The 5 Challenges of Revenue Management for SaaS Subscription Businesses

 

The application of data metrics to predict consumer behavior and optimize product development, pricing, billing, marketing, and revenue growth is revenue management.

The goal of revenue management is to establish a clear and insightful path that can identify and pave the way for the opportunities to earn profit and grow the SaaS business.

The dynamics of the SaaS Revenue Management are different and complex than any other business.  In SaaS business, revenue management is just not the monitoring and measurement of the data analytics, it is more about understanding customers' perception of the product's value in the line with the competition in the market. It helps in aligning product prices, placement, and availability with each customer segment.

Revenue Management in SaaS

Revenue Management in the SaaS is unique to the business and is complex as well. As the SaaS business is based on the subscription model and they earn revenue as the recurring stream, they are more prone to lose the sights of the revenue management because they do not accumulate the revenue at one time.

The revenue monitoring and reporting through data analytics help them to gain more insights into the flow of the cash.

Growing a SaaS or subscription business requires merchants to understand their key metrics that drive growth, identify the leakage points, and examine their reasons.

Here are a few of the core challenges that SaaS businesses face when they try to grow their revenue through recurring revenue management:

The Endless Pricing Optimization Challenge

Price optimization is a mathematical process that uses data from customers and the market to identify the most effective point on the price scale for the SaaS product or services that can maximize sales or profitability.

Price optimization is a challenge because it requires reserve resources to constantly identify the best price for individuals subscribing to the product or services when pricing is done manually.

Price optimization plays a huge role in acquiring customers. It is a key factor that affects a customer’s purchasing decision. Particularly, the customers with the freemium or basic subscription plans wait to take advantage of the reduced pricing to subscribe to the upgraded plan or particular feature.

The best way to deal with the pricing challenge is to go with the subscription management system that can channel price optimization with an automated price engine while leveraging the data from the software and other applications integrated with the recurring billing platform or subscription software.

The Complex Billing Model Selection and Implementation Challenge

Billing in SaaS is complex and selecting a billing model is more complicated than the recurring billing process.

Choosing an appropriate billing model from a range of recurring billing models is not a matter of pick and choose, it requires customer and market research to identify what is the need of the SaaS product in the market and what value it adds to the needs of the customers, also how the competitors in the market are channeling their recurring billing and what revenue they are earning from their billing strategies?

Answering these queries will help to navigate the best billing model. Flat fee, pay-per-use, pay-as-you-go, or through hybrid billing, SaaS businesses can charge customers the way it suits them and the SaaS merchants, too.

The Churn Challenge

Recurring payment failure, non-conversion from fermium to paid subscription, or any other unpredictable cause, churn is a setback in SaaS. Churn not only dent the accumulation of revenue and profit building, it also loses the sight of the revenue drive and direction. Revenue management requires SaaS businesses to adopt revenue management strategies and minimize the losses due to churn.

Often the data analytics help monitoring the churn rate which unfolds the reasons behind churn as well. The AI-fueled subscription management tools are great to offer data-driven recommendations for action moves to reduce churn, and, consequently, the revenue.

The Monitoring, Measurement, and Recurring Revenue Management Challenge

Monitoring, measuring, and managing the recurring revenue is a key to build a successful and profitable SaaS business which yields robust revenue, brand loyalty, and customer base growth.

Recurring revenue can be monitored and managed using KPIs like Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), and their comparison with other metrics like Churn rate (CR), Customer Acquisition Cost (CAC), Customer Retention Rate, and more.

SaaS businesses are advised to choose a recurring revenue management platform that offers highly customizable platform which offers insights into different components of the monthly recurring revenue.

The key MRR components are:

  • New MRR
  • Expansion MRR
  • Contraction MRR
  • Reactivation MRR
  • Churned MRR
  • New Net MRR

The different components of the MRR helps SaaS business to identify the loop holes and revenue leakages which leads them recover revenue with dunning strategies, mitigate the online payment fraud risks, devise strategies for pricing and billing, enhance personalized customer experience, and more.

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