Overview of Subscription Based SaaS Billing Model

Subscription-based Billing Model in SaaS 

The way businesses use software and deliver services has been revolutionized by the SaaS model. SaaS gained popularity because of its numerous benefits, such as ease of use, cost savings, flexible plans, scalable implementation, reliable service access, and much more.

One of the most crucial aspects of any successful SaaS offering is its Billing Model. The Billing Model determines how SaaS offerings are priced and what customers are charged to access a service or product. 

To run a successful SaaS business, service providers must utilize the billing model and associated pricing strategies to maximize revenue and deliver exceptional value to their customers.

In this article, we will explore the Subscription-based SaaS Billing Model which is one of the most popular SaaS billing models with key characteristics, benefits, considerations, and examples associated with each. 

Through the subsequent articles on several Billing Models, Service Providers will gain clarity between the different types of SaaS billing models and be better equipped to make informed decisions regarding pricing strategies and revenue management.

SaaS Billing Models - Subscription based Model

Subscription-Based SaaS Billing Model

The subscription-based model is one of the most widely used billing models. Here, customers subscribe to access SaaS services or products by paying a recurring fee on a systematic basis (E.g. weekly, monthly, annually, etc.).

A common subscription-based plan is shown below:

Subscription Based Plan

Key characteristics and benefits:

·  Customers are billed regularly at a defined frequency during their subscription period. It is facilitated through various payment methods, such as credit cards, direct debit, etc.

·  Subscriptions can be Evergreen (continue until canceled) or Fixed term (E.g. 1 Month) with the renewal option.

·  Subscription-based billing provides predictability for both customers and service providers; service providers can forecast their revenue and plan resources accordingly, while customers know the exact amount to be paid each billing cycle.

·  Service providers can leverage subscription-based billing to upsell/cross-sell additional services to existing customers, thereby increasing their revenue streams.

·  The predictability and simplicity of this model lead to increased customer loyalty and positive customer experiences. These higher customer retention rates then ensure a steady stream of recurring revenue.

Important to note: 

·  Subscription renewal requires proactive efforts from providers, as failure to renew leads to revenue loss and customer churn. 

To prevent this, providers should provide proactive communication, customer renewal-date notifications, new service or feature upgrade offers, personalized support, flexible subscription plans, incentivized renewals, and prompt resolution of any complaints.
·  As the subscription model relies on bill payments, any billing errors and disputes can lead to customer dissatisfaction. 

To address this, providers should invest in robust Billing Systems that replace manual processes with automation to improve billing accuracy. 

Trial or QA bill run process should be followed diligently to avoid any billing errors.
·  Customers opting for subscription-based services are quite price-sensitive. Providers need to constantly deliver value without any significant increase in subscription costs. 

To handle this, providers can regularly conduct market research and receive feedback from customers to determine and maintain optimal pricing-striking the perfect balance between customer satisfaction and profitability. 

Customers should also be offered flexible subscription plans to upgrade or downgrade with ease.

Some of the examples of this model: 

·  E-commerce Subscriptions (E.g. Amazon Prime)
·  Streaming Subscriptions (E.g. Netflix)
·  Post-paid Mobile Connection (E.g. Bundled Voice & Data Package)
·  Print/Digital Media (E.g. The Wall Street Journal)
·  Gaming (E.g. Xbox, PlayStation, etc.)

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This article is an excerpt from my ebook published on the Synthesis Systems website. In the subsequent articles, I will share an overview of the other SaaS Billing Models. 
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Also Read: 

Overview of Tiered-based Billing Model In SaaS

A Deep Dive Into Consumption-based Charging Model

Overview of Flat Rate Billing Model In SaaS

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Glossary: SaaS (Software-as-a-Service), QA (Quality Assurance)

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