Subscription billing models come in a variety of different flavors and apply to many different categories of businesses. However, there are a few common factors that must be considered when selecting the best vendor to handle billing on behalf of your business.
Step One: Define your own billing requirements – what are your needs?
Here is a punch-list of items for you to consider:
Be clear on the structure of your subscription offering:
- How many subscription plans will you be offering? One plan or multiple plans?
- What is the billing cycle interval? (Monthly, Quarterly, Bi-Annual, Annual?)
- Will you offer free trials?
- Will your subscriptions auto-renew, or terminate on some date?
- Will your business require one-time payments?
- Do you need optional items to be added? (Add-ons)
Define how you will you price your subscriptions:
- Are you charging a flat fee per month?
- Do you have a variable pricing component? (Requiring ‘metered billing’)
- Will your pricing change based on usage? (Tiered pricing?)
- How and when would you like to communicate with your customers?
- What are your data integration needs? CRM? Finance/Accounting? Mailing lists?
- How important is it for your billing + subscriber status to be synced up with your application?
It is very easy to get carried away in the definition process.
Most companies find that they can save a tremendous amount of time, expense and curse words by simplifying wherever possible. Reducing complexity at this stage will also greatly reduce the operational overhead required to manage and account for your billing later on. Remember, you have to live with this system!
Step Two: Items to look for in a subscription billing provider
Think about your businesses end-goals and total cost of ownership (TCO).
Most subscription-based businesses ultimately care about the following:
- Minimizing Customer Churn
- Maximizing Lifetime Customer Value (LTV)
- Maximizing Return on Investment (ROI) – which means minimizing TCO
You cannot achieve these goals if your billing platform doesn’t support key daily functions efficiently. Your billing system should be a valuable tool, not an impediment.
If your vendor is not PCI Level 1 compliant, ‘do not pass go’. You cannot afford to store your customer credit cards with a company that is not invested enough to achieve PCI Level 1 certification.
Daily administration (This is frequently overlooked):
- Is there a Customer Support console? If so, is it functional? Intuitive to use?
- Search / Sort / Filter – How easy is it to find accounts?
- Account changes – How easy is it to make a manual override?
- Pro-ration of accounting? Is this automated or manual?
Automated – Are customer invoices delivered automatically?
Manual – Can you create invoices manually?
Credits and Refunds (Both whole and partial credits)
This is key functionality to keep your customers happy. It needs to be incredibly easy to issue a credit or a refund.
It is always critical to be able to call up the transaction history for an account in order to provide customer support.
Marketing Support: Coupon and Discount code management
Your business might require coupons or discounts for promotional purposes, or channel discounts. Coupon and discount support needs to be seamless and easy to manage. Not all systems are created equal.
- How easy is it to set up a new coupon or discount code? (60 sec. max).
- Can you manually apply coupons or discounts to an account?
- How flexible is the coupon/discount functionality?
- One-time, Limited Time, Evergreen applications
- Percentage discounts vs. absolute dollar off?
- Expiration date management?
- Applies to specific billing plans?
- Limited count offers? “First 500 subscribers receive…”
Error Handling: Credit Card Error and Decline Management
Like it or not, your recurring payments will encounter errors. This is a given when you are charging credit cards on a recurring basis. Cards will be declined for a variety of reasons, and from a variety of sources.
Q: At the highest level, you need to know whether your provider stores credit cards and tokenizes cards in their own environment.
A: If the answer is no, then that vendor cannot remediate credit card errors and declines on your behalf. It’s that simple.
Reporting: Data or Business Insights?
What kind or reporting capabilities do they provide?
Revenue by period, Revenue by plan, Monthly Recurring Revenue (MRR), Cohort analysis, Credit card decline rates, Lifetime value analysis?
What is the support model? Look at support forums and evaluate quality and timeliness of responses.
Step Three: Evaluate Total Cost of Ownership
Total cost of ownership is often underestimated.
It breaks down simply to the following four buckets:
- Cost of Integration (often a hidden cost – Recurly takes days rather than months)
- Cost of Administration
- Cost of Customer Churn and Non-renewing subscribers (another hidden cost)
- Marginal Cost of Billing Service
Is your billing system working for you? Or are you working for your billing system?
Most evaluations of subscription billing providers erroneously focus only on #4. Total Cost of Ownership surprises most companies. Ease of integration, ease of use and ease of administration can be very costly. (Employee resignations have occurred over frustration with complex billing systems)
Be clear on Setup Fees, Cancellation Fees, Extra charges.
(Recurly does not charge for any of these)
Don’t be shy. You’re the customer.
Ask for third party auditing of network uptime and availability reports. [Recurly has proudly maintained 99.994% uptime in 2011]
Expensive ≠ Better
Your subscription billing system should work for you, not the other way around. Paying more for an expensive enterprise ‘solution’ does NOT mean that you get more value.
If you consider the elements from this guide, you will not only be much happier with your ultimate decision, but your business will have a greater chance of success.
If you would like to learn more about Recurly’s capabilities, please contact firstname.lastname@example.org