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What Is Subscription Management and Why It Matters

Subscription management is all about keeping track of the various subscriptions you have - whether it's for streaming services, software tools, or monthly snack boxes. Have you ever wondered how companies like Netflix or Spotify keep track of millions of subscribers, ensuring they get billed accurately and on time? That's where subscription management comes into play.

How does subscription management work?

Subscription management works like the conductor of a symphony, orchestrating all the moving parts to ensure a smooth and harmonious experience for both businesses and customers. At its core, subscription management involves overseeing the entire lifecycle of a subscription, from sign-up to renewal or cancellation.

Here's a breakdown of how subscription management works:

Customer sign-up: It all starts when a customer decides to subscribe to a service or product. This could be anything from a streaming platform like Netflix to a monthly delivery box of snacks. During the sign-up process, customers provide their payment information and choose their subscription plan.

Account creation: Once the customer signs up, an account is created in the subscription management system. This account contains important details like billing information, subscription preferences, and contact information.

Billing and payment processing: As the subscription progresses, the subscription management system handles the billing process. This includes generating invoices, processing payments, and sending receipts to customers. Depending on the billing cycle (monthly, yearly, etc.), payments are automatically charged to the customer's chosen payment method.

Subscription changes: Customers may want to change their subscriptions over time. This could involve upgrading to a higher-tier plan, adding extra features, or downgrading to a more basic plan. Subscription management systems allow customers to easily make these changes through self-service portals or by contacting customer support.

Renewals and cancellations: When a subscription is nearing its expiration date, the subscription management system sends out renewal reminders to customers. If the customer chooses to renew, the subscription is automatically extended for another billing period. On the other hand, if the customer decides to cancel, the subscription is terminated, and no further charges are incurred.

Customer support and issue resolution: Throughout the subscription lifecycle, customers may encounter issues or have questions about their subscriptions. Subscription management systems often include customer support features, such as ticketing systems or live chat support, to help address these concerns promptly and efficiently.

Analytics and reporting: Finally, subscription management systems provide valuable insights into subscriber behavior and trends. Businesses can analyze churn rates, customer retention, and subscription growth to make informed decisions and optimize their subscription offerings.

In essence, subscription management works behind the scenes to ensure that subscriptions are managed effectively, payments are processed accurately, and customers have a seamless experience from start to finish.

Subscription billing models

Subscription billing models come in various forms, offering flexibility for both businesses and customers. Here's a look at some common subscription billing models:

Monthly subscriptions: This is perhaps the most straightforward billing model, where customers pay a fixed amount each month to access a service or product. Examples include subscription boxes, streaming services like Netflix, and  SaaS billing platforms.

Annual subscriptions: Similar to monthly subscriptions, customers pay upfront for a year's worth of access to the service or product. Annual subscriptions often come with discounts or incentives to encourage customers to commit to a longer-term relationship with the business.

Freemium: In this model, the basic version of the service is offered for free, with limited features or functionality. Customers have the option to upgrade to a premium version with additional features by paying a subscription fee. This model is popular among software companies and mobile apps.

Tiered pricing: Businesses offer multiple subscription tiers, each with different levels of features and pricing. Customers can choose the tier that best suits their needs and budget. Tiered pricing allows businesses to cater to a broader range of customers and capture different market segments.

Usage-based billing: Instead of charging a flat fee, this model charges customers based on their usage of the service or product. For example, cloud storage services often use this model, where customers pay based on the amount of data stored or the number of transactions processed.

Perpetual licensing: While not strictly a subscription model, perpetual licensing allows customers to purchase a one-time license to access the product indefinitely. However, businesses often offer maintenance and support subscriptions alongside perpetual licenses to ensure ongoing updates and support.

Pay-as-you-go: Similar to usage-based billing, customers only pay for what they use, with no fixed subscription fee. This model is standard in industries like telecommunications and utilities, where customers pay for services on a usage basis.

Each subscription billing model has its advantages and considerations, depending on the nature of the business and the preferences of both the business and its customers. By choosing a suitable billing model, businesses can optimize revenue streams, attract and retain customers, and adapt to changing market conditions.

Subscription management software: key features to look for

Subscription management software is a game-changer for businesses handling a multitude of subscriptions. Whether running a streaming service or a SaaS platform, choosing the right business management software can make or break your operations. Here are some key features to look for when evaluating different options.

Automated billing: One of the most important features of any subscription management tool is its ability to automate billing processes. Look for software that can handle recurring payments seamlessly, reducing the risk of human error and ensuring timely invoicing.

Customer management: Keeping track of customer accounts is vital for any subscription-based business. Make sure the software offers robust customer management features, allowing you to easily view account details, track usage, and communicate with subscribers.

Flexible pricing plans: Every business has unique needs when it comes to pricing. Look for subscription management software that offers flexibility in setting up different pricing plans, whether it's monthly, annual, or usage-based. This flexibility enables you to cater to a diverse range of customers and adapt to changing market conditions.

Integration capabilities: Seamless integration with other tools and platforms is essential for maximizing efficiency. Choose software that integrates easily with your existing systems, such as accounting software, CRM tools, and payment gateways. This integration streamlines processes and eliminates the need for manual data entry.

Analytics and reporting: To make informed business decisions, you need access to comprehensive analytics and reporting tools. Look for subscription management software that provides detailed insights into subscriber behavior, churn rates, and revenue trends. This data empowers you to optimize your pricing strategies and identify areas for growth.

Security measures: Protecting sensitive customer data should be a top priority for any subscription-based business. Ensure that the software you choose adheres to industry-standard security protocols and offers features like encryption, role-based access controls, and regular security updates.

Scalability: As your business grows, your subscription management needs may evolve. Choose software that can scale with your business, accommodating an increasing number of subscribers, transactions, and features without compromising performance.

Customer support: In the world of subscription management, issues can arise at any time. Look for software vendors that offer responsive customer support, whether it's through email, phone, or live chat. Prompt and helpful support can minimize downtime and keep your operations running smoothly.

By prioritizing these key features, you can find the subscription management software that best meets your business needs and sets you up for success in the subscription economy.

Subscription management vs. recurring billing

Subscription management and recurring billing are two closely related concepts in subscription-based businesses, but they serve distinct purposes and encompass different aspects of managing customer subscriptions.

Subscription management:

Subscription management is a comprehensive process that involves overseeing all aspects of customer subscriptions, from acquisition to renewal. It encompasses tasks such as customer onboarding, account management, billing, and customer support. Essentially, subscription management focuses on the entire lifecycle of a subscription, from initial sign-up to cancellation or renewal.

Key aspects of subscription management include:

Customer relationship management (CRM): Building and maintaining relationships with subscribers through personalized communication and support.

Account management: Managing customer accounts, including updating account information, handling upgrades or downgrades, and addressing account-related issues.

Billing and invoicing: Handling billing processes, including setting up pricing plans, generating invoices, and processing payments.

Churn management: Implementing strategies to reduce churn, such as offering incentives to retain customers or analyzing churn patterns to identify potential issues.

Analytics and reporting: Monitoring critical metrics related to subscriber acquisition, retention, and revenue to inform decision-making and optimize subscription offerings.

Recurring billing:

Recurring billing software , on the other hand, is a specific aspect of subscription management that focuses solely on the automated process of charging customers at regular intervals. It involves setting up billing cycles (e.g., monthly, quarterly, annually) and automatically charging customers for their subscriptions according to their chosen billing frequency.

Critical aspects of recurring billing include:

Automated payment processing: Automatically charging customers' payment methods on a recurring basis, typically using a payment gateway or merchant account.

Invoice generation: Generating invoices or receipts for each billing cycle, detailing the charges and any applicable taxes or fees.

Payment collection: Collecting payments from customers via credit/debit cards, bank transfers, or other accepted payment methods.

Payment notifications: Notifying customers in advance of upcoming payments, ensuring transparency and allowing them to manage their subscriptions effectively.

In summary, while subscription management encompasses a broader range of activities related to managing customer subscriptions, recurring billing specifically refers to the automated process of charging customers at regular intervals. Both are essential components of running a successful subscription-based business, working together to ensure smooth operations and positive customer experiences.

Billing management systems

Billing management systems are the backbone of subscription-based businesses, providing the infrastructure needed to handle all aspects of billing and invoicing. These systems play a crucial role in ensuring accurate and timely billing processes while also enhancing customer satisfaction and streamlining administrative tasks. Here's a closer look at billing management systems and their key components:

Invoicing and billing generation: One of the primary functions of a billing management system is to generate invoices for products or services rendered to customers. These invoices typically include details such as the billing period, charges, taxes, and payment instructions. The system automates the invoicing process, reducing manual errors and saving time for administrative staff.

Recurring billing: Many subscription-based businesses operate on a recurring billing model, where customers are billed automatically at regular intervals (e.g., monthly, quarterly, annually). Billing management systems facilitate this process by scheduling and processing recurring payments, ensuring a steady stream of revenue for the business.

Payment processing: Billing management systems integrate with payment gateways and merchant accounts to facilitate payment processing. Customers can make payments using various methods, including credit/debit cards, bank transfers, and online payment platforms. The system securely processes payments, encrypting sensitive financial information to protect against fraud and data breaches.

Subscription management: In addition to billing, these systems often include features for managing customer subscriptions. This may involve tracking subscription status, managing subscription plans, and handling upgrades, downgrades, or cancellations. Businesses can streamline operations and provide better customer service by centralizing subscription management within the billing system.

Accounting integration: Billing management systems integrate with accounting software to ensure seamless financial reporting and reconciliation. Transaction data is automatically synchronized between the billing system and the accounting software, reducing manual data entry and minimizing the risk of errors. This integration provides a comprehensive view of the business's financial health and facilitates compliance with accounting standards and regulations.

Analytics and reporting: Billing management systems offer robust analytics and reporting capabilities, allowing businesses to track key metrics such as revenue, churn rate, and customer lifetime value. These insights enable informed decision-making and help identify trends or patterns that may impact the business's financial performance. Customizable reports provide stakeholders with real-time visibility into billing activities and financial metrics.

Customer self-service: Many billing management systems include self-service portals or customer portals where customers can view and manage their accounts, access billing statements, update payment methods, and make changes to their subscriptions. Providing customers with self-service options enhances their experience and reduces the workload on customer support teams.

Subscription billing business models

The rise of Software-as-a-Service (SaaS) has transformed the way businesses approach subscription billing. With SaaS subscription management, companies can offer flexible pricing plans, scale their services according to demand, and easily add or remove users as needed. This versatility has made SaaS a popular choice for businesses of all sizes.

Conclusion

In today's subscription-driven economy, effective subscription management is essential for maximizing profits and retaining customers. By investing in the right tools and strategies, businesses can streamline their operations, improve customer satisfaction, and stay ahead of the competition. Whether you're a small startup or a multinational corporation, understanding the intricacies of subscription management can make all the difference in your bottom line.

Billsby revolutionizes subscription management by offering a comprehensive platform that simplifies billing processes for businesses of all sizes. With Billsby, businesses can effortlessly manage subscriptions, automate billing cycles, and streamline payment processing, saving time and resources. Billsby's robust security features ensure the protection of sensitive customer data, fostering trust and compliance with industry regulations. By leveraging Billsby's powerful subscription management tools, businesses can optimize revenue streams, enhance customer satisfaction, and drive long-term success.

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Bookings, Billings, and Revenue | SaaS Metrics

To scale a fast-growing SaaS company, your primary focus should be increasing revenue. Seeing all those sales bookings rolling in is very exhilarating; indeed, however, it's easy to forget about what hits the books.

SaaS revenue recognition can be nightmare-inducing for firms using it, because it needs to take into account multiple revenue streams and metrics in order to be calculated successfully. This guide should therefore help you to understand a few of the topline metrics— bookings, billings, and revenue.

What are Bookings in SaaS?

Bookings are the primary indicator of future revenue growth. With the help of bookings, you can measure your increase in sales over a specific period. In short, bookings reflect your customers’ commitment to pay for your services.

In the example above, User X pays $600 monthly, which equates to $7200 annually. They purchase the plan for two years making their contract value $14400. This would be referred to as a ‘booking’.

Types of SaaS Bookings

The following SaaS bookings are commonly found in the SaaS market:

**1) New Bookings **

This involves customers/new subscriptions as well as existing users who subscribe to new services

2) Upgrades or Expansion Bookings

These are made up of customers who have decided to expand their contract through upselling expansion services or upgrades

3) Renewal Bookings

This includes existing users who want renewal and are measured either when a renewal request is received or at the renewal date

4) Non-Recurring BookingsThis includes additional one-time fees for products/services like installation, training, and discounts that aren’t a part of the subscription

5) Annual Contract Value (ACV) Bookings

This is the contract value that a customer commits to pay in the first year of a multi-year contract. These ensure a minimum of one year of revenue

6) Total Contract Value (TCV) Bookings

This is the total amount of money the user pays over a multi-year contract.

Why are SaaS Bookings Important?

We already know that SaaS bookings primarily indicate the future revenue growth of the business. Below we’ve listed why bookings in SaaS play a vital role-

1) Derive Insights

You can determine which prospects are most likely to buy into what plan using your customer acquisition and renewal rates. You might also want to use this information to determine who was responsible for winning over new customers — maybe they were able to get an upgrade on their product.

2) Evaluate Sales Success

One of the best ways to evaluate sales success is looking at sales booking data. This metric estimates how much revenue your company has earned, including non-recurring bookings, and it's crucial because MRR doesn't count for these types of charges.

3) Convert Bookings into Recognized Revenue

Improving the effectiveness of your sales bookings and the product delivery is vital for converting them into recognized revenue.

If you find that bookings are high, but revenue recognition rates are low, it could point to an inefficient system that needs improvement or reevaluation entirely.

4) Important Metric for Finance Teams

Bookings prove to be a vital metric for CFOs and finance teams. It helps plan cash outflows and inflows and report bookings as committed money without recording them officially on your revenue stream. This leads to a more accurate calculation of MRR and ARR.

What are Billings?

Billings are an essential metric for any business to track as they are the closest relation to cash flow out of the three metrics.

In layman's terms, it refers when you receive the money from your customers/subscribers. This can happen over a certain period, like- at the time of booking if customers pay in advance, or at the time of revenue recognition if customers pay you in arrears.

Billings are an excellent measure of the health of your SaaS business, because they represent the money that’s owed to you. Using the example shown above, User A is billed for $600 every month in our data set, and this is their billing value.

What is Revenue?

Revenue is the income you earn when your service is delivered successfully to your customers. According to GAAP rules, revenue can only be fully recognized when the customer has received the benefits of what they paid for; it will only happen once it has been 'earned'.

In the case of SaaS, one's core operation is to deliver cloud-based services according to contracts and SLAs.

Compared with bookings which (in a specified period) refer to total value signed over time, revenue guarantees the materialization of specific items based on the client’s demands and contract.

Revenue is a 'gold standard' metric, and investors will look at your revenue when deciding whether to invest in you.

Deferred Revenue Vs Recognized Revenue

1) Recognized Revenue

Recognized revenue is the amount of money you have received from your customers after they've made bookings, and those bookings have been fulfilled according to the contract.

According to GAAP, revenue can only be recognized if the services have been delivered. It can be recognized at once or gradually depending on payment terms.

For instance, a $200payment billed monthly would be recognized entirely within that month, whereas a $2000 payment billed annually would be recognized at a rate of $166.67 each month.

2) Deferred Revenue

If you have a lot of annual billing deals, your company may be experiencing high levels of deferred revenue. This means that even though the money has already been billed and is on account for your products/services, it can’t yet be recognized because they haven't been fully served to their customers yet.

For a few transactions, it’s easy to keep track of deferred and recognized revenue manually, but as your business grows and your number of transactions grow, this can become increasingly difficult. Especially if you offer varying billing lengths.

SaaS bookings Vs billings Vs revenue: Key differences

There are three critical differences between bookings, billings, and revenue for SaaS businesses:

1) Different Portions of Income in Every Period

In SaaS companies, there is a specified period between the contract being signed, the invoice being generated, and the service being delivered.

Thus, although SaaS bookings, billings and revenue sum up to be of the same value by the end of the contract, they might record different amounts each month.

2) Recorded Differently in Financial Statements

there are three vital financial statements- the profits & loss statement, the balance sheet and the cash flow statement. SaaS bookings, billings and revenue affect each of the above statements in different ways:

3) Play Different Roles in Financial Modeling

Bookings and revenue are the foundation of any financial model. Financial models shows how much money you can expect to make in each period based on your current bookings and contracts that haven't yet been signed. It is best to correctly include both in your financial model to understand revenue growth over a long period.

Contrarily, billings are not a part of revenue projection; however, they form a basis of the cash flow projection. You can easily predict when you might receive payments for all your bookings about your billing schedule.

Reporting Bookings, Billings and Revenue

After thoroughly understanding these terms, it's also essential to learn how they are reported in SaaS Accounting.

Bookings don't impact financial or income statements directly because, as mentioned earlier, bookings are not a standard GAAP term but might encourage sales, cash flow and overall business performance.

Billings, on the contrary, affect the balance sheet, which includes deferred revenue, cash balance and accounts receivable, and the income statement, which provides for recognizing revenue over some time.

The revenue recognition standard covered by ASC 606 (GAAP Framework) applies to all sectors and industries. It can be a little more complicated in the SaaS world because of recurring business models. Still, the primary principles remain constant - you only need to understand how your company operates.

Metric Vs Reality

When evaluating data on a multi-year basis, the reality can differ from projected figures. This is because there are many complexities involved in understanding how things work and why one thing happens while another doesn't. This means that businesses need to keep it simple.

They should do this by being consistent and transparent with their reporting practices or else face difficulty explaining these differences between expected outcomes/projections versus actual performance.

When business owners report metrics like bookings, billings, and revenue, they should consider accessing data in the long term to make sure that these numbers are accurately disclosed. It’s also vital to keep in mind, that sometimes more reporting just for the sake of it can also be detrimental.

Clarity and conciseness play an essential role when communicating with investors or other external parties about financial reports.

The more explanation there is on what was reported versus how stated beforehand - without unnecessary details, the less are the chances of inquiries on the validity of financial reports.

Simplifying Revenue Recognition

This guide highlights the benefits of regularly tracking SaaS Metrics —bookings, billings and revenue.

Recurring Billing is the heart of every SaaS business and requires efficient revenue recognition. So, if you find it a big chore to keep track of all your bookings, billings and revenue, you should consider using Billsby!

Billsby is an easy to integrate subscription billing software that helps manage recurring billing and ascertains globally compliant revenue recognition. With Billsby, you'll have accurate financial metrics that'll allow you to focus on expanding your business.

FAQs

1) How to calculate ACV?

The standard formula for calculating Annual Contract Value (ACV) for a single account is- ACV = Total contract value ÷ Number of years.

For instance, if Customer X signs a three-year annual subscription contract with the contract's total value being $1500, the ACV calculation will be: ACV = $1500 ÷ 3 = $500

2) What is the Difference Between Revenue and Income?

Revenue refers to the total amount of income generated by the sale of the company's primary operations. Income refers to the company's total earnings or profit.

Source- Bookings, Billings, and Revenue | SaaS Metrics

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The Advanced Guide to Reducing Customer Churn

Nobody desires to have lost customers, lost revenue, and negative results for their business. However, customer churn is one of the most significant aspects of evaluating a growing business.

No matter we can’t deny that it is impossible to retain 100% of the customers, we can undoubtedly analyze and reduce customer churn rate significantly.

As it’s easier to retain an existing customer than to make a new one - understanding, preventing, predicting, and reducing customer churn is vital for your business's long-term success.

Below is a practical, advanced guide to assist you with a smarter way to reduce customer churn and increase customer loyalty.

What is Customer Churn?

1) Customer Percentage

It’s called customer churn and evaluates the number of customers you’ve lost in a given period.

2) Revenue Percentage

It’s called revenue churn and evaluates the money you’ve lost in a given period. Along with measuring the funds lost due to customers leaving you, it also includes money lost due to customers who downgraded their subscription plans.

In accordance with these two types of losses, churn can be further classified in several ways:

1)Customer churn and revenue churn

2)Voluntary and involuntary churn

3)Negative churn.

Importance of Reducing Customer Churn

Wondering why it’s so important to calculate the customer churn rate? Well, it is because it costs so much more to procure new customers as compared to retaining the already existing ones. Therefore, it is inevitable not to have churn, although taking action is a must!

Factually, an increase in customer retention automatically boosts profit up to 25% because the customers who return are likely to spend 67% more on the products or services of the company. This helps the organization to spend less money on operational costs.

Causes of Customer Churn

Comprehending why your customers churn is essential to efficiently plan your strategies for reducing customer churn. There can be multiple reasons why your churn rate is high; however, a few leading causes are as follows:

1)Bad experience / Poor Onboarding

The onboarding process is crucial in using your product. Training materials, video tutorials, and documentation all play an integral role in helping new customers get used to what it takes to start having fun with the features offered by your company's products or services.

However, not giving enough importance to onboarding can result in customers abandoning the products/services, which in turn leads to churn.

2)Service is not up to the Scratch

High customer churn can also indicate poor customer service. In addition, unhappy customers can take their grudges to social media, spreading negative word of mouth for the business.

Thus, good customer service shouldn’t be limited to new customers — the existing ones deserve excellent service too!

3)Inconsistent Value Proposition

Sometimes, customers do not get what they expected or were promised in the first place. Reassessing your messaging and packaging consistently is crucial so that the users don’t misinterpret your business’s value proposition.

4)Seasonal Market

There are several reasons why seasonal markets can affect your customer churn rate. For instance, if you own a Halloween store and see high volumes coming up to the holiday with low

5) Conversions Afterward

It might make sense for one year-over-year metric instead of monthly ones to find out what is going on? This way, you’ll know whether your efforts successfully combat clientele loss due to changing needs throughout.

6) Immense Competition

To stay ahead of the competition, you need a strategy that will provide features and functions your customers want. This means constantly evaluating what you are offering them compared to other companies on your level—not just at first but throughout all customer journey stages.

7) Involuntary Churn

There are several reasons why customers may cancel their subscriptions. One cause is an expired card, which can lead to the customer’s payment attempt failing and result in them being unable to pay money at the time of purchase; this would be called “involuntary churn."

Reasons for Involuntary Churn:

2)Hard declines occur when a card is reported lost or stolen

3)Soft declines happen when a credit card has maxed out its limit

4)Banks can also decline the card due to suspected fraudulent activity, frozen accounts, etc

Customer Churn Analysis and Measurement

Churn analysis can be a fantastic way to measure the success of your business. With each customer who churns, there are usually early indicators that can uncover with churn measurement, and there are several methods of analysis to choose from:

1) Cohort Analysis

One of the best ways to get a deep understanding of your customers is by grouping them based on their shared characteristics. You can use this insight for many different purposes to gain valuable insights like-

Age of the Customer

Month of Purchase

Acquisition Source such as affiliate, organic, paid, etc.

2) Customer Behavior Analysis

You can use different metrics to see how customers interact with your product or service. Some of the most common things SaaS businesses look into are:

Features being used

In-app actions

Engagement score

Patterns

How to Predict Customer Churn?

Once you have a holistic view of your customer's experience history with the brand, combine it with operational data such as repeat visits or credit card usage to identify key drivers that lead customers towards churn.

To calculate your monthly customer churn rate, divide the number of customers lost during a given time interval by active users at the beginning. For example, if you got 1000 new clients and 50 disappeared last month, then it would be 5%.

Effective Strategies to Reduce Customer Churn

Churn reduction is an elaborated process that requires a deep understanding of your customer base and their changing needs. With an established analysis process, you’ve already learned half of what knowledge is required; next up are a few practical strategies that will help you alleviate churn:

1) Focus on Customer Engagement

Engaging customers is one of the critical steps to retaining them. You can create value for them through features or functionality that will make it difficult for them not to use what you offer.

2) Establish an Excellent Onboarding Experience

If you want to retain users, they must know how to use the product. That's where onboarding comes in - provide them with all of their training material and tutorials so that more people can find value from using your app or website and retain it for an extended period of time.

3) Proactive Approach

Shortlist high-risk customers that are likely to churn by tracking the principal indicators(as discussed above) for leaving.

You can provide them with special discounts or fascinating coupons so they can continue with your services. In addition, try proactive measures like flexible payment terms. It's important because it prevents future clients from becoming unhappy.

4) Focus on High-Value Customers

High-value customers are the backbone of your business. They represent a significant portion, if not all, revenue in your business, and it's essential to hold on as long term as possible.

A good CRM tool can give insights into what’s happening at each stage with these important clients. There isn't anything left unanswered; using this information can help eventually turn those profit centers into loyal patrons who keep coming back again without hesitation.

5) Strengthen Customer Support

This is a no-brainer, right? Invest in quality customer support and focus on delivering great experiences for your customers. There are many ways to increase customer satisfaction and loyalty.

One of the best methods is investing in a world-class support team that can provide outstanding service, which makes customers feel valued as well which helps to reduce customer churn rates as well as the likelihood that they will recommend this product or service to one another – meaning lower acquisition costs across all levels. Neat idea indeed!

6) Improve Consistency

Making it hard for your customers to leave is a surefire way of retaining more users. One good example would be developing new features that keep people around and answering their evolving needs with constant updates on the product, which will increase retention rates in due course!

7) Acknowledge Complaints and Feedback

Listening to your customers’ complaints or feedback is one of the best ways to reduce customer churn.

Ultimately, your customers are the best resource you have to create a product that will satisfy them—listening closely and helping out when necessary is one way of showing gratitude for their loyalty while also reducing customer churn rate.

8) Nail the Subscription Analysis

This is an essential aspect as investing in subscription analytics is like having an inside edge on how your customers are feeling, what they want from you and when to course-correct.

9) Provide Annual Contracts

Your customers are more likely to stay with you if they only have one bill each year, not monthly. With annual subscriptions, there is no need for them to worry about canceling at the wrong time of their choice since it's already pre-paid and charged off when necessary!

A great way in reducing customer churn rate within your company would be by adopting an installment plan instead; this ensures payment failures occur less, simply because we're making sure users know exactly how much everything costs before getting started, which also helps build trust among those who might churn.

10) Execute Smart Dunning Workflow

Dunning workflows are crucial for reducing the amount of lost revenue, but they need to be innovative. For example, you don't want your emails being blocked by a customer who is irritated enough that he's going straight into blocking mode! Thus, a proactive approach is a must!

What Can You Learn from Customer Churn?

Sometimes, no matter how good your product or service is for customers- they still choose to leave you. That’s out of your control but what you can do is find what went wrong so that others don't have this same experience as well!

There are two ways you can do this

1) Exit interviews

You can use exit interviews to potentially reduce customer churn or to find out why your customers are leaving. For example, you might hold the interview over the phone or via online questionnaires.

2) Feedback loops

You can use feedback loops to reduce churn rates surveying your customers. This is because you’re asking for their opinion on what needs improvement and then making changes based on this information, which will make them love the product even more!

What Billsby can Help you Achieve

Our drop-in checkout enables customers to sign up for your product easily & quickly, with a low development effort.

2) Self-service account management

Users can manage their own account with our drop-in account management tools — efficiently reducing service costs.

3) Keep customers from leaving

When your users think about leaving, our retention and promotion tools can stop them and help reduce customer churn.

Conclusion

Interested in reducing customer churn? You're not alone. This is a significant metric to track for small and large companies alike - it's the difference between success and failure! The first step towards a successful strategy for reducing your company’s rate of turnover comes from slicing up our information on who was leaving as well as how their exit occurred.

Thus, having a customer-centric and powerful analytical tool like Billsby makes churn reduction easier and more effective!

Source- The Advanced Guide to Reducing Customer Churn

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Customer Lifetime Value — An important SaaS Metric

What keeps a customer coming back and contributing to your revenue growth? Firstly, it's essential that your customers are satisfied with your product or service. Product satisfaction is crucial when it comes to retaining your high-value customers for extended periods of time.

But how do you figure out who is REALLY contributing to your business's higher revenue growth? Well, that's where one of the most important SaaS metrics comes into play — Customer Lifetime Value(CLV).

Read more to learn about CLV and why it can't be ignored.

Table of Contents

1. What is Customer Lifetime Value?

2. Why is Customer Lifetime Value Important? Why does it matter?

3. Types of Customer Lifetime Value

4. How to calculate Customer Lifetime Value

5. Customer Lifetime Value formula

6. Customer Lifetime Value example

7. 8 Ways to increase Customer Lifetime Value

8. Customer Lifetime Value statistics

9. Conclusion — Track, calculate and improve Customer Lifetime Value with Billsby

What is Customer Lifetime Value?

Customer Lifetime Value (CLV) measures how valuable your customers are to you, not just on an individual purchase-by-purchase basis but throughout their entire relationship with your company.

It's a valuable statistic as it considers all previous purchases and interactions that lead them towards becoming loyal consumers.

This guide provides insights about calculating customer lifecycle values, the factors that affect them and other helpful information for entrepreneurs looking to grow their companies.

Why is Customer Lifetime Value Important? Why does it matter?

CLV is a great way to measure the success of your customer acquisition efforts. It will help you guide strategies like retention, critical marketing, sales, cross-selling and upselling for your subscription business so that these initiatives are more successful for both customers and distributors.

Below are a few key reasons emphasizing the importance of customer lifetime value:

1) Improves customer retention

One of the most critical factors in addressing customer lifetime value is improving retention rates and avoiding attrition.

Tracking these details can help you identify your best customers, so that they are not lost to other competitors, but also to help you determine what's working well for them and use those insights as guidance.

2) Helps in making better decisions on customer acquisition costs(CAC)

When you know how much money an existing customer can generate, it makes the decision on CAC clearer. The average SaaS company spends 5 to 7 times more on acquiring customers than they would spend on retaining existing ones.

To ensure profitability for SaaS business, a guideline states - CLV > 3x CAC, i.e., the cost of acquiring a customer, should be considerably lower than what you can make from them in their lifetime. It may seem elementary, but if this maths is missed out on, your SaaS business could struggle financially over time.

3) Drive repeat sales

Customer lifetime value analysis is a great way to strategize how you can increase repeat business.

By tracking the average number of visits per year or over their lifetime, SaaS businesses and other companies will be able to see what strategies work best for them to retain current customers whilst also attracting new ones.

4) A better understanding of customer behaviour

By dividing customer data into different segments, you can identify which groups of customers are most likely to churn or become unhappy and then take steps accordingly.

In addition, by using lookalike modeling businesses may be able to acquire new clients who share similar needs as their current ones.

5) Improved forecasting

Forward-looking decisions around inventory, staffing and production capacity can be challenging without a customer lifetime value forecast.

Without the right data, it's easy to either spend more than you should, or underspend and then put yourself in a dangerous bind where the demand outstrips your ability for supply or vice versa.

With average customer lifetime value, all of this will become much easier as soon as you consider how many units are ready now vs expected later.

Types of Customer Lifetime Value

CLV can be further divided into the following types:

1) Historical Customer Lifetime Value

Historical CLV measures a customer's lifetime value based on how much money they've spent with a company in the past. Historical CLV can be calculated in two ways: using the average revenue per user (ARPU) or using cohort analysis.

Customer habits, fluctuations, and preferences are not considered while calculating CLV historically.

2) Predictive Customer Lifetime Value

The predictive CLV model is more complex than the historical model. Predictive CLV employs artificial intelligence and machine learning to estimate future customer lifetime and revenue based on past customer behaviour and predicted retention.

This model, by definition, considers customer trends and behaviours throughout a customer's lifetime.

How to Calculate Customer Lifetime Value

Begin by determining the average sale value. If you've only been tracking this data for a short time, consider using a one- or three-month period as a proxy for the entire year.

2) Measure the average number of transactions per period

The frequency of visits is fundamental to driving customer lifetime value.

For instance, coffee shops and car dealerships have different needs regarding frequency, as customers may come in several times weekly at the former but only once every few years or so if they visit your dealership instead.

3) Examine your customer retention

Brand loyalty can be a measure of how long your customers stay with you. Therefore, it is important to measure customer retention to know how long the average person sticks with your brand.

Some brands, like technology and car companies, have lifelong loyalty. In contrast, others may only experience it for a shorter period of time due to their product or service being less expensive than other options available in the market, such as gas stations/retail chains.

4) Calculate Customer Lifetime Value

The CLV calculation uses all of the figures you’ve identified above in a handy formula that’s discussed in the next section of this guide. Customer Lifetime Value Formula

Now that we are aware of the CLV metric, let's see how to calculate it-

Here is the formula for lifetime value of a customer-

CLV = Average Transaction Size x Number of Transactions x Retention Period

There’s a plethora of ways you can grow your customer's lifetime value,but every move has consequences. For example- if the price goes up, it may improve average transaction size but could push customers to shop less often or look for lower-cost alternatives.

Customer Lifetime Value Example

For instance, let’s create a hypothetical organisation and calculate the lifetime value of a customer.

The average sale for the clothing retailer, Alena, is $60, and the average customer shops with them three times per year for two years. The lifetime value of this customer is measured as follows:Lifetime Value = $60 × 3 × 2 = $360

After measuring the cost of goods sold (COGS), overhead, marketing, and all other administrative expenses, Alena’s profit margin is 20%.

Customer Lifetime Value = $60 × 3 × 2 × 20% = $360 × 20% = $72

This calculation reveals that the customer lifetime value of the average Alena customer is $72 — much less than the lifetime value calculated above. As a retailer, this number is the most critical metric to monitor because it helps them understand how many customers they need in order to reach their desired profits.

8 ways to increase Customer Lifetime Value

There are numerous strategies that businesses can use to increase their CLV. Here are 8 ideas to consider if you want to increase revenue from your customers:

1) Programs for customer loyalty or rewards

Customer loyalty programmers keep customers interested and encourage repeat purchases. Popular examples include airline frequent flyer programmers and restaurant punch cards.

In addition, incentives for returning customers can increase purchase frequency and the length of time a customer spends with a brand.

2) Enhance Customer Onboarding

Some customers purchase a product or service from a company and are unsure what to do next. This frustration can cause them to leave early.

Successful businesses chart a course for their customer relationships. In many industries, converting a one-time customer into a source of recurring revenue is critical for growth.

3) Customer Service and Experience

The customer experience includes your initial website, storefront, call centre, and other touchpoints. Customers are more likely to return for repeat business if they have a pleasant, low stress experience every time.

4) Customer engagement

Businesses that actively monitor all interactions with their customers can identify ways to improve the customer experience and customer loyalty. This should include channels such as advertising, customer service, and sales.

5) Customer feedback loop

It is important not to dismiss a negative consumer experience. Businesses should collect consumer feedback, good or bad, on a frequent basis to improve the customer experience, rather than relying on customer service to handle problems.

Regular iterations and fixes to a product or service can assist in resolving faults and increasing client happiness.

6) Cross-sell and upsell

Retaining or upselling an existing customer is typically easier than acquiring a new one. Upselling and cross-selling are marketing methods that urge customers to purchase more expensive or more products or services at once rather than a cheaper one.

7) Increase pricing

A price increase can directly raise customer lifetime value when done appropriately. You need to be careful not to scare customers away with drastic price rises.

When choosing your own price, keep rival pricing in mind. You might be able to increase pricing without losing clients if you focus on value and provide customers with something they can't get anywhere else.

8) Targeted Content

Content marketing is a method for educating or entertaining your target audience with the goal of increasing brand trust and loyalty.

Blog posts, e-books, videos, podcasts, and other focused content that can speak to certain portions of your audience are all popular content marketing strategies.

Customer Lifetime Value Statistics

2) It costs 5-25 times more to acquire a new customer than it does to keep an existing one.

3) Converting an existing customer has a 60-70% chance of being successful.

4) On average, existing consumers spend 67% more than new customers.

5) Customer Lifetime Value is viewed as an important metric by 76% of businesses.

Conclusion — Track, calculate and improve Customer Lifetime Value with Billsby

Our subscription billing software, Billsby, has sophisticated analytical capabilities that can provide various customer value statistics, removing the need to cobble together metrics with a spreadsheet manually.

Billsby provides dashboards and tools to calculate CLV instantly, including the option to slice up the data by segment.

In addition, Billsby offers CRM and e-commerce systems that can track all the data needed for multi-channel businesses to calculate CLV and understand how it changes over time. These systems are all part of a unified platform that presents a central source of information for the entire organisation without the need for third-party integrations.

Source- Customer Lifetime Value — An important SaaS Metric

[billsby23]

A complete guide to sales forecasting

Sales forecasting is a cornerstone of any company's success, but when done wrong, sales Forecast mistakes can cost companies billions of dollars.

A recent study found that most sales forecasts are less than 75% accurate. The consequences? They are missing their goal, hiring based on inaccurate predictions and inadequate budgeting resources for growth opportunities.

To ensure you don't make these mistakes when producing a sales forecast, we've compiled an extensive guide for creating an accurate (and trusted) forecast.

What's in this guide?

1. What is sales forecasting?

2. Why is sales forecasting important?

3. Who is responsible for sales forecasting?

4. Objectives of sales forecasting

5. Why does accurate sales forecasting matter?

6. Sales forecasting best practices for maximizing accuracy

7. Key sales forecasting challenges

8. Key sales forecasting metrics

9. Key takeaways

1. What is sales forecasting?

Sales forecasting is the technique of projecting how much income a firm, team, or individual will make within a given timeframe. The ability to reliably estimate revenue is vital for an organization to future-proof its strategic vision and operate day-to-day operations.

The difficulty in forecasting sales varies depending on the size and age of a business. Established businesses typically have more data from which to base their forecasts.

In contrast, newer ones will need other forms of market research as well as competitive benchmarks for an initial estimate until they can get accurate sales forecast numbers to establish a baseline.

2. Why is sales forecasting important?

Forecasts are predictions. Sales forecasts assist you in identifying potential sales issues early enough to avert or manage them. This is why it’s critical for a business to develop a reliable sales forecast.

When corporate leaders can trust forecasts, privately-held organizations gain confidence in their operations. Correct sales forecasts also give publicly listed companies credibility in the market.

Forecasting sales brings endless value to a company. These forecasts are used by finance to create budgets for capacity plans and employment, but the benefits don’t stop there.

Both sales and production also use sales forecasts to organize their cycles, making sure working patterns meet predicted demand.

Forecasts aid sales operations in territory and quota planning, the supply chain in material procurement and capacity planning, and a sales strategy. For instance, if you see your team is ranking 30% below quota, you can spot what's going wrong and course correct.

3. Who is responsible for sales forecasting?

Multiple teams are responsible for the sales forecast. Here are some examples of the teams that are responsible and why:

1. Product leaders

They lay the groundwork for when and what products will be offered for sale

2. Sales executives

They promise their people the statistics they will achieve. The way a leaforecasts sales differs depending on their level of seniority. First-line managers, for example, forecast collections of opportunities, whereas third-line managers make an overall projection based on a larger quantity of figures and typical closing rates.

**3. Sales reps **

They are responsible for reporting their numbers to their bosses. Regardless of how it is done, calculating sales predictions should be transparent and sales reps are the first drivers of sales. Whether met, surpassed, or missed, they are responsible for the sale forecast.

4. Objectives of sales forecasting

Sales forecasting's principal goal is to provide an accurate picture of predicted sales. Sales teams strive to meet or surpass their pre-determined goals. Aside from accuracy, sales teams believe that their projections will help them achieve two simple goals: seamless internal and external operations.

1. Internal operations:

When the sales forecast is met, internal friction – concerning all things revenue funds – dissipates. Cutting the workforce, lowering assistance, or suspending product development are all trade-offs and sacrifices that don't need to be made.

2. External operations:

Every business strives to satisfy its consumers and partners. Your company may continue supporting external marketing events, staffing adequate customer service touchpoints, investing in its community, and more after expectations are reached and internal operations are running smoothly.

5. Why does accurate sales forecasting matter?

1. A sales forecast helps businesses make better decisions. It aids in a company's overall planning, budgeting, and risk management.

2. Sales forecasts assist sales teams in achieving their objectives by detecting early warning signs in their sales funnel. It allows them to course-correct before it's too late.

3. Sales forecasting also aids firms in precisely estimating their costs and income, allowing them to foresee their short-term and long-term success.

4. Improvements in future decision-making

5. Time spent planning territorial coverage and assigning quotas is reduced.

6. Benchmarks that can be used to predict future trends

7. Gives a company the ability to focus a sales force on high-profit, high-revenue sales pipeline possibilities, resulting in increased revenue and profits.

6. Sales forecasting best practices for maximizing accuracy

Adopting sales forecasting is vital to a company's success, so it’s important that sales forecasts are accurate. Here are a few tips to help you enhance the accuracy of your forecasts:

1. Assess historical trends

Sales performance in the past is a good predictor of future sales performance. It’s vital to examine the prior year's sales.

This includes price, product, rep, sales time, and other all other pertinent variables that should be considered while analyzing past data.

By looking at past data you can create a "sales run rate," which estimates the number of sales in each sales period. This will serve as the foundation for your sales forecast.

Historical conversion rates indicate how many prospects, teams, or individuals were able to convert during a specific period.

For instance, if you want to accomplish 50 deals this year and your sales team closes 20% of deals with leads who have gone through a product demo, and 10% with leads who agree to sign up for a demo, you'll need to produce 2500 leads. (2500 x 20% x 10% = 50 deals).

This means, based on historical data, you may enhance the accuracy of your sales forecasts by examining the deals in your pipeline and the performance of your sales reps.

2. Document your sales process

The key to closing more deals is simple - have a defined sales process. You won't be able to forecast if contracts are affected by an inefficient sales process.

You should have a well-documented sales process that outlines the actions and procedures involved in closing a deal.

Your documented sales process should define how to qualify a lead, an opportunity, a prospect, and a close. It should outline the steps in the sales process that can be employed when converting a pointer to a customer.

If these standards aren't shared, each team member will perceive each stage of the sales process differently. This will result in inconsistencies in your data, affecting your ability to anticipate the likelihood of a deal closing.

3. Improve your CRM- Since you can alter your pipeline estimations based on lead confidence, a sales forecasting CRM helps sales teams predict future revenue growth more precisely.

It also aids in the streamlining of the sales process by providing detailed information on the team's productivity, success rate, and sales bottlenecks.

It’s important to ensure that your CRM is integrated with your financial system to boost the efficiency of your sales agents.

It will provide sales professionals with contextualized information about their consumers, resulting in smoother processes and stronger customer relationships.

4. Choose a sales forecasting method

As a business owner, you must ensure that your sales process and CRM are in place before choosing the forecasting method.

The model type will depend on the maturity of your company and what size team is currently working for it, along with their current pipeline information- all these helps factor into the decision about which sales forecasting techniques would work best!

5. Examine the external and internal factors

Several external elements, such as changing economic conditions, market competition, and the firm's seasonality, must be considered when preparing your annual forecast. As a result, you should never complete sales forecasting at the start of the year.

Unpredictable occurrences like worldwide pandemics and economic crises can completely change your prediction; therefore, in a dynamic situation, it's best to re-forecast at the end of each quarter and track progress daily.

In addition to external considerations, internal factors such as expanding your sales force, changing your pricing strategy, implementing a promotional campaign, and launching new products must be factored into your forecasts.

7. Key sales forecasting challenges

2. Usability

3. Subjectivity

4. Inefficiency

8.Key sales forecasting metrics

Sales quotas may seem like a blunt instrument, but they can be an efficient way of measuring performance. When individuals and teams meet their monthly or annual target,

it helps the company achieve its overall revenue goal by rolling up all individual accomplishments into one number calculated using your experience level with products in regions you serve, and how many users interact per month on average.

2. Attainment

This is a key parameter that measures how many agreements were closed against the quota. It must be monitored daily to ensure that the sales staff is continuously closing agreements throughout the quarter and that there is no last-minute scrambling to meet targets at the end.

3. Pipeline coverage

Pipeline coverage measures how much buffer you have in your sales pipeline to achieve your goals.

4. Sales activity data

Sales activity data is essential to understanding how your business operates. It provides insight into what's happening with prospects and customers, which can help you make better decisions for plans or goals that will affect the success rate in closing deals with these individuals.

9. Key Takeaways

1.Sales forecasting is an informed prediction on future sales income that combines historical data, market influences and common sense to project a company's monthly, quarterly, and annual sales totals.

2.The sales forecast should be viewed as an operational plan rather than a hard prediction by your team.

3.Determine the length of your overall sales cycle and conversion rate before attempting to develop a sales forecast prediction.

4.You can create various types of forecasts for your company, test.

Billsby is uniquely configured to improve sales forecasting by putting all your relevant advanced reports under one platform!

Source- A complete guide to sales forecasting

[billsby23]

How the subscription model can be used in the insurance industry

As the size of the subscription economy market continues to boom, we’re starting to see more and more industries embrace the concept of subscription services.

Subscription models are no longer being seen as a solution solely targeted at SaaS based products or traditional subscription services such as gym memberships and magazine subscriptions, but as a recurring billing solution suitable for any industry.

In recent years, luxury car manufacturers have been switching up their traditional business models by adding subscription-based options.

Volvo, for example, launched a subscription service to its full range of vehicles back in September 2020, promising it to be more flexible than any traditional car payment plan. The car subscription market is now set to grow by 71% in 2022 as more companies adopt the subscription model.

Seeing other industries experience success when adopting subscription models, has made subscription billing a hot topic of conversation in the insurance industry.

The COVID-19 pandemic has also accelerated discussions about subscription models in the insurance industry, by revealing that insurers should be interacting with customers more effectively, and insurance products should be flexible and adjustable to reflect the ‘new normal.

Furthermore, the pandemic has heightened customer interest in new and more personalized protections, especially associated with big life events.

Research has shown that 51% of US consumers aged 35-49 are interested in insurance-based subscription billing, more specifically associated with life events such as marriage, having children, etc. Similarly, the study found that 55% of UK consumers aged 35-54 were also interested in the adoption of subscription-based insurance products and policies.

Subscriptions have become an integral component of our daily lives, changing the way we consume media and purchase goods.

The remainder of this blog will dig into what an insurance subscription should look like, the benefits of subscription models being adopted in the insurance industry, and the considerations and concerns of introducing subscription billing to insurance products.

What an Insurance Subscription Looks Like

Traditionally, insurance products are billed on a lump-sum basis for pre-defined cover that's all rolled into one package.

These packages typically auto-renew on an annual basis, only giving customers the option to easily switch providers and policies when their current protection is up for renewal.

Monthly billing is also a common option amongst insurance products but is seen as a payment plan rather than a rolling insurance contract, with most underlying policies still being annually focused.

Subscription-based insurance products would instead be able to offer ongoing coverage billed and structured around a pre-defined cycle. For example, insurers could bill customers monthly for insurance products that are then only valid in months where payment is collected.

This gives both insurers and customers flexibility in deciding when cover is activated by pausing and resuming the subscription, a feature supported by most subscription billing software solutions.

Current insurance products also offer limited choices in terms of coverage packages and add-ons. Customers tend to need to either upgrade their entire package or take out an additional package, in order to include insurance for things such as extreme sports or extra family members.

More than just offering shorter, recurring billing that’s linked to the same cycle the insurance coverage is linked to, subscriptions are designed on highly intuitive digital experiences that facilitate on-demand product amendments.

This means both insurers and customers are able to turn coverage off and on or add additional coverage to their current package at the touch of a button.

This offers multiple benefits, such as adding or removing family members from a personal policy, expanding coverage to additional locations in a commercial policy, or including coverage for extreme activities on a travel policy.

Most subscription billing software can facilitate all of these policy changes through advanced billing options like add-ons, unit pricing, and usage billing.

Some, like Billsby, even support mid-cycle changes with pro-rated charges, giving the customer more flexibility but also making sure the insurer isn’t missing out on the additional revenue.

Limited communication and lengthy, confusing policy descriptions have always been common amongst insurance providers.

Communication is usually only facilitated during quote generation, policy agreement, initial payment, and claim generation, with the experience not typically seen as an enjoyable one for customers. This has created the consumer perception of shopping for insurance being an unpleasant necessity.

Subscription billing software has expertly merged cloud-based technology and recurring billing to overcome customer communication issues and long policy documentation.

By integrating with leading CRM systems, subscription billing software has made customer communication easy and enjoyable for both the customer and the customer service agent.

Their subscription checkout and management solutions can also facilitate immediate quote generation and provide access to all policy files and documentation at the click of a button (rather than scrolling through endless old email attachments).

Benefits of Introducing Subscription Billing Software

There’s no denying that as the subscription economy grows it’s inevitable that subscription models will make their way into insurance products. The adoption of subscription-based products and billing, using subscription billing software, can have multiple benefits for customers and insurers alike.

Below we’ve outlined some of these from the perspective of the consumer and the insurer:

Consumers

1. Improved User Interface (UI) and User Experience (UX)

SaaS businesses have set the bar high when it comes to the overall customer experience. Consumers now expect a seamless transition from signup to activation, as well as an effortless way to manage their products and services.

Subscription billing software has all of the tools to provide this to customers without the need for costly and time-consuming development.

2. Flexible Billing Options

As mentioned above, insurance policies are not known for being flexible with most charging a lump sum amount for annual-based coverage, that can only be amended on the next renewal date.

Subscription billing software typically has built-in advanced billing options. These can give customers the option to add more members to a policy or add additional coverage for a trip or event without having to negotiate a new policy entirely.

3. Clearer Product Understanding

Whilst many subscription providers tend to have long contracts or terms and conditions filled with legalese similar to that of insurance policies, this is never usually the first thing customers see.

Subscription billing software offers checkout solutions that focus on the critical product information, and then provide all of the additional policy and legal documentation via links for the customer to access when they choose.

They can also store this in their subscription management solutions, which would give customers a place to access their insurance policy and claim procedure without having to scroll through endless email attachments.

Insurers

Flexible billing options not only benefit customers but also provide insurers with a quick and easy way to upsell and cross-sell additional cover.

Due to the flexibility provided by the advanced billing options found in subscription billing software, insurers will be able to promote additional coverage on current policies, or even sell extra products covering a completely different area of a customer’s life.

In most instances, these can also be advertised to customers on the automated communications that are sent to them via the subscription billing software, so they can sign up as and when they please.

2. Better Access to Customer Information

Subscription businesses are known for leveraging IoT devices to gather valuable customer information. For insurance companies, customer information is vital. It’s what determines the policies they’re offered and the price they have to pay for their desired level of coverage.

Subscription billing software can seamlessly store customer information, whilst keeping GDPR compliant. They can also use high-level customer and subscription data to produce reports on customer value, revenue, and churn.

In some instances, subscription billing software can use lifestyle and behavioral-based questionnaires to direct customers to the products most suitable to them, without the need for an in-person consultation.

Subscription billing software is known for automating everything it can, from activations to notifications and billing.

Many also integrate with third-party software solutions for additional business tasks, such as CRM and accounting, where the relevant information is sent to the third-party tool automatically.

We all know that automation saves on time, but it also saves on resources and reduces the risk of human error which can lead to costly ad hoc adjustments.

Considerations and Concerns

The road to introducing new and innovative solutions isn’t easy, especially for established businesses with complex or legacy-based products.

For some leaders in the insurance industry, the prospect of subscriptions becoming the dominant model for engaging customers and delivering their products and services engenders serious concern about opening the door to new competitors.

More specifically, this concern is related to companies in the banking or tech industry that are more established in being able to adopt flexible billing models immediately.

This being said, it’s inevitable that other industries are going to start realizing that they already have the tools to provide the subscription-based insurance policies that consumers are yearning for so this should not stunt its adoption by legacy firms.

These traditional firms can leverage subscription billing software, such as Bills, to introduce subscription-based products almost immediately.

They can even support the migration of customers previously on dated insurance policies to new subscription-based policies, reducing the risk of customers leaving for competitors.

Even though subscription-based insurance policies offer a number of benefits to consumers, not all consumers will want to move away from the traditional lump-sum policy agreements.

Although these aren’t the most flexible option, some consumers like the prospect of annually paying for pre-defined coverage and then forgetting about it until renewal.

This means a hybrid approach with subscription products as well as traditional insurance products should be the preferred method for insurance companies going forward.

Most will already have the capabilities to continue billing for their traditional products, but if they want to bill everything through the same system subscription billing software can also support annual or one-off billing for these traditional product types.

Summary/Conclusion

As subscription models become more common across industries, insurance providers would be wise to start introducing subscription-based products as soon as possible to feed consumer needs.

With Billsby, one of the leading pieces of software in subscription billing, companies can set up an account and start billing customers in a matter of minutes, so why not sign up for a free trial today!

Source- How the subscription model can be used in the insurance industry

[billsby23]

What are webhooks, and why are they necessary?

Webhooks are an incredibly useful and a resource-light way to implement event reactions. They’re an essential tool in any app's arsenal because they deliver data from one app to another, either by sending automated messages or receiving real-time updates about what's happening inside your software environments.

What are webhooks?

Webhooks are one of the methods used for web apps to communicate with one another. When a particular event occurs, it lets you move real-time data from one application to another.

Let's assume you've built an application using the Foursquare API to track people visiting your cafe. When they check-in, you want to be able to greet them by name and offer them a complimentary drink.

A webhook notifies you whenever someone checks in, allowing you to conduct any procedures in your application once this event has occurred.

The data is then delivered over the internet from the application where the event happened to the receiving application that’s responsible for processing it.

Real-life webhook Example

Just assume that you’re usingwebhooks to connect your email marketing software to other software services you have.

In one instance, you could use a webhook to connect a payment gateway with your email marketing software so that when a payment bounces, the user receives an email.

How does a webhook work?

Think of a table buzzer at a restaurant; you know when your table is ready when the buzzer goes off. Webhooks work on the same theory. Here, the table buzzer would be a third-party app that sends signals when the tablei s ready.

And the one receiving the information about the table is the 'listener'. In the digital world, the listener is the URL that gets the webhooks and executes a predetermined action, in this case activates the buzzer.

One way to get started with automated web development projects is using webhooks. You probably use them regularly without even realizing what they are.

Up to this point, you might be thinking they’re the same as APIs, however, they’re not.

An API (Application Programming Interface) allows two-way communication between software programs that are driven by requests.

With APIs a request needs to be sent, which is then followed by the response. In most cases this response is the data or action that was being requested.

Webhooks on the other hand, allow you to skip the request step in the API process by just sending the data when it’s available.

Let us discuss in more detail-

Webhooks vs API

In contrast, a webhook is an automated call made by websites on their own- triggered due to specific events happening within the website, like new content being added or edited etc.

For instance - if a new user registers on the website, the automated webhook could be set up to request the server send a welcome email.

Pulling vs Pushing

A method known as "polling" is used to obtain data from an API. This is a form of checking for new data and it involves your application sending a request to an API server to examine for new data on a regular basis, whether the data is there or not.

● A webhook enables the provider to deliver data to your application as soon as an event occurs (i.e. "push"). Webhooks are frequently referred to as "reverse APIs" because of this.

● APIs must periodically fetch data from a server to keep current, but with webhooks, the server can transmit this data to you as soon as something happens.

● Webhooks are less resource-intensive because they eliminate the need to regularly poll (check) for new data.

● To use a real-life example, APIs are equivalent to calling a business repeatedly to see whether they've restocked on a shoe brand you like. Webhooks would then be like requesting the merchant to contact you whenever the shoes are in stock, saving both parties time.

How to create a webhook?

Creating a webhook is usually a three-step process:

● Obtain the webhook URL from the application you want to transmit the data from.

● Then, in the webhook area of the application you want to receive data, paste that URL.

● Finally, select the types of events for you’dlike the app to send you notifications for.

How different apps make use of webhooks?

Discord Webhooks make it simple to send automated messages and data changes to a text channel on your server.

WordPress

WordPress Webhooks allows you to automate your WordPress site by connecting it to other technologies. It's a freemium plugin that uses webhooks to enable you to automate your WordPress site.

MailChimp

MailChimp Webhooks are for events like subscribes, unsubscribes, and profile updates.

If you send out a weekly newsletter, you'll be notified immediately when someone changes their email address, which you can then amend in your CRM system's subscribers list.

Shopify

With Shopify Webhooks, you'll be informed when a product is updated, an order is paid for, a checkout is made, or a refund is initiated.

As a result, you'll no longer have to be concerned about missing orders or failing to deliver things on schedule.

Slack

With Slack Webhooks, you can post messages from your apps into Slack with all the usual formatting and layout blocks.

Stripe

With Stripe Webhooks, you can be notified of events in your account by receiving a web notification.

These are especially useful for asynchronous actions, such as a customer’s bank confirming a payment, a dispute charge happening or a recurring subscriptions that succeed without any problems!

Conclusion

I hope this provides a comprehensive overview of webhooks. However, what I really want you to take away from this is the value they can add to your development process.

Webhooks can increase the efficiency and the ability to scale your programs.

The best approach to learning about webhooks is to use them for yourself. Why not try Billsby, to get a feel for it, by using webhooks to connect your applications!

Source- What are webhooks, and why are they necessary?

[billsby23]

Churn Rate 101: What It Is, How to Calculate It, and Understanding Its Impacts

Do you have any idea how many clients you lose each year? What about each month? Customer churn, also known-­ as customer turnover, is the number of clients you lose in a certain period.

Your churn rate can be a frightening statistic, but it's also an extremely significant one to know. Without it, you won't be able to build improvement plans to lower your turnover rate.

The task of calculating and preventing customer churn rate is challenging at first, but don't worry; we'll cover everything you need to know about churn rate in detail in this post, including:

1) What is the Churn Rate?

2) Churn Rate vs Growth Rate

3) Types of Churn

4) How Does Churn Rate Impact SaaS Metrics?

5) How to Calculate Churn Rate?

6) Customer Churn Rate Formula

7) Revenue Churn Rate Formula

8) Annual Churn Rate Formula

9) Churn Rate Examples

10) What is a Good Churn Rate?

11) Practical Strategies to Reduce Churn Rate

12) Conclusion

What is the Churn Rate?

The churn rate measures how many customers stop doing business with a company in a given period. It's most commonly expressed as the percentage of customers who discontinue their subscriptions within the given period - so if you want your clientele base to grow, you need to ensure that you're getting more new clients than those you lose!

Churn Rate Vs Growth Rate

A company's churn rate and growth rate can be calculated by comparing new customers to lost subscribers over a given time period to see if there was overall growth or loss. The churn rate is used to track lost clients, whereas the growth rate is used to track new consumers.

The business grows if the growth rate is larger than the churn rate. Conversely, when the churn rate is larger than the pace of growth, the company's client base shrinks.

For example, if a corporation gained 90 new subscribers in one quarter but lost 110, the net loss would be 20. This is because the corporation did not increase this quarter but lost money.

A company needs to ascertain that its growth rate exceeds its churn rate; otherwise, revenues and earnings will decline, and the company will eventually be forced to close.

Types of Churn

Voluntary churn results from a conscious decision by your customer to cancel their subscription with you. They have found that the subscription is no longer necessary for them, or they've chosen to switch over to another service or even your competitors' products.

2) Involuntary churn

One cause of subscription cancellation can be an expired card. This can lead to the customer's payment attempt failing and result in them being unable to pay for their product or service at that moment. This is known as involuntary churn when their subscription is canceled as a result of this.

Reasons for Involuntary Churn:

2.) Hard declines that occur when a card is reported lost or stolen

3.) Soft declines that happen when a credit card has maxed out its limit

4.) Banks can also decline the card due to suspected fraudulent activity or frozen accounts

Causes for involuntary churn:

2) Customer service that's not up to scratch

3)Attracting the wrong customers

How Does Churn Rate Impact SaaS Metrics?

Your churn rate directly reflects the product's value and features you're delivering to customers. With Billsby's exit reasons report, you can learn why your customers are churning.

In addition, Billsby allows SaaS enterprises to view different churn reasons and the income impact over time, giving your team real-time insight into how to improve retention.

To lower the customer churn rate, your organization should constantly optimize your service. Furthermore, customer churn has a direct impact on the company's financial metrics, such as Monthly recurring revenue(MRR), Lifetime Value(LTV), and customer acquisition cost(CAC).

How to Calculate Customer Churn Rate?

To measure the percentage of churned revenue, first, take the monthly recurring revenue (MRR) at the start of the month and divide it by the MRR lost from customers leaving within the month — subtracting any upgrades or additional income from existing customers.

You don't need to count any new sales in the month since you're trying to figure out how much total revenue you lost.

For example, if Company ADG had 500 customers at the beginning of the month and only 450 customers at the end of the month, its customer churn rate would be 10%.

Customer Churn Rate Formula-

Revenue churn rate formula

To measure the percentage of churned revenue, first, take the monthly recurring revenue (MRR)at the start of that month and subtract MRR at the end of that month (minus all the upgrades during the month) and divide it by the MRR from the start of the month again.

You don't need to count any new sales in the month since you're trying to figure out how much total revenue you lost. You have gained revenue by generating new revenue from existing clients.

Annual churn rate formula

In the case of an annual plan, you can use the same formula(s) as above but just look at the figures over the year rather than a single month. Again, this logic applies to any given period you need to work out your churn rate for.

Churn rate examples

Many SaaS companies, particularly those in the B2C industry, make their churn rates public in order to demonstrate how successful they are at retaining clients.

You can use these examples to help you understand your personal churn rate, what it should look like for your company, and where other well-known organizations fall on the spectrum.

1) Spotify Churn Rate

Spotify is a prominent music streaming service with an extensive song library and tailored recommendations. It has a 4.8 percent reported churn rate.

2) Disney Plus Churn Rate

Disney has long resisted partnering with rival streaming services, opting to develop its own platform for distributing its content online. Users flocked to Disney+ when it launched in 2019, and very few have left. It's no wonder, then, that Disney+ has a low monthly churn rate of 4.3 percent.

3) Netflix Churn Rate-

In the video streaming sector, Netflix boasts one of the lowest churn rates. It has a low monthly churn rate of 2.5 percent, which means that over 97 percent of subscribers opt to stay with Netflix. Its extensive collection of shows and well-established brand voice could be one of the reasons.

What is a Good Churn Rate?

A SaaS company's typical monthly churn rate is 2-8 percent, and the average annual churn rate is 32-50 percent. The lower the number, the better; otherwise, it will substantially influence your Monthly Recurring Revenue (MRR). The churn rate for B2B SaaS enterprises with high average contract values (more than $1,000 per month) should be less than 2%.

A churn rate of 0 would be ideal, as it would suggest that a company is not losing any users; however, this is rarely the case. For one reason or another, a firm will inevitably lose subscribers.

In this scenario, it's crucial to compare the company's churn rate to the industry's typical churn rate while considering whether the company is new or established. The only way to determine whether a churn rate is appropriate or unsatisfactory is to compare it to the industry average. Every industry has a unique business model, meaning acceptable churn rates will vary.

If you don't want declining revenue, making your product the best it can be is essential. You can do this by:

1) Ask for feedback from your clients regularly. Especially if your product is subject to change

2) After a month of use, survey them to see how they feel, and then follow up with another survey after a few months to see whether the reaction is either still favorable or better than before.

3) If you measure a high churn rate for a specific period in the customer journey, for example, if you notice a lot of churn in month 2, you'll want to find out why. Use feedback surveys and direct contact with customers to determine what's wrong and how to solve it.

4) Always be innovative. You could have excellent retention and churn rate, but all it takes is for a competitor to disrupt the market, and everyone suddenly leaves.

Effective Strategies to Reduce Churn Rate

2) Establish an excellent onboarding experience

3) Adopt a pro-active approach

4) Focus on high-value customers

5) Strengthen customer support

6) Improve consistency

7) Acknowledge complaints and feedback

8) Nail the subscription analysis

9) Provide annual contracts to lock customers into subscriptions

10) Create a smart dunning workflow to reduce involuntary churn

You can read this blog for a more detailed explanation of the above suggestions for reducing churn.

Conclusion

Retaining and developing your customer base as a SaaS firm means evaluating your performance at each step. Calculate your customer attrition rate over the course of a year or a month, then improve your customer service processes and invest in your customer service personnel to see your churn rate drop dramatically.

A product like Billsby can be a game-changer in ensuring you always have a hold on your company's critical KPIs.

Source- Churn Rate 101: What It Is, How to Calculate It, and Understanding Its Impacts

[billsby23]

Chargebacks: Why and How They Can Impact The Top Line Growth Of Your Business?

Brands are becoming naive to the dynamic shift of the market. Chargebacks are one of the most influential elements of any business operation when it comes to profit standstill. Though these chargebacks are known to cater to high losses in the market, the companies may need to withhold them to ensure they stay competitive.

Here is a brief guide covering the crucial aspects of chargeback meaning and highlighting the potential areas of concern related to the concept.

What is a Chargeback: All you need to know

A Chargeback is a charge that is usually returned to a payment gateway after a customer dispute has occurred. Chargebacks can occur with both credit card and debit card payments, as well as other forms of payment infrastructure, so they’re crucial to all businesses. This means the chargeback could be a Paypal chargeback or bitcoin chargeback for example. It’s the chargeback fee that is one of the most growth limiting factors for businesses.

This has been one of the exhaustive and cost-consuming tasks that can ruin the figures of growth and opportunities for scale in the market. You may think it would be easier to not allow chargebacks to occur, however, there are specific reasons behind supporting chargebacks. Here is an example of this:

A customer has ordered a product from a specific brand, but when the product arrived it was damaged. Or, while charging the card, the merchant charged the card twice by mistake. In any of these scenarios, the businesses must release chargeback to the customer.

Irrespective of how the transaction made (credit card, debit card or banking) the customer can ask the bank to refund the chargeback.

Reasons for Chargebacks: Know before it happens

There are multiple reasons for being acquainted with PayPal chargeback or debit card chargeback. So let us go through them one by one to understand them better.

Ranging from the arrival of defective products to fraudulent transactions, various reasons explain why chargebacks are common these days. As a business provider, if you can understand the core reasons why chargebacks are becoming prominent in your business operations, you might be able to control them and keep a check on your business revenue.

Fraudulent Transactions:

A credit card charged without the owner's consent is termed a fraudulent transaction. In the case of fraud occurring, there’s a chance that the customer will reach out for a refund. It also allows the customer to arise a dispute and ask for the chargeback.

This has become one of the market's most common causes of a chargeback. If you are willing to prevent the loss caused by these chargebacks, make sure you read the next section.

How to prevent it?

1. Always use a secure point of sale instead of chip payments or contactless payments, such as Apple pay, Google pay

2. Instead of swiping cards, encourage customers to use chip and pin. This will help prevent the first line of fraud, which is currently doing ground in the market

3. Give your employees the relevant training and procedures to identify and resolve any fraud that occurs

4. Always send an email with the receipt to the customer to ensure they’re aware of the transaction. Delivery and pricing issues:

Shipping, delivery, or pricing issues can also cause chargebacks- Imagine a cardholder has ordered an item but has not received the item. In such cases, the customer is entitled to opt for a chargeback. While shipping or during delivery, the item can be misplaced or not handled carefully and reaches customers damaged.

This can upset the customer and encourage them to ask for a chargeback. It can be a tough choice for the brands as it leads to losses in terms of money, stock, and customer satisfaction rates.

In another scenario, there are possibilities that the card is being charged twice by mistake. Again, this can be a possible reason to further lead to a chargeback. When the cardholder never receives an ordered item or has been charged twice; it becomes a pure chargeback in both cases.

How to prevent it?

1. You need to keep a regular track of every order that’s out for delivery.

2. It’s essential to have access to your stock and have complete visibility of it’s management as well as payments that are processed.

3. Get enrolled in a delivery service that asks for proof of delivery or e-signatures. This gives you a clear picture of what and when to expect in case of any conflict.

4. Make sure you have good, competitive pricing.

Payment processing issues:

If credit or debit cards are not processed correctly this can lead to the business having to honor any charge backs that are requested.

How to prevent it?

1. Make sure you choose a reliable system to handle credit and debit card payments

2. It is essential to outline sales policies to ensure that the return, refund, and cancellation remain in line.

Sneak peek at how to avoid chargebacks

We have already discussed chargebacks and the reasons that make them a significant concern for all businesses, but there are ways that they can be avoided. Here are a few strategies that you should integrate into your existing system to prevent chargebacks.

1.Make sure you have a simple returns policy

At first, it might seem as though having a simple returns policy will promote returns, but in actual fact having a good returns policy makes customers more confident and comfortable buying your products and services. It can lead to both gaining new customers as well as improving the retention of your current customers.

2.Creating a customer retention policy

Customer retention policies are vital for businesses to adopt in order to promote business growth. By introducing customer surveys, tailoring customer communications, and having a good customer service experience you can dramatically improve a customer’s experience, and as a result, reduce the likelihood of chargebacks.

3.Make sure orders are delivered on time

One of the most effective ways of preventing chargebacks is to make sure that orders are delivered on time and products are not damaged during delivery.

As mentioned above, when products are damaged during delivery or not delivered at all the customer is entitled to a chargeback. To achieve a delivery service that customers are happy with you should look for any delivery partner that can offer you timely fulfilment and proof of postage.

4.Maintain strong communication with your customers

Customer communications provide you with a channel to meet, understand and resolve your customer's queries simultaneously. It also allows proactive identification of the issues and resolving them before it becomes a possible cause of chargebacks.

It is advised for businesses to stay confident and compatible with communication to build up a strong reputation with its customers. In addition, it helps decrease the ratio of chargebacks and gives the brand a new chance to explore and capture the economic growth opportunities as a whole.

Say no to frauds

If you are connected with digital payments or looking for payment reconciliations, keeping yourself updated with the latest information on fraud prevention is essential. You must be at hand to quickly identify any red flags during a customer transaction.

Most established payment solutions have built in fraud detection and management features, but it’s essential to check for these when choosing to integrate with a given payment provider.

How are chargebacks processed?

The chargeback process generally varies dependent on the payment processor that’s in use, but it often takes 60–90 days to resolve. It can be initiated by either the merchant or the cardholder's issuing bank.

If prompted by a merchant, the process is similar to a standard transaction; however, the funds are taken from a merchant's account and deposited with the cardholder's issuing bank.

If the issuing bank instead starts a chargeback, the chargeback is facilitated by communication on the issuing bank's processing network. After receiving the signal, the merchant bank authorizes the funds' transfer with the merchant's consent.

In some situations, the issuing bank may offer the cardholder a chargeback while also forwarding the claim to a collection department, such as with fraudulent charges. In this situation, a bank assumes the risk and deducts the chargeback from reserve funds while investigating and resolving the issue.

Chargeback transactions are often included with a fee by merchant acquiring banks. This fee tends to be higher than regular payment and refund processing fees, but the individual merchant account agreement will specify the fee. Fees are usually imposed with each transaction to support the processing network's expenses.

Chargebacks may also result in additional penalties and may differ from bank to bank too. This explains how damaging it could be to comply with chargebacks in your business. If you are looking for further assistance, feel free to jump for a call with our experts.

The major difference between chargebacks and refunds

Chargebacks and refunds often sound similar but they do in fact differ. For example, though both processes involve the return of funds, customers can usually request a refund from the merchant directly if their refund policy allows it.

In some cases, such as the merchant stating a product is not damaged when the customer said it was, the retailer can actually refuse the refund request. If there continues to be a disagreement, this is when the consumer would request a chargeback.

When a customer files a chargeback, the bank (not the business) is contacted to reverse the payment. The chargeback process is more time-consuming and involves more steps than a refund. In addition, chargeback fees are much higher than those linked with a refund so this should be kept in mind.

Conclusion

Chargebacks should be a concern for businesses as they can inhibit growth. If you own a business, you need to check your business's operational costs when it comes to chargebacks and refunds. Chargebacks, if they remain uncontrolled, can create the vicious cycle of making it challenging for your business to scale and expand.

Source- Chargebacks: Why and How They Can Impact The Top Line Growth Of Your Business?

[billsby23]

The Advanced Guide to Understanding, Calculating, and Improving Customer Acquisition Cost

Customer acquisition cost, or CAC, is a critical business indicator used by companies all over the world to evaluate the resources required to attract new customers and maintain growth.

If you want to grow your client base while still making a profit, you need to know what CAC stands for, what it means for your business, and how you can calculate it.

But first, here's a table of contents to assist you in finding exactly what you're searching for.

Table of Contents 1.)What is customer acquisition cost?

2.)How to calculate customer acquisition cost?

3.)Customer acquisition cost formula

4.)Potential customer acquisition costs

5.)Importance of customer acquisition cost

6.)What is Customer Lifetime Value (CLV)?

7.)Customer acquisition cost benchmarks in SaaS

8.)Customer acquisition cost by industry

9.)How to improve customer acquisition cost?

10.)Conclusion

11.)Customer acquisition cost FAQs

What is customer acquisition cost? -Jess- Billsby Blog- Customer Acquisition Cost (1).png

Customer acquisition cost, or CAC, is and approximation of the total cost of acquiring a new customer. In other words, CAC refers to the resources and costs associated with obtaining a new customer. Generally, this should include things like advertising costs, salaries of marketing staff, cost of salespeople etc.

How To Calculate Customer Acquisition Cost? -Jess- Billsby Blog- Customer Acquisition Cost (1) (1).png

To determine the customer acquisition cost, you need to add up the costs of attracting new customers. This is typically the amount of money you’ve spent on marketing and sales. Once you have a total cost you need to divide that by the number of potential customers you’ve attained to find your CAC. This is usually calculated over a set period, such as a year or a financial quarter.

Let’s assume your business spends $500K on sales and $300K on marketing in one financial quarter. In that quarter your company gained 800 new clients. As a result, the average customer acquisition cost for that quarter would be $1K ((500K + 300K)/800= 1K).

Customer Acquisition Cost Formula The following formula can be used to calculate customer acquisition costs- billby222211.PNG Customer acquisition cost is calculated by dividing the total cost of sales and marketing by the number of new clients acquired.

Potential customer acquisition costs When using the customer acquisition cost formula you should consider including the following expenses when determining your cost of marketing and sales -

➢Creative costs The amount you spend on content creation is termed creative costs. This could be expenditure incurred on hiring new employees to help your business grow, or it could be money spent on lunch for your team meeting. All of these expenses are factored into the content creation process.

➢Technical costs Technical costs are the costs attached to the technology that’s required by the marketing and sales team. For instance- if you purchased reporting software that traces the progress of your deals, this would be a technical cost.

➢Publishing costs This includes the expenditure of releasing marketing campaigns, TV airtime, columns in newspapers, or paid social media ads.

➢Production costs These include expenses related to physical content creation. For instance, if you need to buy a new camera for video creation this would be considered a production cost.

➢Advertising costs This is the money spent on advertisements. Advertising is a great way to boost your business and attract new customers. But for your ads to work, your campaigns must appeal to your target audience, and most of the time lead to additional costs being incurred.

➢Inventory upkeep Despite being a SaaS company, you'll have to spend money on product maintenance and optimization. This expense includes utility expenses and facility storage fees for enterprises that sell tangible products. If you’re selling software, this also includes money you'd spend on patches and updates for a better user experience.

Importance Of Customer Acquisition Cost -Jess- Billsby Blog- Customer Acquisition Cost (1) (2).png Customer acquisition costs are a direct indicator of your SaaS company's future performance. Unfortunately, most SaaS businesses invest a significant amount of money and time before seeing a return.

Once time passes and you’ll begin to identify how long it has taken to recover from your calculated customer acquisition cost and produce a profit. Tracking this is what makes this measure vital for any business as without it, you won’t know when you’ve started to make a profit. It also has other benefits for your business:

1.)Improves Return on Investment (ROI)

777777.PNG When calculating marketing ROI, it's critical to know how much it costs to gain new customers. For example, consider a corporation that acquires clients through a variety of channels:

A corporation can find the most cost-effective strategy to attract customers by utilizing the customer acquisition cost metric. For instance, we can see from the table above that social media has the lowest acquisition cost, while social events have the highest. If this information is available to a business, it may help them decide to increase their use of social media marketing to attract more customers.

2.)Improves profitability and profit margin

Determining your company's customer acquisition cost allows you to thoroughly examine its value per client and increase your profit margins. For instance, consider a case where each customer is worth $60 to a company.

Using the table from the previous example, which channel would you choose? Choosing to employ social events as a channel would have a negative impact on profitability for a company when their customer is only worth $60. In this case the company would be better to choose the social media or poster channels when acquiring new customers.

Customer Lifetime Value (CLV) vs Customer Acquisition Cost (CAC) -Jess- Billsby Blog- Customer Acquisition Cost (1) (3).png

The lifetime value (LTV) of a customer is an essential metric to consider when calculating customer acquisition costs.

LTV is the expected revenue generated by a single client over the course of their engagement with a company. The customer acquisition cost (CAC) on the other hand is the cost of acquiring a customer. Once a business has both these metrics, they can compare them to determine their profitability.

To calculate LTV you'll need the following elements:

1.)The total number of purchases made within a given period. Note that a multi-month subscription represents one purchase for a SaaS company, and lies in the period in which the transaction occurred.

2.)The total number of unique consumers who purchased within the same period.

3.)Average customer lifespan.

Using the total number of unique customers and their purchases in a given period you can divide the latter by to former to obtain the average value per customer. You can then multiply this but the average customer lifespan to get the LTV. This will provide you with an estimation of how much income an average customer can earn for your business over the length of their engagement with you.

As a result, your firm's LTV to CAC ratio, or LTV: CAC, is a rapid assessment of a customer's worth vs the cost of acquiring them.

Customer acquisition cost benchmarks in SaaS -Jess- Billsby Blog- Customer Acquisition Cost (1) (2).png

Your overhead expenditures as a SaaS company owner are far lower than they would be in any other industry. The majority of your budget is spent on expanding your company. As a result, marketing spending serves as a forewarning of profitability.

You should be obtaining more value for money than what you're putting in, but what’s the benchmark? If a software company grows at only 20% a year, it has a likelihood of going out of business in five years because it only has a 1.2 LTV/CAC ratio.

What's the lowest point at which you're likely to succeed? 3.9. Every dollar spent on obtaining a new customer should result in at least $3.90 in revenue.

Customer acquisition cost by industry -Jess- Billsby Blog- Customer Acquisition Cost (1) (3).png

The customer acquisition cost varies by industry due to a variety of factors, including but not confined to:

● The time it takes for a sale to close

● Value of the purchase

● Frequency of purchases

● Customer life expectancy

● Maturity of the company

Thus, to put CAC into perspective here's a breakdown of average customer acquisition cost by industry (as assessed by several publications):

● Travel- $7

● Retail- $10

● Telecom- $315

● Financial- $175

● Real estate- $213

● Manufacturing- $83

● Transportation- $98

● Marketing agency- $141

How to Improve Customer Acquisition Cost? -Jess- Billsby Blog- Customer Acquisition Cost (1) (4).png To get the LTV: CAC ratio closer to 3:9, there are a few different approaches to improve customer acquisition costs. Here are some strategies to consider:

1.)Invest in conversion rate optimization (CRO)

Make it as easy as possible for visitors to convert into leads or for leads to turn into customers and thus generate transactions on your site. For example, improve your website for mobile form registrations and shopping, examine website language for clarity, and strive to build a touchless sales procedure so your visitors can buy from you at any time.

2.)Contribute value

Increase consumer value by providing them with what they want. Collect customer feedback and do your best to offer them what they want, whether it's a product solution, a new feature, or a supplementary product offering, to keep them coming back.

3.)Implement a customer referral program

If you get a warm lead from your customer network who is already eager to learn more about your product or service, their customer acquisition cost will be $0 if they convert. Build a client referral program that your customers would like to participate in, and these "free" customers will lower customer acquisition costs over time.

4.)Simplify your sales cycle

Reduce the duration of a typical sales cycle to boost the number of sales you can impact in a year. To interact with more potential leads more effectively, use CRM and prospecting solutions.

Conclusion You can only make strategic business decisions and anticipate how lucrative your company will be in the long term if you know how much it costs to bring in new consumers.

Customer acquisition cost can be used by investors to determine whether or not they believe your company is profitable now and in the future. In addition, it may help businesses allocate resources and cash, plan marketing initiatives, and guide them through the hiring and compensation process.

Billsby is the best money you'll ever spend if you're serious about lowering your CAC. It allows you to automate subscription management and invoicing so you can focus on creating the ideal product – and earn profit from it. Book a demo now.

Customer acquisition cost FAQs 1.)How to calculate cost per customer acquisition?

Simply divide the overall cost of marketing over a specific period by the total amount of new consumers in that same period to determine the cost per acquisition.

2.)What is a good customer acquisition cost?

Companies will most frequently compare their customer lifetime value to their customer acquisition cost. Although it will vary widely for various businesses, a CAC: LTV ratio of 1:3 is typically considered a decent ratio.

Source- The Advanced Guide to Understanding, Calculating, and Improving Customer Acquisition Cost

[billsby23]

Free Trials: Are They Right for Your SaaS business?

A large percentage of SaaS organizations offer free trials to allow users to test their product for free. Free trials can benefit both parties because they allow your product to drive sales to your door, whilst also assisting users in seeing the value of the service and influencing their purchasing choice.

Whilst a SaaS free trial is known to be an efficient product-led acquisition strategy for most SaaS businesses, they aren't for everyone. So before introducing free trials to your product, there are a few things to think about.

In this post, we'll go over everything you need to know about free trials so you can decide whether they're suitable for your company.

What is a free trial?

A free trial gives users the opportunity to try out a product or service, for a limited period, for free. It gives users the ability to navigate around the product or service, and discover all of the features it has to offer. Free trials can be short, long, and even require a credit card, the choice is yours.

Free trials can be a concept that traditional SaaS organizations do not grasp. Why should people be able to take advantage of the service for free? Free trials offer a way of engaging and demonstrating value to your customers.

With free trials, your customers are able to see how your company can assist them in enhancing their life and determine whether or not to acquire your product or service.

Free trial Vs Freemium

Before we get into the benefits and drawbacks of free trials, it's essential to understand the distinction between free trial and freemium.

Some people confuse free trials and freemium plans to be the same. However, there's a big difference between them. With ‘freemium’ models, users are not time-bound like they are with most free trials.

The freemium business model also provides an entry-level plan for users with usually come with restricted features, whilst most free trials have all of the features of the premium plan to entice customers with the pricier option.

When deciding whether to adopt free trials or freemium models, the decision should be based on the intricacy of the product and how much information you want to share about your product and service with the public.

Both free trials and freemium models have advantages, and it's up to you to decide which is best for your product and business.

Understanding pros and cons of SaaS free trial

Although free trials are usually seen as a positive, they can also have a few drawbacks for companies. Let's take a look at the advantages and disadvantages of free trials.

Advantages

1. Good onboarding

Free trials are a great way to get users hooked on your product. This is because they let customers explore features and determine if your product or service will add value to them before paying for the entire package.

You can also jump into onboarding or support with ease during a customer’s free trial, increasing conversions in this process.

2. Data capture

Registering for a free trial involves the users' personal data - at the very least, an email address – allowing you to collect vital information from a large number of potentially interested customers. When capturing a potential users email address, you can add them to your mailing list automatically.

Furthermore, free trials collect more than mere personal data. You'll have access to a wide range of information, including usage habits and even the information of churned users. This information can help you find areas where your product and onboarding process can be improved.

3. Psychological benefits

Free trials show that you believe in the quality of your product. From a psychological perspective, this gives customer’s confidence in your product and service and encourages them to choose you.

Alongside this, free trials can have other psychological benefits to customers:

➢They instil a sense of ownership - the endowment effect, which states that we value things more strongly when we possess them.

➢They can provide a sense of urgency - loss aversion - because there is a limited amount of time, feelings of scarcity compel the decision, and consumers are more inclined to purchase if your value promises meet their expectations.

➢They help individuals overcome their fear of commitment by allowing them to see what they're losing out on without having to spend money.

4. Relevant feedback

Free trials, unlike product testing, are a terrific way to collect relevant feedback on your product because your intended customer group is already using it. As a result, free trials can be a clearer and more effective way to collect opinions on your product or service from your users.

You can send a quick survey to the consumer asking why they’re cancelling - in other words, how you can enhance your product or what you could've done better. If you already have a customer support team in contact with the user, this procedure could be a lot easier.

5. Declining customer acquisition costs (CAC)

Product-driven initiatives can help you lower your CAC significantly. Free trials use a moderate approach to client acquisition, allowing the product to handle the majority of the selling and marketing, resulting in a reduced CAC.

Disadvantage

1. Fierce competition

Free trials are so widespread these days that it's an acknowledged fact that there's intense competition. Slack, Dropbox, Zoom, and many more successful SaaS organisations have incorporated either SaaS free trials, freemium models, or both.

It's not enough to simply provide a free service; you must distinguish yourself. Make sure you're doing something unique or extra, such as giving incentives or freebies?

2. Prolonged sales cycle

Aside from expense and affordability, there's also the issue of inescapable churn. Many users will join up but have no intention of purchasing anything. This makes it more challenging to keep these consumers, extending the sales cycle.

Furthermore, free trial periods may not be long enough for a consumer to form a firm impression about the functionality and worth of your product. It may take a few tries to find the perfect spot to determine the length of your trial period.

3. Overhead costs

Even though a product-led acquisition strategy may have a lower CAC, the total overhead costs must always be considered. As previously stated, you must invest money to lure consumers to your free trial, and if your product is sophisticated, you will need effective onboarding and sales assistance.

Even if there are no actual product expenses, you must consider the data accumulated through usage. Do you have the ability to quickly process large amounts of data from free trial users? Will you be affected by lags? Conversion rates are likely to be affected if this is the case.

SaaS Free Trial Best Practices

Making free trials work for your SaaS company takes some forethought and strategy. You can utilize a variety of the following SaaS free trial best practices to make sure you're getting the most out of your business model:

1. Implement suitable limitations

The majority of free trial items include either a duration or a feature limit. It's referred to as a freemium model if your free trial has no time limit but instead has a feature or revenue generations limit. Many businesses have found success with freemium business models, but there are drawbacks that you need to consider.

2. Duration of free trial

One of the most critical aspects of your free trial is its duration. There is no right or wrong response to the duration question, with many free trials in the SaaS industry ranging from one week to being limitless.

Although 30-day or 1 month free trials are common, a shorter trial duration may be more advantageous. For example, if you provide a 2-week trial, you may be able to give potential clients a sense of urgency and prestige.

However, if your SaaS free trial service takes a lengthy onboarding procedure or more than 14 days to generate results, a shorter free trial period is unlikely to suffice. To get the best results, tailor the free trial to the product or service you're providing.

3. Impact over cashflow

When selecting a free trial, think about how it may affect your cash flow. If you give clients 30 days of total usage, the CAC will only begin to recover after that time.

You're unlikely to generate money in the first few months (payback period), but depending on your level of development, you may want the funds. If you're just getting started, consider giving users a demo of your product and then pushing them into a paid subscription once they grasp your value proposition.

To put it differently, not having a free trial can help you avoid future cash flow problems. But it’s vital to ensure it isn't lowering your conversion rates; otherwise, you'll lose money.

4. Implementing customer success

Customer success should be implemented during the free trial. To do so, you'll need to gain a thorough understanding of your consumers and what they're trying to accomplish. Then, after you've figured out who your users are, you can start tailoring your onboarding and marketing activities to them.

If your software is multi-purpose, for example, you may segment your customer base and tailor you’re marketing to each section. Your programme should assist users in performing better at a given task. You must demonstrate how.

5. Alternatives to free trials

It's okay if you don't think a free trial is ideal for your company. It isn't the sole method of acquiring clients; there are other free trial alternatives:

● Demos

Many businesses are now opting for demo scheduling instead of free trials. The fundamental concept is to communicate directly with customers in order to understand their wants and sell your product.

Your sales team's demos can significantly improve your results. Demos give you the opportunity to be prepared to illustrate to your leads how they can use their product and service to best suit them and they allow you to establish a personal connection with them. Many demos are done one-on-one.

Some businesses, on the other hand, choose to conduct demos via webinars and interactive films. This helps you to display your product to a large number of people at once. Although a subtle human touch can significantly boost your CAC, you may convert far more individuals than a free trial.

● Paid trials

You may charge your consumers money to use your programme for a trial period. It's the equivalent of asking for a credit card upfront. However, you could easily offer a lower rate for the first month to encourage customers to try out CPVs and maybe enjoy them.

When customers aren't happy with your service you could offer them their money back if you’ve used paid trials. This will lessen the entry barriers to your software, allowing more users to use it.

Key considerations before implementing a free trial

You must ask yourself the following questions in order for the free trial model to work:

● Is your free trial keeping your users engaged?

This is the most important question because the main motivation behind offering a free trial is converting free trial consumers into paying clients. From onboarding through assistance, you must maintain constant engagement with your users, from a well- designed user experience to a quality products summary to swift follow-up and end-of- trial letters. Onboarding is a continuous procedure.

● Can your company handle a large number of users?

Instant assistance during product trials is essential, and the demand for it grows as the number of potential customers grows. To address support needs, your company should either have a self-service capacity or support/sales personnel. If either is missing, you may want to reconsider implementing a free trial.

There's no doubting the success of a well-planned free trial if your answers to the above questions are satisfactory. Implementation involves deciding the type of free trial you may give and the length of your trial, which will necessitate significant testing. And doing this on your own could be time-consuming and challenging.

With Billsby, you can easily manage your SaaS free trials and assure smooth execution with sophisticated and easy-to-integrate billing software that can help you set up one-click trial extensions, trial-ending alerts, smart drip marketing, and much more.

Conclusion

To summarize, it’s essential for you to understand your clients and the sales process better before introducing a free trial. Is it reasonable to provide them with a SaaS free trial? Free trials area always beneficial, but you need to make sure your business will benefit in the right way.

Source- SaaS business

[billsby23]

Understanding Payment Reconciliation and Its Purpose

People are at the core of every company, but cash flow and account management keep everything running smoothly. Accounting methods that are up to date and well-documented ensure that businesses operate smoothly and are well-positioned for development.

Establishing a comprehensive payment reconciliation protocol is an essential accounting method to adopt for securing the financial health of your business.

In this blog, we’ll go through the fundamentals of payment reconciliation, why it's vital to have a payment reconciliation process, how it works, best practices, and, ultimately, how to automate it.

What is Payment Reconciliation?

Payment reconciliation is an accounting process that checks account balances to ensure that all records are accurate, consistent, and current Accounts can be reconciled on a daily, weekly, or monthly basis. It's best to do it as frequently as possible (once a week), but if that's not possible, you should at least do it once a month.

Disparities are common, and many of them are inconsequential. For example, payment timing, deposits, and delayed transactions can all have an impact on bank account bottom lines. Businesses, on the other hand, can utilise the reconciliation process to detect and prevent balance sheet errors, identify fraud, track down rejected payments, and track down late bills.

In essence, payment reconciliation is a bookkeeping procedure that compares internal financial information with bank statements to ensure that the accounting is correct.

For instance, when a bank statement arrives, costs and payments are compared to ensure everything is in order.

Payment Reconciliation vs Account Reconciliation

Reconciliation is an accounting process where you make sure all records tally up. This means checking your bank statements and balance sheet with any invoices or payments from vendors, which will let you know if there are any differences in expenses versus income over the course of one year. This can help keep track of the business expenses and income report.

Unlike account reconciliation which concerns reconciling your user accounts, payment reconciliation is reconciling your internal accounts with invoices and bank statements. And similar to account reconciliation, you should do this at least once a month.

If you're doing it manually, you'll need to look for inaccuracies (on your balance sheet, from the bank, from invoices, etc.), investigate possible fraud, investigate missed payments, and chase down outstanding invoices.

Why Do Companies Need Payment Reconciliation?

Keeping strong, accurate records is one of the most critical things any organization can do, despite the fact that it may appear to be a tedious job. It's too easy to make an entry mistake, misplace a receipt, or account for a payment that isn't a company expense at all.

The following section dives deeper into why payment reconciliation has become a need for companies-

1.)Payment reconciliation reveals errors and unauthorised payments

Reconciliation is a financial merry-go-round that keeps you on top of your business's finances. Comparing internal and external records will catch any errors sooner, ensuring faster resolution for both cash flow problems as well as unauthorised payments or security breaches at your banks.

2.)Payment reconciliation helps to track unpaid or late invoices

By regularly reconciling your accounts, you can make sure every missed or late invoice is followed-up and settled. This will save time in the future when chasing down payment for these items as well as prevent you from worrying about it further.

3.)Payment reconciliation gives your business accurate financial records

Keeping your finances in check is essential for staying on top of your business. Accurate financial records will help you make informed decisions and demonstrate the healthiness or robustness of your business to banks, investors, and lenders when it comes time for them to look at how much money has been made by business ventures.

In some instances, there are regulations that require meticulous record-keeping. In these scenarios, precision is critical for preserving compliance and avoiding penalties for your company.

How Does The Payment Reconciliation Process Work?

1.Retrieve document data

In this process, you will need to check your business transactions and invoices either from an accounting software or just a spreadsheet. You’ll then need to compare them against external records such as bank statements or other internal documents that are available for review within your company's system(s).

2.Comparing

The comparison process is essentially the process of comparing statements and diagrams at a transaction level, and is the second stage of reconciliation. The reconciling database is cleared of transactions that are obviously matched.

When datasets are simple and uncomplicated, comparing is usually done with Excel VBA programmes, but when datasets are related in a complex way, machine learning and AI methods may be helpful. Any discrepancies will be forwarded to the reconciliation stage.

3.Reconciliation

This is the most critical step in the process of reconciling items. Any inaccuracies will be reported to businesses or people for correction, followed by evaluations and approvals.

Because automated procedures fail to remedy the errors, this stage is particularly labour-intensive. As a result, optimizing the preceding two sets is critical to ensuring that the least amount of effort is required during this step.

4.Investigate the inconsistencies

You can then update the checking lists and entries when all of the work has been checked, and errors have been corrected. This step is simple enough that it can be completed entirely with the help of computer programmes.

Types of Payment Reconciliation

The meaning or definition of payment reconciliation, as well as the procedures in the account reconciliation process, may vary depending on the complexity of your firm and the types of payment transactions it processes.

The following are the types of payment reconciliation:

● Deposits

● eCommerce

● Brick and mortar stores

● Digital wallet reconciliation

● Disbursement transactions

● Bank account reconciliation

● Accounts receivable proceeds

● Global currencies reconciliation

● Account service and transaction fees

● Credit card and debit card reconciliation

● Real-time automatic payment reconciliation

● Cash, debit card, and credit card sales proceeds

Benefits of Payment Reconciliation

Whether accomplished manually for every bank account and payment method or automatically using a payment reconciliation system — payment reconciliation is always beneficial.

The following are some of the advantages of payment reconciliation:

● Time-efficient

● Results in real-time

● Prompt financial close of the month

● Error minimization

● Reduced Fraud

● Verification of the vendor

● Screening of global regulations

● Scanning for Tax IDs

● Payments that a financial institution has refused are identified.

● Information from tax returns

● Payment information

Pitfalls of Payment Reconciliation

1.)Your internal and external finances aren't linked from the start since you're continually chasing late payments. This makes reconciliation more difficult and leads to inaccuracies.

2.)If you’re unable to distinguish between which customers, clients, or vendors have paid you and which haven't it’s hard to trace the source of the discrepancy.

3.)Until the reconciliation is complete, you don't have a single reliable source of information. This means you need to jump between databases and spreadsheets to piece together the disparate bits of data;

4.)Your accounts aren't reconciled on a regular basis. When you finally settle down to work on it, the sheer number of transactions to complete overwhelms you.

Risks of Payment Reconciliation

● Delay and inaccuracy in payment reconciliation

● Delays in bulk payments to payees and missed payment discounts

● Reduced cash management visibility and lost payment discounts

● Delays in releasing month-end and year-end financial statements

Payment Reconciliation Best Practices

Reconciliation is an accounting process that must add to your company's profitability rather than subtract from it. Here are the two finest strategies for reconciling your accounts with the least amount of effort in order to maximize cash flow:

1.)High frequency is essential

Do not put off reconciling your finances till the end of the fiscal year. You'll have a pile of statements to sort through by then. So do it once a week instead. If that isn't practicable, try fortnightly or, at the very least, once a month.

2.)Automate payment reconciliation

You should ensure that you're giving stakeholders the most realistic picture of the company's current financial status. Automation is beneficial for enhanced accuracy and saving time for your team.

However, manual processes are prone to human error, and discrepancies will arise if your co-workers approach reconciliation in diverse manners.

Now, you might consider how any firm has enough time to reconcile finances weekly? By streamlining and automating the procedure, unlocking increased profitability and financial growth requires a dependable inbound payment mechanism. You can also save money on payment administration by automating the process.

How Automation Can Help With Payment Reconciliation

While manual reconciliation may have been the norm for decades, automatic reconciliation has many benefits, including reducing human error. With an automated reconciliation, your team can focus efforts elsewhere, spending less time on a process you can easily manage through automation with tools like Billsby!

Semi-automated techniques such as ERP, accounting software, RPA, and cloud computing have been incorporated into reconciliation operations. The following section covers each of the programmes and how they help with reconciliation automation:

1.)ERP

Enterprise resource planning software enables organisations to plan and manage all of the core processes in an efficient manner. These include supply chain, manufacturing as well as financials for any individual activity or department within your business.

This makes it easier than ever before because you can enter everything through one system, which will then generate reports on what needs to be done next with clear communication between departments involved.

2.)RPA

The use of robotic process automation (RPA) has been growing in recent years because it can replace human workers by emulating their behaviour with machine learning. Rather than creating a set of programs for each task, RPA learns from how humans interact through GUIs and, thus, performs tasks more efficiently without fatigue or error-prone input methods like typing entry after entry on spreadsheets, all while saving time!

3.)Accounting software

Accounting software is a collection and application software that aids in processing a transaction using typical accounting modules like account receivables, account payables, inventories, and so on. A good accounting software should enable you to reconcile transactions and accounts with minimum manual effort.

4.)Cloud computing

Cloud computing and storage are two services that are kept in sync over the internet. Based on conventional bookkeeping methods, which require all books to be held in one location for easy access at all times, cloud computing allows all data to be stored in the 'cloud' and accessed at any time.

Because the database is the same for access at multiple locations, any checks in between are easier to conduct, overall process less error-prone. Lastly, cloud computing simplifies tracking all transactions generated by RPA and ERP.

Are you finding someone to automate the mundane, mechanical payment reconciliation process? Try Billsby!

Payment Reconciliation FAQs

1.)What does reconciliation mean?

Reconciliation is an accounting process that involves comparing and contrasting two sets of records, usually internal and external, to confirm that the data is accurate and consistent.

2.)What is balance sheet reconciliation?

Balance sheet reconciliation checks the balance sheet's accuracy by comparing the general ledger account reconciliation to other kinds of documentation and explaining any inconsistencies.

Conclusion

A decent payment reconciliation process clears up any ambiguity and ensures that all departments are on the same page.

The future of payment reconciliation looks positive due to advancements in both hardware and software.

Billsby integrates automatic reconciliation across all transactions and payment types into a single dashboard. By automating these operations, you may spend less on manual accounting and more on building your company.

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Source- Payment Reconciliation

[billsby23]

5 Amazing Strategies To Reduce Subscription Churn

Subscription churn is a concern for all subscription business. A subscription business is good as long as the customers who purchase a subscription, remain happy with the product or service, and stay subscribed.

When customers start losing interest in your business and churning, this leads to a significant loss in revenue and their customer lifetime value also deteriorates. If you’re acquiring customers who leave unsatisfied with your services very quickly, you will not be able to stay in the subscription business for long.

In this case, it’s important to adopt practices that give you a detailed insight into customer churn and help you find solutions to ultimately prevent churn.

Customer churn isn’t always down to holes in your product or service, but this can be a good place to start. By paying attention to why customers are churning, you should be able to identify common issues with your product or service and fix these for future customers.

This article will cover all you need to know about subscription and customer churn and how it can be prevented.

What is customer churn?

Churn is a standard used for checking the percentage of customers that stop utilizing the services of a company. In terms of a subscription business, subscription churn refers to the metric that identifies the customers that stop using the services of that subscription business.

Churn is inversely proportional to customer satisfaction. The higher the level of customer satisfaction, the lower the level of customer churn for a business. Loyal customers tend to stay subscribed to the products and services of a company for a longer time, purely because they are satisfied with them so don’t want to stop using them.

However, customers that are not happy and satisfied or have experienced issues such as low customer engagement might cancel their subscription if the subscription business does nothing to satiate their needs. The final blow can be made by the subscription businesses themselves if they do very little or nothing at all to retain their customers.

How does churn affect a subscription business?

Customer churn forces the customer to leave a company's services and search for another company that can offer better services. Subscription businesses that deal with B2B are highly affected by churn. They therefore need to adopt strategies that prevent churn and ultimately allow them to retain their customers.

This can be done by providing them with the best services and taking all the necessary measures to enhance customer relationships. For this, businesses need to have a customer retention strategy in place and keep their customers happy by delivering the best quality services they promised them.

In the case of subscription businesses, customer churn means the number of cancelled subscriptions during a billing cycle. This evaluates the amount of rising or lowering popularity of a subscription business amongst its users. It can be caused due to multiple factors, which we will cover in more detail in this article.

The first step to reducing customer churn is understanding why customers cancel their subscriptions. Only after assessing the causes, can you provide a solution to your customers. It is essential to minimize customer churn in the subscription business because the revenue of the company will only rise if customers are retained. This will also cause the lifetime value of each customer to rise!

Strategies to Reduce Subscription Churn

Adding a few strategies to your business for customer retention can reduce subscription churn. This will highly benefit your subscription business and help you stay ahead of the game. You can find the essential strategies to reduce customer churn below.

1.Identifying the cause of customer churn

It is essential for the subscription business to understand why a customer cancels their subscription. Some of the most common reasons for this might be that your pricing is higher than that of your competitors, your product or service is missing features, there are loopholes in some of your services or you don’t have the customers preferred payment method.

You need to ensure that your services do not provide a frustrating experience to the customer. You can search for the respective solution based on the reasons you have drawn out for customer churn.

To understand the causes, you can conduct a survey of your customers to reduce the churn rate or take follow-ups from previous customers who have stopped using your services.

You can also ask questions to any customer who decides to end their subscription to your services. Businesses should use tactics such as customer service follow ups, phone calls, social polls, etc to understand the reasons behind customers ending their subscription.

In most cases, the customers are reluctant to highlight the original problem and end up saying something vague as an excuse for quitting. Therefore, it is the duty of the business to understand what lies in the hearts of the customers. Based on this data, you can make better decisions to keep the customers satisfied and prevent them from ending their subscription.

2.Facilitating better customer service

When you customers are in need of assistance, or are frustrated with an aspect of your product or service, they’ll contact your company’s customer support to find a solution. If you’re unable to provide satisfactory support and timely answers to your customers, this can cause upset and can lead to them cancelling their subscription.

It’s therefore vital for your company to enhance both the quality and speed of its customer service, in order to reduce churn.

Efficient customer service plays a significant role in maintaining customer loyalty and potentially reducing customer churn. The way customer support converses with customers has a substantial impact on them. Most people build an impression of the company in their mind solely based on the way the customer support talks to them.

You can use chat boards, phone and email and also human resources to provide a better customer support experience to your customers. You can also set up a helpdesk on your site and a forum with frequently asked questions to support the customers. This will lead to the customers being more knowledgeable about your services and the features they might not know before.

A good customer support experience can also play a significant role in making customers feel valued and can lead to them wanting to stay connected with your products and services for longer. More than half of your customers are deeply affected by the experience they had with your customer service.

To enhance this experience, you can conduct customer support solutions that are a mix of offline and online solutions. You can also offer personalized messages and emails to your customers to make them feel valued.

3.Provide your customers with incentives and discounts

Every customer likes to go for a business or service that offers the most incentives and discounts. You can increase the lifetime value of a customer by offering them discounts, surprise gifts and upgrades on a regular basis. Discounting shouldn’t always be about getting new customers; it should also be offered to existing customers to thank them for using your product or service. Discounts and incentives make customers feel valued and this can help you retain them.

A good discount or incentive might stop a customer from leaving your subscription business even if they are unhappy with something and thus reduce customer churn. To do this, you can create a loyalty program and constantly reward your customers for using your services.

You can incentivize your customers in multiple ways, including surprise upgrades and most of the customers. The goal here is to offer the best services in the market by staying ahead of your competitors. For this, you need to conduct research from time to time about your competitors and the offers and discounts they are providing.

When your customers receive a reward from your subscription business, they are more likely to make another purchase. If you don’t already have a rewards system in place, you can make use of external software that can provide you with a loyalty program without the extensive development work.

You can also collaborate with multiple other platforms or social media services to incentivize your customers in unique and unforgettable ways, such as by offering them discounts or coupons from another shopping website that is not your competitor, etc.

4.Educating your customer

High volumes of features can overwhelm customers are first. In many cases, this can also lead to them struggling to know how to use all of the features you offer to their best ability and in turn can lead to them churning. It’s therefore crucial for any subscription business to educate the customers so that they can make the best use of the features offered by their business.

For this, you can organize onboarding meetings and offer educational materials in the form of guides, blogs, video tutorials, newsletters, etc., to your customers. When the customer has an adequate knowledge of your products, only then will they understand their value. This, as a result, reduces the customer churn rate.

5.Enhancing proactive outreach

It is essential to enhance customer communication to ensure that customer subscription churn is reduced. The customers who pay for your services wish to get proactive communication from your side in return. Whenever a customer purchases any services or products from you, you can welcome them on board by showing them the features of the products and how they can use them.

Proper onboarding is essential to ensure that your relationship with your customer does not start on the wrong foot. This is also a way of telling the customers that you are right there to help them whenever they need it.

A good onboarding process reduces voluntary customer churn and improves the levels of customer attention. No matter how much money or effort you have spent in acquiring a customer, unless you work for their proper onboarding, it is not guaranteed that they will stay with your services.

Onboarding can be done with the help of email messages, demo calls and proactive customer service. Apart from that, you can regularly check in on your customers through weekly routine calls and customer surveys.

Final thoughts

Preventing your customers from churning is essential for maintaining your subscription business. Merely establishing a business and acquiring customers is not sufficient, you also need to take care of them throughout their journey with you.

If you adopt the five strategies outlined above, you should find you become more successful in retaining your customers. However, it is also important to remember that customer churn is not always your fault and cannot always be prevented. Nevertheless, it’s still important to work on any areas that are open for improvement to make sure these aren’t causing customers to churn.

At Billsby, we can help you adopt the strategies mentioned in this article with little or no effort on your end. So, why not sign up today!

Source- Reduce Subscription Churn

[billsby23]

Everything You Need To Know About Headless ECommerce

An intuitive and dynamic eCommerce store is important in accomplishing the goals you’ve assigned for your online sales. A good platform allows you to make amends and customize your website, along with having the best features for making your website customer friendly.

With changing times, the traditional eCommerce platforms are fading away, giving way to a new and more prevalent form of eCommerce- Headless eCommerce.

In this article, we will explore headless eCommerce in detail, to help you decide whether to make a shift to this new eCommerce option or not.

What is headless eCommerce?

Headless eCommerce is an eCommerce solution where the back-end system is not dependent on the front-end system. The operation of both systems are independent and completely separated from one another.

It is known as the API-first approach, where communication between the two systems occurs via API. This allows customers to customize their stores easily and always make sure they’re offering the best customer experience possible.

How does it work?

The most fundamental feature of a headless eCommerce system is that its decoupled. This means that its front-end and back-end systems are separated, offering users a broader scope for customization and flexibility.

Headless systems work by pushing the content to the front end not via the eCommerce platform, but through a content management system instead. This results in faster deployments, as the work in the front-end and the back-end is done simultaneously.

You can also customize your website to offer a tailor-made customer experience by using flexible and dynamic themes, rather than the basic eCommerce themes. You can also build a website architecture custom to your needs using powerful APIs.

When you purchase on an eCommerce platform that uses headless solutions, the interface of the website- the front-end- sends an API request to the tools of payment gateway and order management system, which are situated in the backend.

The back-end or the application layer registers and processes your order then sends it to the presentation or the front-end layer, which displays it to you. Through this communication process, the headless eCommerce system helps the eCommerce store be efficient.

Benefits of Headless eCommerce

Headless eCommerce offers a wide range of benefits to your e-commerce business. Some of them are mentioned below:

1.)Easy Integrations

The e-commerce solutions in headless eCommerce are powered by APIs. This makes integration with new or pre-existing systems easier compared to traditional solutions. For example, the integration of e-commerce websites with tools such as subscription management, marketing automation tools, etc becomes seamless.

Moreover, headless systems do not require frequent updates once the initial connection is made, letting your data be transferred easily and quickly.

2.)Omnichannel Marketing

The Omnichannel marketing model is exceptionally effective for providing online sales to any e-commerce platform. This model helps your e-commerce store to connect with your customers at various points of their purchasing journey. Having the true omnichannel capability makes headless eCommerce highly beneficial.

3) Cost savings in the long run

Headless eCommerce can make your business finances more agile and in turn provide long-term capital benefits. This is because only the initial cost of starting a headless solution is high. After that, you can customize your site based on the consumers' trends without spending extra costs or resources. It also helps you save costs on factors such as product license, website maintenance, hosting fees etc.

4.)Experimentation

With a headless eCommerce model, experimenting based on user experience is encouraged. You can improve your business by rolling out new features, testing promotions or discounts, and creating an engaging user experience.

Impacts of Headless eCommerce On Your Customers

How does headless eCommerce impact the customers of your business? Read on to know.

1.)Rich customer experience

Headless eCommerce allows companies to control the elements of their eCommerce store with which the customers interact. This offers the customer a better experience and helps the companies retain them and increase their lifetime value. This also ensures that your website remains up no matter the device the customer uses to make the purchases.

2.)Better Security

The API system used by headless eCommerce offers significant levels of security, as it cannot be easily penetrated or affected by online threats. In addition, the CMS used in this system can be hidden under layers of code and is not exposed, increasing its reliability amongst customers.

3.)Stay in line with the latest trends

With headless eCommerce, companies can keep up with the latest trends at lower costs. Whenever you change your content, the result is instantly reflected on your website. With traditional websites, it can take a few minutes before the changes that have been made are shown to customers.

Difference Between Headless eCommerce And Traditional eCommerce

➔ Headless eCommerce solutions are decoupled. Their backend can power multiple frontends with APIs. A traditional solution, however, restrains you from making changes in the front end by also requiring that those changes are made in the backend. This makes the headless system more straightforward and seamless than the traditional eCommerce system.

➔ The customer experience on platforms following the headless eCommerce model is more consistent. They can carry out their shopping endeavors on multiple devices easily. The communication between the front end and the back end is smooth.

As a customer is browsing the products or making a purchase, the data is sent to the backend via API by the frontend. On the other hand, traditional eCommerce platforms only allow the customer to shop on a classic web store, meaning their eCommerce solution will either differ or be unable across multiple devices.

➔ The traditional eCommerce solutions allow the eCommerce stores to manage both front-end and back-end operations in a single platform. While this might work for some organizations temporarily- such as startups who do not have large development teams- They end up posing restrictions for the large and comprehensive businesses who want much more features on their website.

➔The creative control and freedom that’s given to the website owner are limited in traditional systems. Whenever they need to make even small changes, the project turns out to be time-consuming for them.

Therefore, websites that need to keep up with fast changing trends face a lot of trouble updating their data or offerings regularly if they choose a traditional eCommerce solution.

A headless eCommerce system, on the other hand, is flexible and allows the website owners to adopt new trends and changes quickly. This poses a significant impact on the overall agility and competitiveness of the organization.

➔ The decoupled architecture of headless eCommerce helps the customers acquire a scalable platform where they can build their business efficiently. Furthermore, with API facilitating the communication between the front-end and back-end, you can access more customization and control over your business.

This helps you in reducing dependency and beating the competition. This is not the case in traditional platforms, where things are comparatively complex.

➔ Headless eCommerce solutions allow you to collaborate with content management systems such as WordPress to optimize the user experience. Their API tools will enable you to build a brand-consistent image across channels, so that customer engagement and conversions face a boost.

➔ The elements that a headless eCommerce platform has built its back-end, but a traditional system lacks, include-

◆ Payment gateways

◆ An inventory management system

◆ Data processing

◆ Customer account management

◆ Billing and subscription platform

◆ Product inventory

◆ And much more.

Challenges to Headless eCommerce

Transitioning to headless eCommerce from a traditional system is difficult for any company. There are some repercussions businesses might face while shifting to headless eCommerce, which are highlighted below:

1.)Higher ownership costs

Headless eCommerce comes with a pay-per-use architecture, which means the more integrations your platform has, the more you will have to pay for it. As a result, the one-time investment cost is extensive, so you need to consider the options carefully before investing.

2.)Flexible yet complex

Smaller teams tend to find the distributed system of headless eCommerce challenging, and prefer the single solution offered by traditional eCommerce solutions.

3.)Difficulty in re-platforming

Migrating from your current platform to a more relevant one is not easy in headless eCommerce. It can be challenging and time-consuming, dependent upon the number of back-end integrations and front-end experiences you wish to have. Thus, if you want to re-platform sooner in your business, you should refrain from shifting to headless eCommerce.

4.)More resources are required

In headless eCommerce, it is essential to have both marketing and development teams on hand, as it separates copy from code. If you desire to add more features to your website, you will need developers' assistance.

5) Vulnerability of speed

Site performance can be hurt in headless eCommerce as the enormous number of APIs that connect the data are brought to the front-end. This causes your site to slow down, eventually deteriorating your conversion rate. In addition, your customers don’t usually like to wait for more than a few seconds for your page to load and will probably switch to another platform.

Steps to get started with headless eCommerce

Are you thinking about shifting your traditional commerce store to headless eCommerce solutions? Or deciding to build a new website? Of course, you’ll need to understand everything related to its first. To start with headless eCommerce, follow the procedure mentioned below in detail.

a) Evaluate

As we’ve mentioned above, it is significant for you to evaluate the headless eCommerce solution before making a paradigm shift. Check out the features of headless eCommerce along with its pros and cons.

Take assistance from a technical person or your technical team before making the decision. If you finally agree to move forward, decide what the motive is- why do you wish to shift to headless eCommerce over traditional eCommerce. Some of the reasons may include the following-

● You aim to reduce the downtime of your website

● You want to have access to more advanced features

● You wish to make instant front-end design changes

● You want to adopt an omnichannel sales strategy

b) Analyze your Needs

Headless eCommerce platforms are apt for direct-to-customer brands (D2C) and other online retailers who want to sell on multiple platforms. They’re also a good choice for global brands who wish to enhance their customer experience.

Headless eCommerce is best suited for your organization if your needs are similar to this. You should analyze your needs and specific factors about your organization before making the decision. This should include things like:

● The scalability of your platform

● The ability to offer an omnichannel experience

● Ease of Use and Security

● Customer support

● Re platforming, etc.

c) Making the purchase

The final step involves purchasing the best headless eCommerce platform for your needs. Some of the best platforms of 2022 include Magento, Big Commerce, Shopify Plus, and many more. Based on the features offered by these services and your budget, you should be able to choose a good platform for your headless eCommerce needs.

Final words

It is not difficult to shift to headless eCommerce if you have devised the right strategy. With all the knowledge you have gained from this article, it should be easy for you to come to a decision regarding your online eCommerce platform.

To experience the revolution in the online eCommerce systems that the world is experiencing, transform your website by making use of headless eCommerce for an enhanced customer experience and increased revenues!

Get started in less than 2 hours

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Source- Headless ECommerce

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Freemium business model- Advantages and disadvantages

If you are in the SaaS industry, you might have heard about key gameplayers shifting to a freemium business model. The debate is whether the freemium business model is efficient for the SaaS industry not?

While many SaaS companies have achieved new levels of success by using the freemium model, some have also faced a steep downfall as this model proved to be inefficient for them. This article will discuss the freemium business model, including its advantages and disadvantages, to help you make your mind up whether to adopt a freemium model yourself.

What is a freemium model?

Freemium is a marketing technique, used by SaaS companies, where they offer their customers a free version of their product or service as well as their paid versions. With the freemium plan, users can engage with a feature lite version of the software without incurring any cost.

If they like the software and want access to premium features, they will then have to purchase these as part of a paid plan.

Some of the most prevalent examples of the freemium model in a SaaS company include Spotify, dropbox, PUBG and Google docs. With these services, the user can use the software's basic features without paying for it. There are then upgrades for using specific features which cannot be used for free, and result in the user having to pay to avail of such features.

Freemium models should not be mistaken as a demo or a trial for the product or service, because there is no end date. Users can take advantage of the free features limitlessly and are only required to pay once they need a feature that’s not included for free.

A software that lets you download but does not allow you to get its services until you pay and upgrade to the premium version is not a freemium model.

For example, if you are permitted to download software that is known for providing wallpapers or ringtones, but you cannot download those wallpapers or ringtones onto your device until you can get the premium, it is not freemium software.

On the other hand, if you can download an app and listen to the songs on it with the internet, but you cannot download those songs for offline listening unless you get the premium membership, it is a freemium model.

Sometimes start-ups exclusively offer freemium subscription models of their products to gather data on factors such as what features are used the most within the product, or just general customer feedback on how the product is to use.

After gathering an analyzing this data, they then make the whole product, or parts of it chargeable based on what the data told them was used the most or on any improvements they’ve made.

While upgrading to premium software membership comes with its own benefits, the freemium version also offers a lot to consumers without them ever having to pay a thing for it. This has made the popularity of the freemium model touch new heights and most SaaS companies are now making use of the freemium model.

Advantages of the freemium model

There are multiple benefits of the freemium model for SaaS companies. Some of them are mentioned below.

➔ No barrier to the usage

There is no limit or barrier to the amount of app usage by any user. So, for example, when a person uses Spotify without getting a premium membership, they can listen to unlimited songs for as long as they want with the help of the internet.

However, they have to experience advertisements and cannot download the songs, for which they are lured into getting the premium membership.

Similarly, apps like iCloud allow the data of the iPhone to be stored on them up to 5GB, after which if they want to store more data, they will have to get the premium membership.

Another appealing factor linked to this is that the apps appear as ‘free’ when the user downloads them, and customers always tend to go for the free app first rather than the one that costs them. This increases the likeability of the app and the popularity of its underlying SaaS company.

➔ User base

The popularity of apps that offer free services allow SaaS companies to acquire a more extensive user base. Once the users are acquainted with the app’s features, they tend to become future premium customers.

Even if you require them to upgrade to the paid version later, most users tend to stay with your services because those services have become a part of their life. This way, you can offer them free services in the beginning and later leverage the love they have developed for your brand for cross sales or upgrades.

➔ Better service and support

Customers who use the app for free might not be given access to the best customer service that’s on offer. This therefore might encourage them to buy the premium version to get a better level of support, such as the developer's requisite support.

This is usually the case when a person uses SaaS software for their business operations, as they need better and faster support so that their business operations are not effected for longer than they need to be.

For example, if a person is using WordPress, Grammarly, Google docs, et cetera for their work, they tend to prefer the premium version in order to get the best support and help in times of need, along with the exclusive features that can help their business grow.

➔ Better and effective customer acquisition

As mentioned above, every customer loves to go for the app or software that provides them good discounts or is entirely free to use. When your competitors charge for products and services that you can offer for free, it becomes irresistible for the customers not to use your services.

Later on, with the help of some analysis and tactics, you can increase your premium per conversion rate and get higher revenues from the same customers you acquired using the freemium model.

➔ Enhancing your brand value

If you are offering your services for free to someone, they will first be lured in by the term ‘free’. Later, you can ask them to pay you to continue using those services. If your brand is good enough and your product resides in the customers' hearts, they will continue using your services even if they have to start paying for it.

This will increase your brand value and show the world that people will continue using your services no matter the situation because your services and brand are the best in the market!

➔ More cost-effective for the company

When you offer freemium model plans to your customers, they do not expect a high level of service support and commitment from you because they’re using the product or service for free. They’re also happy to discover the ins and outs of the products themselves, without the need for costly demos or customer support.

This leads to cost-effectiveness for the company. It cuts down on the costs incurred by your developers or support team. For a premium customer, you can use the basic onboarding tactics and regular emails, and no exceptional service or higher costs will be required.

Disadvantages of the freemium model

While the freemium model is highly beneficial for some SaaS services, it’s not immune to negative repercussions. There are multiple disadvantages also attached to the freemium model, which we’ve listed for you below:

❖ It costs the SaaS company money to offer a freemium plan

While the user is not paying anything for using the product or service, the company still has to pay the incurred costs. These include the expenses utilized in building and maintaining the product, handling the customers' accounts, providing them with data storage and processing API calls.

While all these costs are being made, there is no guarantee that they will ever be retrieved from the customers. Only the customers that convert into premium members later will provide revenue to the company to cover these costs, while all others will just draw out, causing losses to the SaaS company. This unpredictable nature of the freemium model makes it risky for companies.

❖ Not all users want the premium features

Not all of your users will be tempted to take the premium membership to make use of the paid features. Only some customers that have a certain dedication to your brand, or need the features offered by your premium membership will be ready to take it.

The others will only learn to satisfy themselves with the free features and will never look up to your higher-value features. Therefore, they will continue using the free features and drop out of the company or look towards your competitor when the freemium model will be taken away from them.

If you find this frequently happens to you, it would be better to offer customers a free trial instead of a freemium model.

❖ Lower return on investments

Letting your customers use your services for free for a long time have a negative impact on the return you make on your investment. This is heightened when conversion rates are low, and the free population is much larger than the premium users.

Even if some of the users acquire the free membership, it is not always possible for the revenue generated by the premium users to cover the total investment, including the one made on the freemium model. This might result in losses for your SaaS company.

❖ Conversions are not easy

If you offer a service for free to your customers and after a few months you ask them to pay you for the same service, they will probably jump to another service which is offering the same features for free. Conversions are not easy in SaaS business, especially when there’s a lot of competition.

Also, it totally depends upon the overall worth of your product whether the customer is willing to pay for that or not. If not, you will lose customers as soon as you start demanding money from them.

Things to keep in mind before shifting to freemium model

If you’re a SaaS business trying to make a shift towards the freemium model, it’s important to consider the following -

➢The reason for offering the service for free- if you are offering free services to widen the customer base, you need to be prepared to meet the rising demand that comes with a larger customer base. You should carefully assess the reason why you are going to adopt the freemium model in the first place, for it to be implemented effectively.

➢ The level of benefits you can get- you need to ensure that you do not end up paying more than the revenue you’re generating already when shifting to the freemium model. Your costs incurred on support, guides, tutorials, data etc should not be more than what you earn through your freemium model or premium conversions.

➢ If you have a conversion plan ready or not - starting with freemium, a customer will upgrade to the premium version only if you attract them with lucrative features or essential services that will make them want to upgrade and pay for your services.

➢ Do you have a backup plan- you should formulate an additional pricing strategy in case your users do not convert. You can offer them add-ons or free trials to features not included within the freemium plan, which they cannot resist. You can do this by-

○ Partnering with advertisers so that they can make the customers want an advertisement-free subscription

○ Capture their information. This is worth a lot as it helps you understand how they’re using your product and service so you can charge for that

○ Sell information to the other vendors based on their usage patterns

○ Build a community of the customers

○ Up-selling them to buy the system.

Cases where freemium models work best

There are many cases where companies have adopted the freemium model and been successful in it. Some studies have even identified circumstances where freemium models work best. Some instances are mentioned below.

A. Your product or service is easy to use

B. With time, your product can get people hooked or to understand its value

C. Your company does not have to pay a lot to support free users

D. You have no problem using customer data and feedback

E. The premium membership of your product or service has an inevitable and undeniable benefit

F. You have other sources of revenue and income through your app or software.

With so much knowledge and information, including the advantages, disadvantages, potential risks and compelling factors, you can now decide whether your SaaS company is ready to experiment with the freemium model or not. Implementing the freemium model strategically can help you achieve significant revenues and a broader customer base.

But it can be hazardous for your business as well. It’s therefore essential to create a perfect implementing strategy, keeping in mind the risks involved, so that you can continue raising your revenue without going through a loss first.

Source- Freemium business model

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ASC 606- Everything You Need to Know

With the execution of the ASC 606 revenue recognition, the companies in the US have started adhering to the new standards. However, there is still a lot of perplexing regarding various aspects of ASC 606, and how it will impact multiple industry types. In this article, we will read in detail about the ASC 606, including its 5-step model and its potential impacts on various business types such as SaaS.

What is ASC 606?

ASC 606, also known as revenue recognition, is the new method for accounting and disclosure of revenue and other financial statements related to it. It is meant to affect all the entity types that produce financial statements, and come into some kind of contract with their customers. All the concerned entities and some benefit plans for employees were mandated to adopt the ASC 606 for the financial year beginning after December 15, 2017.

Most businesses started complying with the new ASC 606 revenue recognition, including SaaS companies in the financial year of 2018. However, all other entities which were not in the group mentioned above began adhering to the ASC 606 on December 15, 2018.

The ASC 606 5-Step Model

In a subscription business, the payment for goods and services is made by the customer at the beginning of the contract period. However, it can be considered revenue only if it is earned over the contract period of the concerned customer.

The FASB and IASB, keeping in mind the essential aspects of a business such as consistency in financial reporting, improvement of comparative analysis as well as reporting, etc, have prepared a 5-step model for revenue recognition.

The breaking down of the contract process by ASC 606 revenue recognition in 5 steps is mentioned below-

1. Identification of the contract with a customer- This step of the model should be met while establishing a contract with the customer for supplying the commodities. The essentials of a contract include that-

● The agreement is approved by all parties

● All parties are ready to fulfil their obligations

● The rights of each party are identifiable

● The terms of payment are clearly identifies

● The contract stands with a commercial substance

● The collectability is ensured

2. Identification of the performance obligations in the contract- This step of the criteria tells how to handle the distinct performance obligations in the contract. A service or a good is distinct if the customer can benefit from it or it can be transferred without breaking any performance obligations of the contract.

3. Determination of the Transaction Price- This step lets you know what things should you consider while establishing the transaction cost. Transaction cost is the amount that the business experts receive for transferring the commodities to the consumer.

4. Allocation of the Transaction Cost- The transaction cost received must be allocated productively. To cover this process, the fourth step is established in which allocation of the transaction cost across the contract’s discrete performance obligations and the price at which the customer is willing to pay against the goods and services.

5. Recognition of the revenue when or as the entity satisfies a performance obligation- Recognition of the business is on behalf of each performance obligation. With this step, it is easily specified how that should happen.

What is the Impact of ASC 606?

With the beginning of the fiscal year, effective from Dec. 15, 2017, the rule of “Revenue from Contracts with Customers” which speaks about the simplified and standardized method of recording revenue in customer contracts has started showing its impact on the economy.

This whole covers every detail of how businesses report the nature, amount, and timing in regards to contracts with customers.

When we talk about the impact of ASC 606, some are of the opinion that it will be improving the upcoming fiscal year’s financial results. But the matter of fact is that, if any organization steadily shows improvement in its revenue, then it will become more difficult to recognize the organic growth of that organization for instance, with an increase in the customer base and the number of subscriptions sold.

With the release of analytics of recent earnings by Audit Analytics, the data census identifies that there are nearly about 70 companies that are noted as ASC 606 with the context of their 2018 guidance. Among them all, there were almost 20 companies that quantified an effect on the expected earnings per share (EPS).

On the basis of the Preliminary Sample, the companies which had a negative impact were more likely to quantify the impact on expected earnings per share. This was the case with 6 of the companies out of all the 10, whereas the rest of the 4 companies said that the impact was well expected to be immaterial.

What to look for in a revenue recognition cloud application?

Before choosing the best revenue recognition cloud application for your SaaS business, you should completely assess the technology it deals with and the benefits and features it offers. A few basic system requirements that you should look for in a technology solution for revenue recognition can be seen below-

1. Tracking-

Based on the 5-step model of ASC 606, a technology for revenue recognition should be able to track the contracts of the service with their customers. The five steps, including identification of the contract with the customer, identification of performance obligations, determination of the transaction price, allocation of the transaction price to each PO and the recognition of the revenue when the POs are satisfied, should be well-tracked by the revenue recognition cloud application.

2. Presentation and Reports-

A good software provides data and reports to the companies regarding the net contract asset or liability balances. Apart from this, receivable balances if any should also be reported by the software. Generally, reporting receivable balances accurately is a task which not all revenue recognition cloud applications are able to perform. Also, being able to present it in the form of a dynamic presentation to make everything highly understandable is also a plus point.

3. Contract Modifications-

Any changes to the variable considerations of modifications in the contract should be handled by the software seamlessly. The basic examples of considerations include refunds, penalties, bonuses, etc.

The ASC 606 makes it mandatory for the variable considerations to be estimated and added to the final transaction price that is applied in the performance obligations.

It is also necessary for the app to monitor contract modifications continuously and assess them to determine accurate accounting. This also includes ongoing changes to the transaction price along with revenue catch-up adjustments, which can be recent for organizations. It is a quite complicated process, and thus efficient software should be able to handle the complexities efficiently.

4. Billing and Revenue Recognition-

Apart from being a revenue recognition engine, software should also be integrated with billing and collections. According to ASC 606, the organizations must provide the net asset and liability position for every contract by incorporating cash collections (that include the cash collected upfront).

Billing and revenue recognition cannot go side by side as per 606, and it might require you to recognize a receivable that is unbilled. Therefore, a revenue recognition cloud application should be able to perform this task efficiently.

5. Powerful and Flexible data models-

The correct tool is able to recognize revenue from a plethora of sources such as opportunities, orders, invoices, contracts and projects. In the constantly multiplying revenue models from Saas which are product based to usage-based contracts, it is important that your cloud service is able to handle complex cases such as multi-element arrangements.

6. Integrations with other apps-

A good revenue recognition cloud-based app will allow you to integrate directly with applications such as customer relationship management and professional services automation so that you can make complete use of your existing platforms such as Salesforce to make your revenue recognition experience seamless.

7. Forecasting capabilities-

Allowing you to go beyond retrospective reporting to acquire a comprehensive image of the business is an essential feature of a good cloud application that deals in revenue recognition. With this, you can derive revenue forecasting with forecasted as well as recognized values on different revenue source data.

8. Configurable templates and rules-

The right tool helps you to adapt to the things coming next. You can create rules customized according to your needs in ways you want to recognize revenue. Therefore, you should search for a cloud-based app that adapts your business style, and not the other way around.

While understanding ASC 606 might still be a challenge for many, its benefits are inevitable. It offers a transparent and easy system for both the authorities and the organizations. Complying with the ASC 606 guidelines is not a tough job, especially when done with the help of an efficient application.

The most advanced technology in this regard is cloud technology, which is offering a plethora of options for customizations for the process of revenue recognition to the various industries.

FAQs

Q- How does ASC 606 change revenue recognition?

Ans- The basic principle of the ASC 606 relates to the process of the entities recognizing revenue in order to reflect the transfer of goods and services to their customers in an amount that is equal to the consideration which the entity expects to receive in exchange for the respective goods or services. It comes out as robust guidance that holds the revenue recognition changes, which can affect the financial statements of a company.

Q- Does ASC 606 apply to private companies?

Ans- Yes, it is applicable to private companies as well. According to ASC606, both public and private entities should comply with the ASC 606 in regard to the 2017 and 2018 deadlines.

Q- Does ASC 606 replace ASC 605?

Ans- Yes. The ASC 606 replaced the previous ASC 605 with the aim of bringing GAAP revenue recognition standards to the US to facilitate a better compliance level with the International Financial Reporting Standards.

Q- When did ASC 606 become effective?

Ans- The ASC is effective for fiscal years after December 15, 2017. This means that for most businesses, it became effective on January 1, 2018, in the US.

Q- Does ASC 606 apply to governmental entities?

Ans- ASC 606 is applicable to all business entities including public, private and non-profit companies that come into contracts of providing goods and services to the customers.

Q- Does ASC 606 apply to an income tax basis?

Ans- ASC 606 affects the taxpayers and their tax reporting in ways such as-

● Tax accounting method changes

● Book-tax difference

● Deferred taxes

● International tax planning and reporting

● Sales and use of indirect taxes.

Source- Everything You Need to Know

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SaaS Financial Models

Devising a financial model for the SaaS is a key practice that assists financial leaders in making decisions driven wholly based on data. This enables them to assess the future growth of the company. No matter where you are in your company’s life-cycle, you need a good financial model to get key analytics from the financial statements so that income, expenditure and growth can be predicted. In this article, we will read about the various SaaS financial models so that you can find the perfect fit for your company.

What is a SaaS Financial Model?

The model or process by which you can create the structure for assessing the income and expenditure of your SaaS company is known as the SaaS financial model. This model also includes forecasts about future revenues and significant KPIs. A good and efficient SaaS model should include the variables involved with subscriptions, churn and its subsequent effect on future revenue.

SaaS financial models are tailor-made models which help companies focus on their priorities, such as customer acquisition, customer retention and churn reduction in future years.

Importance of a SaaS Financial Model

But why is having a financial model for SaaS significant? Let’s read below.

• It helps you understand the financial viability of your SaaS business.

• It provides you with a sandbox where you can learn to understand and predict the impact of your revenue-generating strategies.

• It gives you a complete picture of your cash flow.

• It allows you to adjust your business modelling thus creating an enhanced outcome.

Key Components of a SaaS Financial Model

We will now look at the key components of a SaaS financial model so that you can understand what you need for your specific SaaS financial model.

1. Income Statement

The Income Statement or the Profit and Loss Statement includes the balance sheet and the cash flow statements of a company in a certain time span. It consists of your income, expenditure, gross profits and net profits. This report helps you analyze the financial health of your business so that you can create effective financial budgets.

2. Revenue Models

Your recurring revenue, which includes your Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR)is a part of this report. Some other components include the growth MRR, churn MRR, reduction MRR and new MRR. This report provides you with the total revenue attained and the churn percentage at the end of each month, helping you to develop an efficient SaaS financial model.

3. Unit Economics

The costs and revenue of a company are expressed by unit economics, on a per-unit basis. If your company is showing profits per unit, this means that the company is incurring overall profits. These metrics, therefore, indicate the levels of efficiency of your SaaS operations and are therefore significant.

How to Use the SaaS Financial Model Template?

Below is a step-by-step process for creating a template for a SaaS financial model

The Revenue Report

2.The next ARR is obtained by multiplying the number of customers acquired that month with the average revenue per deal.

3.Then the cost incurred for implementation, migration and other services is added here. By multiplying it by the number of deals, we get the total cost of “Professional Services”

4.Finally, we can keep track of the number of customers by adding new customers and removing the ones remaining.

P&L Statement

2.The first category of expense is the cost of revenue which includes the cost incurred in providing support to the existing customers. It gives us the gross profit margin.

3.The second category includes operating expenses such as the cost of expansion, development of products and regular expenses. R&D, sales and marketing expenses are also covered in it.

4.The details of the salaries and other benefits and the cost incurred on tech infrastructure can be added to the sheets.

5.The efficiency ratio is also calculated to comprehend the overall impact of these costs and is important for your SaaS financial model.

6.In the last section, the interest expense and the payable tax is mentioned to give the value of the net profit or loss. The tax amount depends upon the location of the business.

Who is This Template For?

The template can be used by SaaS companies for their financial models, irrelevant of whether they are well-established or in the early stages of development.

This template assists them in gaining valuable information for creating business strategies and can also be used to forecast company growth. This template, however, is not suitable for SaaS businesses with high rates of growth.

The Key Metrics To Include in a SaaS Financial Model

Creating a SaaS financial model includes dealing with multiple metrics and making the best use of them. These metrics include-

• Churn Rate-

The percentage or rate at which subscribers cancel their subscription in a SaaS business within a set time span is known as the customer churn rate. It is calculated by dividing the number of customers who have cancelled their subscription in said time period by the number of customers subscribed at the beginning of that particular time period.

It is a significant measure for SaaS companies and unless the retention rate exceeds the churn rate, it is difficult for companies to grow, therefore an important metric for your SaaS financial model.

• Customer Lifetime Value-

The lifetime value of a customer is the revenue a customer generates over the time of their active subscription. It is highly important for the SaaS to keep track of the CLV as it makes it easy for companies to assess how much they should spend on retaining their customers. Acquiring new customers might be difficult and it is therefore important to increase the CLV.

• Average Revenue per User-

This can be found by dividing the total revenue by the total number of users during a given time period. It provides a single metric to the SaaS companies so that they can comprehend the level of their product and services compared to their competitors.

• Customer Acquisition Cost-

This is the cost spent by the SaaS company on the acquisition of their customers, and is a significant metric for SaaS financial model. This includes the cost incurred on marketing, sales, advertising, etc. It is found by dividing the total cost by the number of customers gained in a given time period. Higher levels of ARPU indicate the profitability of a SaaS company and it is therefore important for companies to know the average amount spent on acquiring each customer.

• LTV: CAC Ratio-

This ratio is calculated by dividing LTV by CAC to understand the value of a customer in regard to the cost spend on acquiring them. 3;1 is an ideal ratio for LTV: CAC and a lower ratio means that a company is spending too much on acquiring customers and not gaining enough return.

• Payback Period-

This is a period that indicates the time taken by a SaaS company in recovering the cost incurred on an investment. It is used by SaaS companies to develop their enterprise SaaS financial mode land to calculate the number of users a company should acquire to recoup the cost spent on customer acquisition.

SaaS Financial Model Structure Types

There are generally four types of SaaS financial model structures or templates, which can be used to create financial models for your SaaS business.

a. Operating Model-

This model includes the monthly view of the metrics related to your business, such as profit and loss, balance sheet and cash flow statements etc. With the help of these three statements, the financials of any business, small or large, can be easily accessed and understood, without the need to reinvent a new model for each business. This place is crucial for most forecasting models and data exports.

b. Forecasting Models-

These model types are utilized to make predictions regarding each business area, such as wages, revenue, other expenses etc. and are used to push data into the operating model.

c. Reporting Models-

Reporting models work differently to the forecasting model, as they pull the data from other models to portray them in a form which is easily accessible.

This SaaS financial model is significant as the metrics and KPIs in the SaaS business cannot be communicated solely with the help of a three-statement structure, as in the ‘operating model’. The reporting model helps to summarize data in a quarterly or annual format, instead of monthly.

d. Data Exports-

Data exports provide data for all the other models from the software that you use for accounting, billing or analytics. This comes as a time-saving and accurate option for updating your model, but only if you use the same export structure over time.

e. Modular Structure-

This structure helps you bring in your team lead to be a part of the overall forecasts. The experts in your team are able to provide the best inputs and create accurate forecasts. The SaaS financial modular structure or model allows your leaders to input information that can be beneficial for creating forecasts.

How to Build a Financial Model for a SaaS Company?

You can make a highly customizable SaaS financial model of your own depending on the needs of your company. Doing this is a simple 5-step process, as shown below-

1. Begin with the Global Controls-

The first step to devising the perfect model begins with accumulating and assessing the data related to the global controls of your company. This includes data such as the start date of the model, the average cost of capital, beginning cash balance and other such details.

Using this information, you can regulate the limitations of your revenue model or the SaaS financial model that you are aiming to create.

2. Work on Your Revenue Assumptions-

Multiple factors such as churn rate, LTR: CAC ratio, MRR and ARR etc can impact your overall revenue and profit. You should carefully assess your revenue assumptions and formulate them keeping in mind the factors that can affect them.

3. Enter the Assumptions-

It is important to take headcount assumptions into consideration, including parameters such as the number of people you are going to bring on board, the wages and benefits to be given to them and other costs that will be incurred. This will help you analyze if the model will create growth for your business or not.

4. Consider the Non-Wage Assumptions-

You will need to consider expenditure other than that spent on staff. This information will be derived from multiple arenas such as historical data, financial statements, balance sheets, cash flow statements, income statements etc. This information can be used to project details in your B2B SaaS financial model.

5. Summarize-

After entering the complete details into the model, you need to summarize the information you have acquired from the different sources mentioned above. In this way, it will be readily accessible and answers to the questions related to the model can be easily understood.

Final Words

You have now read about the essential information and tools required to create the perfect financial model for your SaaS enterprise. With this knowledge, you can quickly formulate your strategy for creating an efficient SaaS economic model that can assist you efficiently in the growth of your business.

Source- SaaS Financial Models