible invoicing parts.

4. International Payments Support: Accept any sustained payment method with Stripe's unified API - no one-off combinations or different contracts required.<?

PROS of Using Stripe SaaS Billing Platform: -

✔ Faster integration
✔Flexible billing & payments
✔ Global payments built-in
✔ Strong customer authentication compliance
✔ Flexible tax modeling

3. Chargify
Chargify SaaS Billing Service

Chargify is one of the most popular SaaS billing platforms. Chargify Elastic Billing turns billing right into a competitive edge for modern recurring revenue-based businesses that need to individualize as well as distinguish their offerings for the Subscription Economy.

Chargify Features

1. Deferred Billing: Offer a grace period before payments must be made.
2. Freemium: Create freemium offers to drive traffic, increase adoption, and boost opportunities.
3. Invoicing Regularities: Set up any kind of deal to renew yearly, quarterly, monthly, or specify custom-made periods.
4. Targeted Advertisings: Leverage targeted promotions to drive brand-new acquisition and also retain existing clients.
5. One time Charges: Accept any sustained payment method with Stripe's unified API - no one-off combinations or different contracts required.

PROS of Using Chargify SaaS Billing Platform: -

✔ Payment Processing
✔ Dunning Management
✔ Payment Processing
✔ Multi-Period Recurring Billing
✔ Recurring Invoicing

Final Words

Research and implementation is the key to finding success in the SaaS industry. We hope that this blog has helped you find the perfect SaaS billing model for your SaaS-based business. If you’ve got any questions regarding SaaS billing, you can contact us anytime.