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Choosing the right billing system for your SaaS business

So you’re building an awesome subscription business – great! But you need to tackle what is arguably one of the most important parts: Billing. How do you manage the process of accepting money from your customers?

Building your own billing system can be a world of pain, risk and complexity, so what options are out there for integrating a third party product? This guide serves as a comprehensive overview of the options available for SaaS businesses in 2016.

Why is this critical for my business?

Choosing a billing system for a SaaS business is potentially a make-or-break decision for your company. Implementing a solution that either doesn’t fit your product’s needs, or offer the flexibility your pricing model requires could result in hours and many dollars of wasted investment. Furthermore, stripping out and changing an integrated billing system months or even years down the line could be an incredibly destructive operation – you need to get this right in the beginning.

3rd-party vs in-house billing

Well, in theory you don’t necessarily need an external solution. There are many SaaS businesses out there with custom-built in-house billing systems driving their back end. Here are some of the things you should consider if you’re thinking about building your own.

In-house billing systems:

  • Require a lot of complex logic to handle payment transactions (i.e. you’ll need some great engineers and a lot of time)
  • Still need to interact with 3rd-party systems along the way, for card authorization, etc.
  • May require a legal presence in each country in which you wish to do business
  • Will require a large ongoing investment in security. Your billing system will need to stay at the forefront of the latest payment tech
  • BUT they allow you to maintain a great level of control over the entire management and processing of payments (and the data associated to them) within your platform

3rd-party billing systems:

  • Handle nearly all of the complex logic associated with payments
  • Take care of the legal side of handling transactions in multiple countries
  • Usually maintain the highest possible level of security
  • Support a number of one-click integrations with other platforms (analytics, accounting etc.)
  • Allow reasonable flexibility and control when it comes to customization
  • Deliver a consistent payment experience for the end user
  • Usually take a small transaction-based fee, rather than the large upfront cost of building your own

So it’s not a completely straightforward choice to make – there are definitely aspects to consider. However, for small startups near the beginning of their journey, there’s one key factor that almost always means going for the 3rd-party system: Speed of integration. The advantage of having a working system up and running in a matter of hours will almost always win against giving away a small slice of each transaction’s revenue.

Of course, when your business is booming and you’re serving millions of transactions per week, looking at an in-house solution might draw a different conclusion.

What aspects are important when choosing a billing system?

So you’ve decided to go with a 3rd-party option – great. But here comes the next dilemma: Which system should you choose out of all of the available products out there? Many of them have different characteristics and cover slightly different parts of the billing process.

How to evaluate a billing system, in 5 questions

1: Do you need to handle both subscription and one-time charges?

This one’s fairly straightforward. If your business handles purely subscription-based charges, you can choose any of the specialized subscription billing systems available. However, if you also handle some one-time charges such as setup costs, fees etc. then you’ll need a system that supports this as well.

2: Which parts of the billing process does it cover?

This is a big one. Put simply, there are 3 stages of the billing process that you can cover with a 3rd-party billing system. Not all of them are mandatory.

Billing System Categories

  • Subscription Management Platform (optional). If you’re handling customer subscriptions, these features will handle a lot of the heavy lifting and logic around pricing tiers, discounts, upgrades, downgrades etc. A subscription management platform can effectively drive a lot of the pricing model of your product – before we even get to handling the payment transaction.
  • Payment Gateway – This is where most of the tech innovation happens in online billing. The gateway is the system that securely transmits transaction data to merchant banks and receive responses from issuing banks.
  • Merchant Account – You’ll always need a merchant account to receive online payments as a business, but some of the billing systems include a “built-in” version. Others may require you to plug in an external account.

Note that both a Payment Gateway and Merchant Account are required to set up online payments. If your chosen billing system doesn’t offer one of these, they’ll likely offer integrations with other 3rd-party products.

3: In which countries & currencies do you operate?

Country and currency support are two very important factors, but they’re definitely not the same thing. A billing system can support transactions in a particular country, but they may not allow you to accept payments in the currency of that country. There are almost no payment gateways that support every country (with the exception of PayPal), so do your research here! Having said that, most will support the world’s major currencies.

Remember: If in doubt, make sure you read the detailed terms of the payment gateway you choose.

4: What are the fees?

For a billing system, fees come in several different categories, all of which could have a large impact on your bottom line:

  • Monthly fees – This is basically a SaaS subscription fee. You’re paying to use certain features, per-month (or per-year). Many billing systems don’t actually have a monthly fee.
  • Setup fees – When opening a merchant account, or other financial services, you’ll often have to pay a one-time setup fee when you apply.
  • Transaction fees – This is how most billing system businesses make their money – they take a small fee for each transaction you run through their system. This is usually a percentage of the transaction amount, sometimes combined with a fixed fee of a few cents.

Note: If you’re processing transactions over a certain (very large) volume, you’ll be able to negotiate fees (and discounts) with the billing system. Huge SaaS businesses don’t pay the fees you see on the pricing page!

5: What features are important to you?

Finally, you should consider the features that each system offers, particularly with regards to subscription management. Here are 6 categories of features that could be useful to you, depending on the features of your business.

  1. Handling of subscription tiers, discounts and coupons – If you don’t have logic and systems in place to model and manage the different pricing tiers for your product, it’s possible to find subscription management products to do this for you. This is especially valuable if you have a complex pricing model, and multiple discounts or coupons in use. For example, Recurly and Chargify both offer this functionality. 
  2. Analytics – You want to be able to view and understand the data associated with billing. Some billing systems have a basic level of built-in analytics, but if you really want to understand customer churn, retention and optimize your MRR you should turn to a subscription analytics platform. It’s for this very reason that ChartMogul exists! Give it a try.
  3. Integrations – Besides analytics, billing systems can plug into a vast range of other platforms, depending on your desired functionality. For example, Stripe integrates with Intercom to allow you to communicate effectively with your customers. Make sure the billing solution you choose supports the systems you use in-house, and your experience will be much smoother in the long run.
  4. Mobile support – Depending on your product, mobile payments may or may not be a requirement for you. Many billing systems support different kinds of mobile experiences (some more customizable than others). A good example of this is Braintree’s extensive set of mobile integrations, supporting products like Apple Pay and Android Pay.
  5. Invoicing and tax handling – If you need to invoice your customers, the chances are that you can have your billing system take care of generating, and even sending invoices.
  6. Handling card failure – Credit card failure is a killer cause of churn in SaaS businesses. Some businesses have reported up to 50% of customer churn being attributed to failed card transactions, so choosing a billing system that can address this in some way could save you from a churn nightmare down the line.

Simple Billing Process

In conclusion

It’s important to make a carefully considered decision when choosing a billing system to integrate for your SaaS business. A variety of different aspects (not only cost) will have an impact on your success with the chosen system, particularly as your business scales over time.

To summarize, most SaaS businesses will need to choose:

  • A Subscription Management solution
  • A Payment Gateway
  • A Merchant account

In some cases, these will all be bundled into the same service. In others, you may want (or need) to choose a separate solution for each. Make sure you take the time to evaluate the system that best suits your business.

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