I think more SaaS companies should use a fair billing policy, especially ones that sell to SMBs.
The simple reason: your current ARR (revenue) is almost irrelevant in SaaS. What matters is what the ARR will grow into over time. The happier the customers, the higher the NPS, the better the user experience … the more ARR your current ARR will grow into.
If you are short-term focused, then you want to:
- Bill for every seat, even if not used.
- Bill annually by default, or even multi-year (to lock in the customer)
- Don’t allow customers to cancel, and/or create gates to exiting (e.g., data locks)
- Hide the ability for self-service customers to cancel, make it hard to cancel
- Etc.
These tactics all really do work in the short-term. They can boost this year’s revenue by lowering this year’s nominal churn. If a customer can’t cancel this year, then your churn will be lower this year 🙂
But I think if you are going long, and are committed to having the best product in the industry, then make it maybe make it easier for your customers to leave. Make it easier to downgrade. Make it easier to just buy the seats you want today, not only the seats you make need later. Not because you want them to. But because if they know they can … it increases the odds they buy, stay, and refer you to other customers.
In any event, do whatever you think will make your customers happier, and have a better experience.
Maybe today, that’s the best way to build a decacorn. Even if you lose a few dollars today.
And at a tactical level, a “fair billing” policy makes closing a customer easier, especially non-enterprise ones. No one wants to be ripped off. If you know going in you’ll only pay for what you use … it makes putting in that credit card number easier on the prospect. Sometimes, a lot easier.
We all are paying for way too many recurring services now on our credit cards. More utility pricing, and more fair use billing, will make it easier to make “the cut” of the apps SMBs especially are willing to add onto that monthly total credit card bill.
