Do you have a SaaS launch around the corner, and want to know how to bill your customers monthly? Do you already have hundreds of customers but manually update their credit cards when they expire? Or do you have a very complex pricing strategy and have no idea how to charge your customers? Well, you came to the right place. I've witnessed these scenarios and many more while designing billing architectures for various SaaS companies. My goal is to help you understand the main components of SaaS billing without ending up with an overly complicated, unscalable solution.
What is SaaS billing?
In short, SaaS billing software allows customers to pay for your Software-as-a-Service (SaaS) on a recurring basis. The goal of your SaaS billing software is to automate the billing processes so you can focus on your product and scale faster without worrying about billing your customers.
What are the building blocks of SaaS billing?
You might be overwhelmed with the sheer number of tools that you came across while searching for an ideal billing solution. The truth is, there are tons of tools out there, and many of them overlap in functionality. Understanding the building blocks of SaaS billing will help you identify the key features to look out for when selecting your tools. The components of SaaS billing are as follows:
A merchant account is your business bank account. We won't get much into this component, assuming that at this point, you already have your business bank account in place.
This component handles the heavy-lifting of transactions, processes credit cards, and fulfills PCI compliance regulations. In short, it is responsible for delivering the money from your customers’ credit card to your bank account safely.
Subscription billing system
I call it the brain of SaaS billing. It sits on top of the payment gateway, and it is responsible for automatically charging customers, generating invoices, collecting credit cards, and handling all other aspects of your customer's subscriptions. Subscription billing systems are also responsible for handling the pricing, so make sure to fully understand your pricing strategy and potential strategies that you'll want to test out. You will end up updating your pricing frequently, so your system should be able to handle pricing changes without consuming a lot of resources every time. Kyle Poyar has some amazing SaaS pricing guides you can check out.
Other features such as dunning, revenue recognition, referrals, and taxes are example features that connect to the subscription billing system, so it is always a good practice to define your use cases first.
Billing User Interface (UI) & User Experience (UX)
The least spoken about, the UI/UX, is the part of SaaS billing that your customers will interact with the most. For example, showing your pricing page, allowing customers to subscribe to your SaaS, updating credit card, downloading previous invoices, and practically any interface that your end customer views within your billing system is part of the UI. Billing User Experience (UX) is your end customer's experience with your billing system. To design the most intuitive user experience, you must define your onboarding flow. Onboarding flow is the process in which customers sign up, start using your software and eventually pay for it.
How do you choose a SaaS billing system?
Three factors to consider when choosing billing software are easy, fast, and extensible. You shouldn't have to go through a lengthy setup process or read a lot of docs to use billing software. Billing tools should be easy to learn. Depending on your use case, you might be able to build your entire billing system without writing a single line of code. The faster you can set up your billing, the quicker you'll launch and focus on your product. If a tool requires a lot of architecting and dev work, consider something faster. Maintaining a complex integration can cost you time in the future. Integration is critical for an extensible system. If it integrates well with other tools, it is extensible. Up-to-date API documentation, Zapier integration, or plugin directory are all indicators of well-integrated software.
Don't base your decision purely on the price of the software. It is helpful to pick solutions that are commonly used by other companies. You can ask founder communities like IndieHackers about what they use and their experience with those tools. Not choosing the right tools can leave you with a Frankenstein billing solution that'll cost you time and resources to maintain.
Choosing a payment gateway system
Luckily, it is 2020, there are some major players in this space, and picking the right payment gateway for your business is going to be one of the more straightforward decisions, mainly if your business is operating within these countries. The most crucial factors to consider when choosing a payment gateway system is if it supports your country and your required payment method, such as credit cards, ACH, ApplePay, etc.
Choosing a subscription billing system
There are hundreds of subscription billing solutions out there, but only a few are leading the pack when it comes to their technology. Many SaaS founders, CTOs, or technical leads make the mistake of stacking multiple subscription billing systems on top of each other due to not understanding the capacity of the tools. Don't follow an outdated online subscription billing review or article. If a guide is more than two years old, you should look for a more updated one. The SaaS market is constantly changing with new tools that could make your life a whole lot easier.
A lot of subscription billing solutions have a basic payment gateway built into their products. This often leads to reinventing common features and half-bakes implementation of more advanced requirements, such as dunning, viewing specific analytics, or a referral program. Oftentimes you’d be better off using specialized third-party SaaS tools that integrate with subscription billing systems.
Choosing a billing UI/UX tool
The billing UI connects to your subscription billing's API to view pricing and billing information to your end customers. Until recently, many SaaS companies developed in-house front-end billing pages for their website and SaaS. Depending on the pricing complexity and granularity of use cases, building an in-house billing UI could take anywhere from weeks to months. In 2020 there are no-code drag and drop-in tools available that hookup to your subscription billing system and provide billing pages in minutes.
What are the trending SaaS billing platforms in 2020?
It is easy to get lost in hundreds of tools that are aiming to be the "best" SaaS billing solution. In this section, I will give you the newest trend in SaaS billing I recommend for SaaS companies making anywhere from $0 to $20M annual recurring revenue (ARR). If your business is operating over $50M in ARR, you can ask questions from enterprise experts, such as Jack Lape from Wizeline. You can use this list as your baseline to compare solutions.
Trending payment gateway solution
If your business is operating in any of the countries listed on this page, then Stripe would be a great payment gateway solution. Stripe has a powerful API, documentation, and integration ecosystem that aims at make billing simpler and faster. Stripe’s API is known to be one of the best.
Trending subscription billing solution
This is a very competitive space, and the lineup changes almost every couple of years. Since mid-2018, Stripe released Stripe Billing, which has changed the subscription billing game by handling most pricing models while being deliberately simple. Stripe Billing provides fully automated subscription invoicing. If you are planning on using Stripe as your payment gateway, it is a no-brainer to use Stripe Billing as your subscription billing tool. If you're planning on using other tools like Chargebee or Recurly (there are many more), make sure to look at their comparison with Stripe Billing.
Stripe Billing integrates well with third-party tools that aim to handle edge cases. Tools like ChartMogul, Churn Buster, and Rewardful, connect to Stripe to manage revenue analytics, churn, and affiliates. You can browse through the Stripe Partner Program to view other tools that work well with Stripe.
Trending billing UI/UX solution
In 2019 Servicebot introduced a UI/UX toolkit for Stripe Billing. Using Servicebot, you can drag and drop-in billing pages into your website and SaaS so your customers can view your pricing, subscribe to plans, update credit cards, and download invoices without writing a single line of code. The goal is to save weeks or months of development by using a no-code tool that automatically stays up to date with new features and compliance.
In summary, understand the basics of SaaS billing, be up to date with the latest trends, and choose tools that are simple to use. We've scratched the surface with this article. You can continue your research by looking into some of the tools I introduced in this article. As the CEO and founder of Servicebot, I have dedicated my career to helping businesses launch faster without worrying about billing. If you need guidance or help with your SaaS billing, you can book a call with me here, and I'll do my best to answer your questions.