You’ve got a great SaaS business idea and you’ve built an awesome product. Congratulations! Now it’s time to think about how you’re going to charge customers and handle subscriptions. If you mess this part up, you could end up with poor customer experiences, high churn rates, and lost revenue. No pressure, right? Don’t worry, we’ve got you covered. We’re going to walk you through some best practices for setting up and managing subscriptions in your SaaS business so you can get it right the first time. By the end of this article, you’ll know how to choose a pricing model, the tools you need, how to optimize your billing workflows, and common mistakes to avoid. Take a deep breath and dive in – your subscription success starts here!
Choose a Subscription Billing Model: Annual vs Monthly
When launching a SaaS business, one of the first decisions you’ll need to make is whether to bill customers annually or monthly. Each model has its pros and cons, so think about what will work best for your product and customers.
Monthly billing is convenient for customers and provides predictable revenue for you. However, monthly plans often have higher churn rates since it’s easy for customers to cancel. Annual billing locks in customers for longer and reduces churn, but the upfront cost can be a barrier for some.
A popular approach is to offer both options. For example:
A monthly plan at $25/month
An annual plan at $250/year (equivalent to $20.83/month)
This gives customers flexibility while incentivizing the annual option with a discount. You’ll need to determine the right price points for your product. Keep in mind that most SaaS businesses charge between $10 to $100/month.
Other things to consider with your subscription model:
• Will you charge per user, per account, or something else? Per active user is common for collaboration tools.
• How long is each billing cycle? Monthly, quarterly, semi-annually or annually. Longer cycles mean more predictable revenue but potentially higher churn.
• Will you offer a free trial to attract new customers? If so, how long will the trial last? Most are between 14 to 30 days.
• What payment methods will you accept? Credit cards, PayPal, wire transfers, ACH, etc. Make it easy for customers to pay you!
The subscription model you choose can have a big impact on your business. Think through all these factors to find the right approach for sustainable growth. With the ideal model in place, you’ll be well on your way to subscription success!
Set Up Automatic Renewal and Recurring Billing
To keep the cash flowing, you need to make subscription management and recurring billing a no-brainer for your customers. The key is setting up automatic renewal.
Once a customer subscribes, automatically bill their card or account for the renewal term they chose – monthly, annually, or anything in between. Send a reminder email a few days before the renewal date so they know it’s coming. This way, you ensure continuity of service and consistent revenue.
For the best customer experience, offer flexible subscription management options. Let subscribers cancel or pause anytime via your website or mobile app. Give prorated refunds if they cancel mid-term. Also, allow subscribers to upgrade, downgrade, or change their renewal date if needed. The easier you make it for people to modify their accounts, the happier they’ll be.
To reduce failed renewals due to expired cards, send dunning emails ahead of time. Then attempt to bill the card on file a couple days before the renewal date. If that fails, send another email asking the subscriber to update their billing info. You might need to temporarily pause service until the info is updated to avoid unpaid invoices.
Keeping an eye on key metrics like monthly recurring revenue (MRR), churn rate, and renewal rates will help you optimize your subscription and billing processes. Make changes to improve the customer experience and boost your bottom line. With the right approach, subscription management can be a major driver of success for your SaaS business.
Offer Multiple Subscription Plans and Pricing Tiers
To maximize revenue from your SaaS product, offer multiple subscription plans at different price points. This gives customers options to choose from based on their needs and budget.
Tiered Pricing
The most common approach is to offer three tiers: basic, standard and premium. The basic plan should include your core features at an affordable price to draw in customers. The standard plan builds on this by adding sought-after features and more capabilities. Your premium tier provides the full functionality of your product for the highest price. Having multiple plans allows you to upsell customers over time as their needs grow.
Basic: $25/mo. Core product features. For small teams with simple needs.
Standard: $50/mo. All basic features plus project management, API access and premium support. For growing teams.
Premium: $100/mo. Full range of features including advanced reporting, enterprise integrations and dedicated support rep. For organizations with complex requirements.
Mix and Match
Consider allowing customers to mix and match features between plans to create their own customized subscription. For example, they may want the core features of your standard plan but also the dedicated support of your premium plan. Letting them build their own bundle gives them more flexibility and control over what they’re paying for. You can upcharge for premium features added to lower-tiered plans.
Discounts for Annual Contracts
Offer monthly, quarterly and annual billing options, with bigger discounts for customers who commit to longer contracts upfront. Annual contracts, in particular, provide more stable, predictable revenue. Provide an incentive of at least 25-30% off the monthly price for annual plans.
Special Deals
Run limited-time promotions offering the first month, quarter or year at a deep discount to attract new customers. Or bundle additional services or products with your subscription plans as a special package deal. This can boost sales during seasonal slumps or when launching a new feature. But don’t run promotions too frequently, or it may condition customers to always expect a discount.
In summary, a well-designed subscription plan and pricing structure is essential for optimizing revenue from your SaaS business. By offering flexibility, valuable features, and strategic discounts, you’ll give your customers options that fit their needs and budget, while still maximizing your profits.
Provide Easy Account Management and Cancelation
As a SaaS business, keeping your customers happy and subscribed is key. One of the most important things you can do is make account management and cancelation as easy as possible.
Provide an intuitive account dashboard
Give subscribers an easy way to view and manage their account details, billing info, and subscription plan. A well-designed account dashboard allows them to see what they’re paying for at a glance, update payment methods, upgrade or downgrade their plan, and more. This convenience and transparency helps build trust in your brand.
Offer easy subscription pausing or canceling
Allow subscribers to pause or cancel their subscription directly through their account. This could be done with the click of a button.
Clearly display the date their subscription will pause or end, and any implications to their service.
Send an email confirmation of the cancelation or pause for the subscriber’s records.
Consider offering a trial period
Offering a free trial of your software allows potential customers to experience the value of your product before paying. Those who convert to paying subscribers after the trial are very likely to stay on as long-term customers. A trial period, especially when combined with in-app messaging about the benefits of subscribing, is a proven way to gain new subscribers.
Make downgrading and reactivating easy
Allow subscribers to easily downgrade or reactivate their subscription if their needs change. The easier you make it for them to do so, the more likely they are to remain a customer in some capacity rather than canceling altogether. Send a follow-up email with the details of their new plan to provide great customer service.
Keeping your subscribers happy, engaged and feeling in control of their subscription and account is one of the most impactful things you can do to reduce churn and build a successful SaaS business. Meet your subscribers where they are and provide an experience tailored to their needs.
Reduce Churn Through Relevant Subscription Offerings and Customer Engagement
To keep customers happily subscribed to your SaaS product, you need to provide subscription plans and an experience that match their needs. By analyzing how customers interact with your product and engaging with them proactively, you can reduce churn and keep them on board.
Tailor Subscription Offerings
Offer subscription tiers that align with how different customers use your product. For example, provide a basic plan for lightweight users, a pro plan for power users, and an enterprise plan for large teams. Make it easy for customers to switch between tiers as their needs change.
Consider offering annual subscription discounts to motivate long-term commitments.
Promote upgrades to higher tiers by highlighting key features and the additional value.
Engage Customers Actively
Reach out to customers regularly to strengthen your relationship and uncover any issues. Send a welcome email series introducing them to key features. Share updates, tips and success stories to help them get the most from your product.
Survey customers to get feedback on their experience and how you can improve. Act on their suggestions whenever possible.
Monitor usage data to see how actively customers are using your product. Reach out to less active customers to see if there are any barriers you can address.
Set up alerts to notify you if a customer shows signs they may churn, like downgrading their subscription or going inactive for a period of time. Proactively contact them to resolve any concerns.
Keeping an open conversation with your customers and offering plans tailored to their needs will make them feel valued and invested in your product for the long run. Provide the best experience possible at every stage of the customer journey to build loyalty and reduce churn.
Conclusion
So there you have it—some of the key best practices for managing subscriptions and billing in your SaaS business. By focusing on automation, using analytics to gain customer insights, offering flexible plans and pricing, keeping billing simple and transparent, providing great customer service, and regularly optimizing your processes, you’ll be well on your way to subscription success. Your customers will appreciate how easy you make it to do business with you, and you’ll build a sustainable, recurring revenue stream. What are you waiting for? Go review your subscription setup and see how you can make the experience even better for your customers today. The rewards will be well worth the effort.
