SaaS and subscription commerce:
4 very common mistakes that put your business growth at risk… without even realizing it!

saas image

ELIOTT STERNE

Approx. reading : about 11 min

Why should you go beyond the initial evidence ?

When they talk about rapid or even exponential growth, the leadership team of companies that sell by subscription (Saas etc…) tend to focus on optimizing the sales process. While this is essential, especially to achieve more customer acquisition and to convert more leads into paid customers, it is required to go beyond this to be able to create the context for growth, but also, and above all, to ensure the company’s ability to sustain and generate long-term growth.

One of the most underestimated growth drivers by business leaders is the automation of their recurring billing back office. This is THE BIG frustration of the financial departments that too often “tinker” with recurring billing.

Despite the warnings of their CFOs, leadership teams of companies that are struggling to grow or that are growing but without good profitability do not realize that they are making 4 major mistakes that will very quickly prevent them from :

1) achieving the growth they want,

2) being able to sustain the growth rate over the long-term,

3) and ultimately reaching their valuation target

In other words, without solving these four common mistakes in managing their recurring billing, large-scale growth can quickly become out of reach for your business.

And yet, all you need to do is make a little effort upstream and apply a few simple but powerful changes to produce lasting results for your business. 

Putting our recommendations into practice will help your business eliminate unnecessary costs and waste of time, increase your MRR, improve the customer experience and reduce the cancellation rate (the outrageous “CHURN”).

What are the 4 major and very frequent mistakes that your company must avoid at all costs in order not to put its growth capacity at risk ?!

ERROR #1. Copy/Paste the pricing model of the market

Traditional pricing models, especially in SaaS, rarely maximize your revenue. By limiting your customers to a flat-rate billing choice, such as x euro/dollars per month, you run the risk of overcharging your small customers or underbilling large customers. By doing so, your business is unable to align the price with the reality of customer value.

Moreover, it makes you easily comparable with your competitors since most of the time, all companies use the same pricing model. This makes it easy for your customers to ask for more for less. 

Instead, you should opt for modular, step-by-step billing, or even usage-based billing for example, to give you a simple and efficient way to generate more revenue while differentiating yourself. This allows you to fully individualize the billing of subscriptions for each customer and thus maximize your chances of retaining your customers longer as the price is aligned with the value received. 

You may also play win/win with your market and “link” your customers’ success with yours through your pricing (see our other Price Intelligence articles). 

 

Finally, you will make it almost impossible to compare your prices with your competitors.

ERROR #2. Use out-of-sync and inadequate IT solutions

87% of SaaS business Finance Departments report that the first loss of efficiency in their teams is related to out-of-sync and inadequate IT solutions.

abigael technologies – SaaS and CFO – market survey 2019/2020

In a context of rapid growth, with permanent changes in the configuration of both your offers and the market, you cannot afford a management of subscription contracts and recurring billing that is incomplete or even wrong; your business can’t miss contract renewal due dates, incorrectly calculate a price, or lose income due to payment failures, for example.

Your system must be designed to handle the specifics of the subscription. Off, if your business continues to use its accounting software to bill its subscriptions, you will never manage to eradicate manual entry and processing delays/errors.

Reliable and efficient management of your subscription-based business involves streamlining your subscription billing system by consolidating all processes (and all relevant data) into a perfectly adapted system, which becomes the sole source of truth for all information about contracts, usage data, billing, payment transactions and revenues.

Thus, you give your financial departments the ability to automate the management of your growth!

ERROR #3. Relying on a massive amount of spreadsheet to manage the business (KPIs, etc.).

A company, regardless of its business domain or business model, needs reliable management indicators to perform well and make good decisions.

This is even more true in the subscription economy. Indeed, a company that sells by subscription has an activity that is based on revenue streams that constantly evolve, nearly real time.

Clearly, it is not “Excel©” that is going to collect, structure and reprocess all the information and data needed to produce relevant KPIs like MRR, CHURN or LTV for you! It is the manual re-entry of the employees who will finally make it! It definitely creates rooms for errors as well as a waste of time and money due to tasks that deliver no added value at all.

If your business grows rapidly, it quickly becomes unrealistic to have a reliable dashboard with relevant and easily accessible KPIs without a platform specialized in the subscription-based business. 

Trying to collect and process your data manually or by exchanging asynchronous files means resigning yourself to not having reliable and up-to-date indicators; which should not be accepted by any ambitious leadership team.

ERROR #4. Use a different system for invoices than for payments!

In the reality of the daily business, a subscription-based company will face huge difficulties to grow exponentially and profitably when billing and payments processing are based on two different systems; including when business main payment practices are based on direct debit (SEPA for example).

Without a suitable integrated solution, the finance department will be forced at one time or another to allocate disproportionate resources and time to laborious scoring and reporting work (because done manual) which will ultimately lead to errors (due to the level of detail required); errors which the tax administration will not fail to seize in case of tax inspection or business audit.

More, bank reconciliation and revenue recognition are the two “pet peeves”, even the nightmare itself, of the financial departments responsible for managing the income of subscription-based business when they are not equipped with tools perfectly adapted to the dynamics of recurring billing and subscription payments.

It is the error of the financial departments to accept a dissociation of invoicing and payments systems because the link between invoice/income and payment helps to reduce the effort required to guarantee a perfect revenue recognition especially in these times of strengthening of IFRS and GAAP requirements.

All-in-one platforms designed specifically for subscription-based business management, such as DOTSHA, can solve this problem for you and save you tons of hours of tedious work each and every month.

IN CONCLUSION

If you are a CEO, COO or CFO of a company that earns its revenue from the subscription, you must avoid these errors become a characteristic of your business management.

On the opposite, you should do everything you can to take advantage of the advanced automation of the back office (including recurring billing) to save time, improve the accuracy of your business vision and increase revenues while maintaining the ability to delight your customers thanks to the simplicity of your processes and the robustness of your customer back office.

As your business evolves, you need a management solution that can evolve with you. Your customer base will inevitably change over time, but you will always need a solution that lightens your workload, adapts to your operations and allows you to focus on how to best scale your business.

About DOTSHA

dotsha delivers the first subscription-to-cash automation platform designed to put every subscription-based or usage-based business on autopilot … from early subscription to cash collection!  

Your business can scale fast without turning its back-office into a mess! 

Keep growing faster… we’ve got your back !

All-In-One platform that unify {Pricing}+{Check-in}+{Billing}+{Payments}+{Dunning}+{Reporting} while the MRR just keeps growing, dotsha’s plaform is an easy to use and quickly implemented cloud-based platform that augment your existing information system with robust API integrations in order to deliver optimal automation with minimal code. You will forget we are there!

ELIOTT STERNE

Approx. reading : about 11 min

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