Josh Melick is a multi-tasking entrepreneur who has held senior technical, project management, and sales positions. Josh was the Co-Founder of Broadly.com, a mobile small company CRM and messaging platform that he helped found. He spoke to us about a recurring billing model for startups.
Recurring billing is all the rage these days, but it can be a bit tricky to get right for SaaS startups. There are several different approaches entrepreneurs can take when designing your recurring billing system; here are four of them:
- Resource-Based Billing – Pay for what you use
- Time-Based Billing – Gain access to the product for a certain amount of time
- Volume-Based Billing – Purchase a set number of units and receive a discount per unit
- Membership Access – Pay for access to designated features available on your site, usually found on membership sites
When coming up with your billing model, you’ll want to consider certain things, like how many users are signing up at any given time? Are you selling something that has a consistent demand, or is it seasonal? Do you require some sort of training before the customer can use your product successfully? If so, then time-based billing might be best. And if your product requires a high level of training or is a more complex solution, then volume-based billing might be your best bet.
This might even make sense in some cases if you have a lot of overhead and do not expect to scale rapidly. But very generally, as a startup, it’s likely that you will not have much revenue coming in. So, this might even cause you to lose money as it takes time for your clients to start paying for your product and, ideally, pay you more than what they’re using or gaining access to.
This is the most common billing model used by SaaS startups offering a limited amount of time per month, with the option for clients to upgrade or downgrade their account. If you decide on this sort of billing system, you must provide enough training so the client can use your product before the end of their trial period. The downside to this model is that your recurring revenue may not be very predictable, and if a client does not find your product valuable or cannot use it, they may cancel before the end of their trial.
If you only offer a limited number of units and then require the client to pay for more if needed, this is another option that can work well. Again, this model works well for recurring revenue because at least there is a guaranteed base. But, if you have a lot of overhead, then the cost might outweigh this benefit and cause your business to lose money.
This is a good option if you want to provide additional features exclusively available to paying members but unnecessary for all users. It’s also great for adding value for subscribers that use your product regularly. It’s also a good option if you have more than one plan available because it helps to incentivize the client to upgrade their account for a lower price per unit.
Melick concluded by saying, “Designing your product’s billing model is a way to make the entire experience better for clients and can even help your business grow faster.”