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Is it time to reevaluate your sales and billing model? As your SaaS company grows and changes over time, it’s crucial to step back and take a fresh look at your selling strategy. Let’s examine the benefits and drawbacks of two basic models: fixed-price sales and recurring billing.
In the fixed-price selling model, the customer makes a single purchase at a known price.
At launch, many SaaS businesses go for fixed-price selling, because it has the benefit of presenting your service to potential buyers in a short, simple way.
It’s a great method to attract new and skeptical buyers who might be turned off by a complicated pitch. Buyers benefit from purchasing quickly at a known price. There’s a sense of immediacy and closure to the transaction.
Fixed-price selling appeals to a price-sensitive audience with a limited attention span for your service. It focuses on the one-time purchase price as a primary decision factor, meaning your price point is key.
For sellers, fixed-price selling offers a straightforward revenue formula. If X people make a purchase at a fixed price of $X, your revenue is $X. Easy to understand. It’s also pretty easy to make projections about the resources you’ll need in the future to keep your business rolling.
Fixed-price selling comes with serious drawbacks. It relies on fickle buyers who are price sensitive. This makes you more vulnerable to price wars. If one of your competitors drops their prices, your buyers are at risk of jumping ship.
Why would people abandon you? Because a fixed-price model throttles long-term relationships. You don’t have time to connect with customers.
A sales model that relies on one-time purchases doesn’t build loyalty, and certainly doesn’t inspire the kind of excitement it takes to get positive word-of-mouth, social media mentions, and reviews – all key to maintaining your online reputation.
Some sales strategy experts also say fixed pricing stifles innovation. After all, if you’re going to charge the same price to every customer for every transaction, every time, where’s the motivation to innovate? To customize? To personalize?
In a recurring billing model, the customer has a subscription or agreement for multiple purchases beyond the initial buy.
A consistent revenue stream is a huge benefit of recurring billing. Instead of relying on one-time buys, the seller can count on multiple weeks, months, or years of income from customers. Subscriptions multiply your SaaS profit and build long-term profitability.
Subscriptions also boost customer loyalty, because people think about you numerous times. If you provide great service, you gain the benefits of a better reputation built through trust. Customers may discuss you with their friends, mention you on social media, and leave positive reviews.
Why, exactly, do subscriptions foster so much loyalty and positivity? Because you are solving a long-term problem for your customers. Subscriptions give your customers a feeling of saving time and – when priced right – saving money.
A subscription model also sets the stage for scalability and innovation. It encourages your company to engage deeply with customers, see their needs, innovate, and scale up your business.
Keep in mind that you should always offer a way to opt out of recurring billing. If you make people feel trapped, your reputation will take a nosedive.
Recurring billing requires complex revenue and resource tracking. Each customer is at a different place in the subscription cycle. You’ll need to allot resources to ensure you can fulfill all new subscriptions for the long term.
On the flip side of scalability is the issue of runaway success. Sure, it would be terrific to suddenly have a huge influx of business, but can your servers handle the traffic? Do you have enough people for the workload?
Your SaaS business may need a sophisticated ecommerce platform to manage the ins-and-outs of a recurring billing model. Consider an innovative resource like FastSpring, a full-stack billing and customer service platform, to sustain buyer loyalty for the long term.
For either one of these methods, FastSpring’s platform can support you, the seller, on the backend. Interested in seeing everything FastSpring has to offer? Click here to access your free demo today.