Just like little drops make the mighty ocean, little drips in revenue can cause a mighty dent in the bottom line of a subscription business.
The median cost for a subscription business to acquire a dollar of new customer revenue stands at $1.18. Even the best-in-class SaaS companies achieve a 5 to 7% revenue churn – equivalent to a loss of $1 out of every $200 each month! Therefore, plugging all the holes that lead to revenue leaks makes good business sense.
Revenue leakage in the SaaS business usually is not because of big external damage. It is usually because of small leaks that go unnoticed. Billing inaccuracies, forceful churn due to suspended customer accounts or declined card payments, missed opportunities, and poor subscription management are the usual suspects for revenue leakage.
Here are three ways you can plug revenue leakage and maximize the bottom line of your SaaS business:
1. Enhanced Usage Tracking
The biggest customer draw towards purchasing subscription-based products or services is flexible billing cycles and paying for what you use. However, in the absence of automation and reliance on manual effort, this process becomes complex and error-prone.
Research shows that 1% to 3% of all revenue goes unbilled, and 2% to 6% of billed revenue goes unpaid. This unbilled usage can hurt the bottom line significantly.
Computing charges by usage metering based on actual usage irrespective of the usage unit is the starting point of plugging revenue leakage. Whether the service usage unit is in kilobytes, MB, GB, calls, minutes, licenses, features, software usage, data, messages sent, bandwidth, or any form of storage, SaaS businesses need to correctly track this usage to calculate correct customer invoices.
Subscription businesses need a revenue management system that helps them map their CDR files to usage charges and correctly manage bulk usage transaction records. The platform should also have the right API integrations between the source system and billing platform or have a file-based approach that can be connected to the FTP location for processing CDR rating. This makes sure that no usage goes unnoticed.
2. Accurate Billing and Invoicing
Offering services at different price points helps subscription businesses increase potential revenue. Developing the capability to offer correct tiered pricing models, capably identifying opportunities to upsell can make a significant impact on the revenue.
It is also essential to have detailed insights into customer usage and a complete 360-degree view of the customer to identify new opportunities or optimize existing packages, drive up customer experience, and turn customers into product advocates. Subscription businesses can enable all this using a comprehensive and advanced revenue management platform with sophisticated billing and invoicing capabilities.
With accurate usage metering, subscription businesses need to capably provide flexible billing options to their customers to meet their needs. Be it standard, flex, on-demand, order-based, the revenue management platform should be able to include add-ons and other features such as discounts, run-time charges, taxes accurately to make sure billing and invoicing cycles are maintained. Having the capability to consolidate charges from different vendors/systems into one bill is also essential to ensure that revenue leaks occur and impact the bottom line. It enhances customer experience and helps reduce customer churn.
Having advanced accounts receivable reporting capabilities also contributes towards improved revenues. By accurately tracking revenues, subscription businesses can get detailed insights into active and inactive subscribers, canceled subscriptions, average revenue per user, past month receivables to improve planning. With these insights in place, businesses can accurately identify where revenue leaks are occurring and take calibrated steps to plug the same.
3. Improved Tax Accuracy
Taxation is an integral part of the billing process and not an afterthought. Improving the tax accuracy for all transactions, even the complex ones, becomes even more essential as businesses grow and become global. Given the stringent compliance and regulatory landscape, this capability not only drives compliance but helps businesses minimize potential audit risks and huge revenue losses.
Improving tax determination accuracy is critical to prevent revenue leaks from impacting the bottom line. SaaS businesses need to capably calculate sales and use tax, VAT/GST, and industry-specific taxes for sales and purchase transactions.
To achieve this, they need a billing and revenue management platform that enables them to capture the right tax information and calculate it in real-time during the invoicing process. The billing platform should also integrate easily with other taxation platforms to ensure the application of correct taxation codes that apply to the products and services on offer.
Having a scalable, cloud-based revenue management platform helps subscription businesses streamline, monitor, and measure usage. It helps them manage all the moving parts that make subscription billing complicated. It optimizes and automates the subscription billing process and prevents revenue from leaking and impacting the bottom line.
A comprehensive billing and revenue management platform like OneBill not only helps subscription businesses enhance their bottom line by plugging these leaks but also helps them identify new business opportunities to drive profitability and growth.
