Discounts & Upgrades: The Variable Nature Of Invoicing
New customers may join and old ones might leave within an invoicing cycle. Existing customers might decide to upgrade or downgrade their level of service depending on their changing needs. You may need to prorate or adjust because of these account changes, customer complaints, or other factors the affect the service.
So it’s obvious that invoicing will be variable and revenues will be changeable, even within a subscription model. Here are a few of the challenges you’ll face and how to overcome them.
Whether you are just starting out or are aiming to grow your business to the next level, offering discounts and promotions can be an incentive to attract new customers. Bringing in additional customers at a lower price point creates an increase in account activity and customer maintenance but without the full realization of revenue. This is not necessarily a bad position to be in, as long as you don’t discount too steeply and are prepared for the influx of new members.
Tax regulations are always changing, and with a digital product you may have to contend with tax laws worldwide. In some countries, a cloud-based subscription product is identified as software, which is often taxable. In other cases such products might be classified as services and not be taxed. Many countries also collect value-added taxes. Even the geographic location of your servers may affect your tax requirements. The best solution is to hire a tax accountant who is an expert in digital commerce and let her keep up with all the insanity.
By definition subscription invoicing means that you’ll be billing customers repeatedly. So even if you’ve structured your subscription agreement to provide for ongoing renewals, you’ll have to deal with expired cards, failed transactions, and other hassles from credit cards.
Some customers choose to use prepaid cards for billing, which makes renewal billing more difficult for your business. You’ll need to plan additional administrative staff time for dealing with these types of credit card issues.
A good billing system can help by tracking invalid payments and automatically email customers to try to retain their business.
Individual account changes
As discussed above, customers may choose to alter their subscription during an invoicing period, by upgrading features, downgrading due to low usage, or adding additional users. If your subscription plan is usage based, you may have a flat rate for one level and have to bill overages for additional use. All of these changes result in income fluctuations over a billing period.
These types of changes are part of what is known as lifecycle management. If you make it simple for customers to administer their own account and make changes, you may see more fluctuations. If you make it more difficult and require them to contact your staff, you end up spending more on customer service costs. There are pros and cons to each approach.
As the recurring service model gains popularity, more and more businesses have sprung up to offer subscriptions services for everything from entertainment to airline seats. If you have decided to start a subscription business or change your current business model to include subscriptions, be prepared to deal with new and old hassles. But while subscription-based businesses have their challenges, with the right planning and a good invoicing system, you’ll be ready for success.
For more information contact invoice billing specialists, Invoice IT by calling +44 1344 578003 or contact us online.