Automating Subscription Billing with CPQ: Plug the Leaks and Boost Revenue

June 27, 2024

While recurring revenue is certainly the most scalable business model, subscription businesses have an added challenge: retention.

There’s no one-off sale that can be made and forgotten; the customer has to make regular payments. And you have to give continuous value.

Besides the obvious factors at play, like product/service quality and customer support, one major factor in retention is the billing process. If a customer continuously has issues with the billing or can’t make changes to their subscription, they’ll almost definitely leave.

Not to mention, disorganized quoting, billing, and accounting processes lead to inaccurate invoices, late payments, bad reporting, and revenue leakage.

To address these challenges, subscription businesses need more than just a basic billing system. They need a CPQ (configure, price, quote) system that supports subscription management.

Manual subscription billing is impossible, even at the smallest scale.

You might be able to deliver quotes for one-time product sales, but as soon as you introduce any kind of recurring billing into the mix, the complexities of managing subscriptions and billing schedules become overwhelming.

You’ll have tons of issues:

  • Time-consuming manual pricing calculations
  • Difficulty keeping track of hundreds of customer subscriptions and billing cycles
  • Errors in billing resulting in dissatisfied customers
  • Missed renewal and upsell opportunities
  • Limited ability to offer flexible pricing and subscription options
  • Low visibility into subscription metrics and revenue data
  • Poor revenue recognition and compliance procedures

Even if you do have a solution for automatically charging your subscribers, using the wrong one can be extremely costly. Inaccurate billing software creates all kinds of sources of revenue leakage (e.g., not charging for new features or miscalculating usage limits). Plus, it leaves you vulnerable to involuntary churn (e.g., from payment failures).

TL;DR: How you’re going to accurately and consistently bill subscribers is your #1 concern when setting up a subscription business.

The right CPQ can plug the leaks in subscription billing.

While you might think of CPQ as simple quoting software, it’s so much more than that for subscription businesses. If you choose a CPQ designed for subscription businesses, you get sophisticated features to handle billing, finance, and revenue recognition tasks.

Let’s dive into the key features of subscription business CPQ that plug the leaks in traditional subscription management processes:

Quote-to-cash efficiency

Subscription businesses have unique complexities in the quoting process.

  • Co-terms
  • Ramp deals
  • Proration and mid-cycle changes
  • Automatic quote and contract renewals
  • Usage-based pricing (in addition to flat-rate)

Standard CRM systems and basic quoting tools were not built to manage these intricacies. With CPQ, you can include these variables in your sales quotes for an accurate representation of what the customer will be billed.

Since it handles the contracting and payment processing as well, there’s no manual work required to get from the initial quote to the final cash payment. And since it’s all done on one platform, you don’t have to worry about missing or inaccurate data due to disconnected systems.

Subscription management

Subscription management software is designed to help businesses create, manage, and bill for recurring services.

You can use it to:

  • Create subscription packages with customizable pricing options
  • Automatically bill each subscriber according to their subscription tier, usage amount, and billing schedule
  • Apply discounts, promotions, and add-ons to existing subscriptions
  • Handle renewals, upgrades, downgrades, and cancellations
  • Integrate with customer portals (and in-app portals for SaaS), so users can manage their own subscriptions

With CPQ for subscription businesses, all of these things are taken care of right in the same platform. There’s no need for a second software platform.

Revenue expansion

The subscription management module of your CPQ automatically identifies opportunities for upsells and cross-sells before it’s time to renew the customer’s subscription.

It also gives you access to data on how customers are using your product/service, so you can have more informed conversations about those possible upsells.

When a subscriber’s plan is coming up for renewal, the system will trigger two notifications:

  • An in-app notification on your end to let you know it’s time to reach out to that customer proactively
  • An email on their end letting them know their plan will automatically renew if they take no action, plus options for configuring their subscription before it does

In addition to making things more transparent for the customer, this creates multiple opportunities for Customer Success to upsell them (or for them to upsell themselves).

Automated renewals

Within CPQ, you can set up reminders for yourself and your customers about upcoming renewals. Additionally, the system can automatically trigger quote generation for that renewal according to your desired timeline.

The faster you get them the renewal quote, the more likely you are to retain that customer.

Dunning management

While the involuntary churn benchmark sits at 1.73%, even that’s a sizable amount of revenue. Let’s say every customer is worth $1,000 per year, and you have a subscriber base of 10,000. Even if you’re at the benchmark ‘low’ amount, you’re losing $173,000 per year to preventable churn.

Within CPQ, the subscription management module takes care of this. It automates payment retries and notifies the billing contact of a failed payment attempt before canceling subscriptions after multiple failures.

Without anyone on your team lifting a finger, the subscriber is notified and given a pathway to take immediate action. At the same time, your team can proactively follow up with these customers to speed up the recovery process.

This alone takes care of most of your involuntary churn events.

Revenue recognition

Revenue recognition is a bit tricky for subscription businesses, especially where subscription terms don’t line up exactly with accounting periods.

Take a SaaS company, for example: they typically invoice customers monthly, but some customers pay upfront for a year’s worth of access at a discount.

Since revenue is recorded in the period that it’s earned, the business would recognize 1/12th of the annual contract value each month as they provide access to the software.

CPQ with subscription billing handles this automatically. It recognizes revenue according to regulations like ASC 606 and IFRS 15 and adapts to any billing model you want to use.

Real-time data insights

With so much data about how your subscribers interact with your product/service, you have a goldmine of insights about their needs and preferences sitting right in your software.

You can use it to understand:

  • Customer health
  • Churn risks
  • Future revenue opportunities
  • Forecasted revenue performance
  • Subscription usage trends

These insights can inform your pricing strategy, customer retention efforts, upselling and cross-selling strategies, and even future product development.

CPQ is the RevOps game changer.

CPQ is powering the future of recurring revenue in more ways than one. It’s helping businesses streamline their sales processes, maximize revenue, and scale their operations.

Let’s take a closer look at the benefits CPQ offers:

Increased revenue capture

By automating billing, CPQ reduces the collections time for the majority of your subscription customers to zero. When you can capture the revenue you’re owed in an instant, you won’t run into cash flow problems.

With billing automation, you’ll also have the opportunity to capture more revenue through upgrades, upsells, and cross-sells or extend a customer’s lifetime value through a renewal workflow.

Fewer revenue leaks

From the very beginning of the quote-to-cash process, CPQ software ensures there are no errors as far as pricing and billing are concerned.

  • Guided selling and product rules ensure every customer quote adheres to company policy.
  • Accurate pricing calculations turn into perfect quotes.
  • Quote info stays in the same system when it’s turned into an invoice.
  • Customers pay through the same system, and everything is accounted for.
  • At the end of every billing period, they’re automatically charged and get a PDF invoice straight to their inbox.
  • The system identifies churn risks and renewal opportunities as soon as they appear.

At every step of the process, CPQ eliminates the manual aspect of collections. So, there’s practically no room for error — meaning no more revenue leaks.

Improved customer experience

All customers want is a frictionless, personalized experience — and that’s what CPQ delivers.

  • Customers receive quotes in a fraction of the time.
  • You can use it to offer multiple billing options to meet their preferences.
  • It streamlines the checkout process with built-in payment processing and subscription management.
  • Customers can manage their subscriptions and account details from their own accounts.
  • The ongoing relationship is simplified with one-click upsells and renewals.
  • Automated renewal notifications and dunning management reduce customer frustration (e.g., from unexpected restriction to your product/service).

If you invest in a CPQ for creating SaaS quotes, it can even handle complex quoting processes like usage-based pricing and multi-year ramp deals.

Data-driven decision-making

Advanced CPQ analytics give your revenue team actionable insights for optimizing pricing, devising new upsell/cross-sell strategies, and preventing customer churn.

You can even test different sales and marketing strategies, versions of your product, or price points and look at your CPQ analytics to determine which one works best.

For even more in-depth analytics, you can integrate your CPQ with a BI or revenue intelligence tool. That’ll give you a peek into the why behind your customers’ behavior and help you make more accurate forecasts.

Next-level scalability

With cloud-based CPQ software, you can easily manage growth. You don’t have to worry about hardware limitations or system crashes as you grow your customer base and internal sales team.

Plus, with scalability comes the ability to expand into new markets and subscription models. When you want to roll out a new product or service, you can easily do so without worrying about how to handle its billing.

Implementing CPQ for streamlined subscription billing

An effective CPQ implementation can change the game for your subscription business. Here are a few steps to get started:

  1. Choose the right CPQ solution. Only look at platforms like DealHub, which offers a full suite of CPQ, buyer engagement, contract management, and subscription billing tools.
  2. Integrate it with sales and finance software. That includes your CRM, ERP, payment processing, and accounting systems.
  3. Migrate your existing subscription data into the CPQ system. Take advantage of CPQ’s flexible data model, which can handle complex billing scenarios.
  4. Build out your product catalog. This will include subscription options, pricing, discounts, and product bundles.
  5. Define your rules and workflows. These include quote creation, approval routing (e.g., for high-value deals), and contingencies for various quoting scenarios (e.g., if Option A is selected, then Option B is automatically added).
  6. Configure your billing schedules. This could be for each subscription plan or customer segment.
  7. Set up automated workflows for renewals. Something as simple as integrating your CRM with your CPQ can ensure that renewal opportunities are identified as soon as they appear. Set up email triggers at this point, too.
  8. Create your quote templates. Decide on the details and branding that should populate your quotes.
  9. Invest in change management and training for employees. It helps to launch a new CPQ system in phases, starting with your top sales reps.

Depending on the software you choose, there may be additional steps as well. For example, if you’re a SaaS company choosing DealHub, you’ll also be able to create sales playbooks and enable buyer engagement analytics.

For a more comprehensive view of what the process will look like and how to prepare, check out my guide to pulling off a smooth CPQ implementation.

Automate your subscription billing process with CPQ. 

Implementing CPQ software gives your sales team the power to efficiently handle subscription quoting and billing while delivering a better experience for your customers.

The bottom line impact for your business is higher retention, lower revenue leakage, and healthier cash flow. Since it dramatically improves the buying experience, you’ll see shorter sales cycles and faster win rates, too.

That said, it’s most important that you choose a tool that supports the subscription model (many do not).

When evaluating CPQ software, look specifically for flexible billing schedules, automated renewal notifications, and the ability to handle complex pricing models, payments, and recurring charges.

The right CPQ for you depends a lot on the size of your business as well. I recommend getting started by checking out my guide to evaluating CPQ software for SMB vs. enterprise needs. From there, start your evaluation process on our SaaS CPQ recommendations page to see the best quoting and subscription management solutions for recurring revenue.

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