In recent years, subscription-based business models inspired by the software-as-a-service (SaaS) approach have become increasingly popular across many sectors. It’s no secret why — recurring revenue can help increase profitability and fuel company growth. When managed well, subscription businesses can deliver more consistent cash flow, increased customer retention and higher company valuations.
However, these models differ greatly from the traditional transactional model and require different sales plans, billing methods, marketing strategies and key performance indicators (KPIs). Shifting to or adding a subscription revenue stream presents challenges for finance and accounting teams and often leaves them searching for best practices and tools that can help them manage these big changes.
Below, we include tips to help finance teams master subscription billing and maximize recurring revenue growth and success.
Top 3 Challenges to Managing Recurring Revenues
1. Handling Subscription Billing Complexity
With subscriptions, customers receive bills more frequently — often once a month — which means your accounting team is constantly working to create, consolidate and send out those invoices. This only becomes more challenging as the number of subscribers increases and places more pressure on your team. Companies typically address this by adding headcount, but that brings higher operating costs.
Multiple pricing models and off-cycle bills add to the burden on accounting teams. Manually tracking options such as fixed-rate, volume-based, tiered and consumption-based pricing, which sometimes operate in conjunction, stresses even the most efficient and capable teams.
Promotional discount periods and trial offers only put more on the plate of accounting teams. Manually tracking start dates, end dates, amounts, and percentages and piecing together bills leaves little time for managing inquiries and exceptions.
Legacy software often leaves these teams ill-equipped to handle these complexities, leading to delays in billing and errors that frustrate customers and delay your cash conversion cycle and incoming cash flow.
Must-have capabilities for recurring revenue billing support:
- Billing schedules
As teams struggle with the transition to an increased cadence of customer invoices, billing schedules are often the first option to help turn billing chaos into organized and standardized processes. Having an easy way to schedule customer invoicing and automate their creation helps teams ease the burden of tracking future- and back-dated invoices and gives staff more breathing room. - Automated price calculations
To handle pricing complexities, finance teams need software that can automate pricing calculations based on volume and tier. The system should let them set minimum and maximum thresholds for pricing tiers that can automatically account for standardized and customer-specific treatments, freeing up your talent to spend more time focused on maximizing revenue. - One-time expenses
Capturing one-time setup costs, service fees and uplifts, in addition to regular recurring customer invoice activities, is incredibly time-consuming to do manually. A system capable of automatically scheduling and managing multiple fee structures while applying regular increases to a single invoice is powerful and necessary.
2. Improving Customer Satisfaction
Success with a subscription model requires a renewed focus on customer satisfaction because businesses must keep customers as subscribers to actually drive recurring revenue. Companies must focus on delivering excellent customer service and closely tracking satisfaction, including measures such as customer churn.
As the owners of subscription and billing information, finance and accounting teams are critical. Consider that billing errors can be a major source of customer dissatisfaction and cancellations — a clear warning sign of product or service shortcomings.
Must-have capabilities for customer satisfaction:
- Self-service portal
It’s imperative that customers can make account changes themselves rather than just requesting them by phone or email. Many customers prefer self-service, and this helps ensure the billing department has the correct information and items are prorated correctly on their invoices. Account management tools let customers view their invoices and order history and select the options that best meet their needs. - Payment automation
Recurring revenue can already help even out your cash flow, but to really speed up customer payments, look for software that can automatically capture, charge and apply payments to open invoices and lets customers submit payments themselves. This prevents your accounting staff from being bogged down by these simple tasks.
3. Recognizing and Reporting Revenue
Accounting teams often struggle to properly recognize revenue and report on these results in a timely manner. Finance teams also struggle to pull together subscription, billing and other financial data into reports that provide valuable insights, such as appropriate pricing for different products.
While subscription business models can be a boon for your business, they are in no way “set it and forget it” or self-managed. Finance teams and management must keep a close eye on performance by tracking metrics and KPIs specific to subscription-based businesses. Metrics such as monthly and annual recurring revenue help teams better project revenue and growth, while churn rate helps companies manage risks.
Must-have capabilities for revenue recognition:
- Robust revenue recognition
Automating parts of recurring revenue recognition is a critical feature in subscription management tools. Without it, keeping track of subscriptions and event triggers for each transaction will quickly consume your staff’s time. Seek software that can connect your customer’s subscriptions with an accounting system that has strong revenue recognition capabilities, so items are captured and prorated accurately. - Built-in reporting
Since reporting plays a critical role in proper management of the subscription model, the reporting system you select will be the key to your success. Your reporting software should provide easy access to billing and financial data and should come with or make it simple to set up monitoring of key metrics such as monthly recurring revenue, total contract value and customer churn.
Additionally, companywide and subsidiary-specific views of reports help your finance team drill into performance and slice data by product or service, region and multiple dimensions.
Managing Subscriptions With NetSuite SuiteBilling
Subscription models offer major benefits, but the increases in billing volume and pricing complexity can stress even the most competent accounting and finance teams. Rather than continuously hiring and onboarding new staff, companies should consider automating subscription management with software. The right tool will simplify billing processes and put subscription, billing and financial data in one place to increase invoice accuracy and data quality and help your teams work more efficiently.
NetSuite SuiteBilling helps finance and accounting teams achieve timely and accurate billing with bill scheduling tools and a powerful rating engine that accurately calculates what customers owe. In addition, the ability to combine multiple pricing and billing options means customers receive consolidated invoices without creating more work for your team.
Increased automation helps your team eliminate tedious manual billing processes, saving precious time for more value-added activities. SuiteBilling also connects billing and revenue management, making it easier for finance teams to comply with various accounting standards and deliver accurate and timely reporting. Together, these subscription billing and management features can help facilitate your business’s lasting growth and success.
For finance teams looking to master subscription billing and maximize recurring revenue growth, NetSuite brings the tools you need to succeed. Automated subscription billing and powerful reporting tools can free up resources, reduce complexity and save time. All these benefits can help deliver more consistent cash flow, increased customer retention and higher company valuations while boosting the efficiency of your finance and accounting teams.
Need Help?
Our Technology Solutions Group includes a team of experienced solution experts who will work with you to understand and address the specific needs of your business. If you’d like to improve recurring revenues, contact us online or give us a call at 410.685.5512.
