Modern SaaS Subscription Management Defined

July 30, 2023
Patrick Rafferty
Co-founder of UserHub

The competitive intensity within SaaS markets has risen to unprecedented levels.

Category leaders have honed their expertise in both product-led and sales-led growth strategies.

SaaS startups who hope to challenge the status-quo need to develop a sophisticated go-to-market relatively early in their evolution.

That translates to more complex subscription billing requirements.

While recurring revenue is a given, the first major choice related to monetization is selecting a model for recurrence—i.e. a subscription model versus a pure-play consumption model.

In this article, we’ll break down modern SaaS subscription management for those adopting (or considering) a subscription-based approach—including key considerations, software and tools, and examples of how to better monetize your subscription model.

What is “modern” SaaS subscription management?

Subscription management refers to a set of capabilities that allow SaaS vendors to charge subscribers on a recurring basis. 

Early subscription models were relatively simple. Now, SaaS vendors have more dynamic relationships with customers, incorporate more exacting pricing models, and expect to be able to unlock their entire addressable market (e.g. SMB to Enterprise).

If you’re a SaaS startup, you are expected to deliver a monetization journey on-par with leading SaaS companies. 

That requires a slightly evolved, more modernized version of subscription management—including streamlined buyer journeys and more sophisticated pricing models.

Modern SaaS subscription management typically includes functions such as:

1. Pricing and Packaging

Picture your standard pricing page.

This is where you’d optimize the plans you offer.

Each plan acts as its own recipe describing how pricing and billing logic is translated into a subscription. 

You can do that in a way that benefits your clients, while also placating your monetization goals.

You can also determine what level of flexibility you want to offer. For big customers, for example, you might offer more custom, or completely custom plans, which can be constructed by your sales team.

2. Sales-Led Billing Tools

You need to ensure you have a unified product catalog across self-serve tools and sales-led tools.

For sales-led subscription billing, CPQ (Configure Price Quote) tools are used to construct customer-specific contracts.

3. Entitlements, Metering & Provisioning

You’ll also need to manage customer access levels across specific features and products within each of your subscription plans.

Entitlements are part of your application code, dictating if customers have access to paid features. Generally homegrown, your entitlement service will limit access to certain features.

Beyond simple boolean logic, you may have quantity based entitlements. If you have a soft limit, you may need to deal with overages. 

4. Payments & Invoicing

Collecting payment is a foundational requirement for managing your SaaS subscriptions.

Most self-service companies targeting the US market rely on credit cards, and begin using alternative payment methods as contracts approach 7-figures.

Credit cards are an ideal payment method for developer teams who build self-service purchase flows, since they do not require customer-initiation after they have been added, and payments are synchronous (read immediately).

For larger customers, you’ll also need to support asynchronous payments, which likely require customer initiation (ranging from checks to bank transfers). 

5. Monetization UX

The more sophisticated your self-service monetization journey, the more complex your in-product monetization UX will become.

This could include components such as your Billing Admin Panel, in addition to all the flows surrounding it (e.g. checkout flows, upgrade modals, seat management, user licensing & more). 

This even includes communications with the customer, such as customer lifecycle emails, trial notifications, and more. 

6. User Management

Modern SaaS firms have closely tied together billing and identity. Monitoring users and usage is now a crucial function of managing subscriptions.

You’ll need to integrate user management systems with billing to eliminate friction from seat expansion.

Overall, subscription management is at the heart of how SaaS companies monetize, since it has tentacles into every capability, and impacts virtually every company department.

So then, how are category leaders reimagining SaaS subscription management to drive better adoption and revenue?

How are fast-growing SaaS companies reimagining subscription management?

The fastest-growing SaaS companies are reimagining the subscription model in a variety of ways.

1. They have more complicated pricing models.

Per Seat Pricing is still standard (take companies like Notion and Calendly for example).

However, we now see many SaaS leaders utilizing Role Based Pricing (Figma, Canva, Retool), Per Active User Pricing (Slack), and Hybrid Subscriptions (Intercom, ZoomInfo, Hubspot).

2. They have more complicated product catalogs. 

Beyond more sophisticated pricing plans, these companies incorporate add-ons that drive significant revenue. 

Beyond simple binary account-level product-add-ons, user-level add-ons with per user pricing have become increasingly common in the age of the copilot (e.g GitHub Copilot).

These add-ons themselves have the ability to drive outsized revenue.

On a 2023 Microsoft earnings call, Satya said GitHub copilot now has over 1 million paid copilot users. At $10/user/month, the add-on alone already produces a $120m ARR lift. 

3. They have self-serve models, but will also incorporate an Enterprise Licensing Program for upmarket customers.

With these programs, SaaS vendors will allow customers to over-provision the number of licenses purchased, and then “true-up” later on. 

4. They have identified cut-off points between self-service motion and their sales-led motion. 

This often requires rethinking through the funnel and use of a product-qualified lead. 

SaaS Subscription Models: What to consider

So, you’re considering adopting subscription-based moSlack cited 143% Net Dollar Retention (NDR) in their S-1.netization.

The first question to ask yourself is, of course: “Is a subscription approach right for us?”

The most sensible guide we have found to answering this question is here: 

“Our rule of thumb: usage-based pricing generally works best for SaaS products whose end user is other software, while subscription-based models tend to work best for SaaS products with human end users.”

From there, it’d be identifying what kind of subscription pricing model you’d need to implement—whether ​​that’s a per-user model, or one featuring multiple billing metrics and tiered subscriptions.

Let’s take Slack, for example.

They kicked-off the era of Modern SaaS subscription models with their Fair Billing Policy and Per-Active Pricing.

They were able to identify that a user-based subscription model was the right approach, because it leads to more precision, helping drive in-account seat growth. 

 

Slack cited 143% Net Dollar Retention (NDR) in their S-1.

What are some of the questions you need to ask yourself, as Slack did, to ensure your approach to subscription management maximizes your NDR?

1. What is your initial pricing architecture?

The first step is to decide on your pricing architecture, and then engage in a price setting exercise.

Ideally, you have a set of billable metrics that are common across pricing tiers (e.g. # of editor seats, contacts, etc.). From there, you can determine your price setting strategy, which is the price-level you select (e.g. $15 per editor). 

2. What is your initial go-to-market motion?

After you have decided your price architecture, the other aspect you will have to figure out is how your company will take the product to market.

Self-serve and sales-led approaches will each confer a very different set of requirements. 

3. How much developer resources do you have to reach full-featured billing capability?

To monetize like a leading Subscription SaaS company, you will need a sizable investment. Leading SaaS companies invest tens of millions of dollars to deliver an elegant buyer journey, whereas most startups begin by using low-code or no-code offerings (e.g. Stripe Customer Portal). 

4. How will you facilitate Pricing Model Exploration and Iteration?

Your pricing & packaging will evolve. You will add more features, your competitors will evolve, your cost structure will evolve, and your go-to-market will evolve.

If you're like most SaaS companies, you will have to grandfather legacy customers into older pricing plans. Plus, you probably didn't nail your pricing perfectly the first time. This will translate to developer maintenance hours.

SaaS Subscription Management Software Examples

There are a number of different platforms SaaS companies are currently relying on for subscription management.

Chargebee logo

Founded in 2011, Chargebee has repositioned their offering as a “Revenue Growth Management” platform, helping SaaS companies acquire, grow, retain, and manage customer subscriptions.

That includes invoicing, automated revenue recognition, and receivables—with interactive dashboards all the while.

Pricing starts at $0/month, and goes all the way up to custom Enterprise billing. Upon hitting certain cumulative billing totals, users will have to pay a fee of 0.75% monthly fee for all billings that exceed that total.

Maxio logo

Maxio helps SaaS companies automate their billing, subscriptions, collections, and reporting. They can help you build out flexible pricing models, manage your customer base, and automate GAAP compliance.

Pricing starts at $599/month, with options for both Growth and Enterprise pricing.

Recurly logo

Recurly is another subscription management platform that is “proven to amplify subscription growth.” They are largely framed around helping their clients grow, stating that the average growth of their clients in 2022 was 30x.

For new customers, pricing starts at $0/month, which includes features for startups and SMBs. They also offer packaging for midsize and enterprise companies.

Zuora logo

Founded in 2007, Zuora was one of the first companies to enter the subscription management category. 

Zuora has focused on larger enterprises. Their CPQ module was one of the first designed to facilitate sales-led subscriptions, while other CPQs such as Salesforce were designed to facilitate any type of quoting, including non-recurring use cases.

“From sign-ups to renewals to upgrades, Zuora CPQ is the only quoting software purpose built for quoting any combination of subscriptions, products, and services for the entire subscriber lifecycle.”

Many more established SaaS companies use Zuora, including Intercom, Zoom, and SimilarWeb. 

Paddle logo

Paddle differentiates itself with its MoR (Merchant of Record). 

This has the advantage of offloading a lot of complexity associated with international expansion. For companies more focused on a select few markets, this may be less of a consideration. 

Additionally, it is cheaper than a system like Stripe, which would require multiple modules. 

Stripe logo

Stripe Billing was released in 2018, and has become the most popular choice among early stage startups who want to launch with a self-serve model. 

True to its brand as a developer platform, Stripe has the best documentation, and has low-code modules such as Pricing Tables and Customer Portal which make it easy to get started.

Their clocks feature (recently rebranded as simulations), and Test Mode makes it easy to test integrations and gain confidence before you launch.

Can you manage subscriptions with Stripe?

For the most part, yes. However, Stripe billing does have a few constraints. 

First, Stripe does not go down to the user-level. If you have an organizational account that represents a company, Stripe is not modeled at the user level. 

Neither Stripe Billing, nor auth providers like Auth0, AWS Cognito, Google Cloud Identity, & others offer rich integrations identity and billing connections. So, your developer team will have to integrate Stripe Billing with your user management system(s). 

Second, Stripe has focused historically on self-serve, with sales-led billing features entering beta in 2023. 

This will be the first time Stripe launches CPQ-like features, and some of the first features they have launched aimed at seller persona, as opposed to developers or financial professionals. 

Last, Stripe Billing was built for a wide-range of recurring subscriptions. From e-commerce, to creators, to consumer startups and B2B SaaS startups. For developers, you can think of Stripe subscriptions as “recurring” checkout. 

How can you better monetize Stripe subscription management without a huge budget?

This is where platforms like UserHub come into play.

If you’re a SaaS company looking to modernize your subscription models, and say, move more towards the user-monetized approach taken by Slack and Figma, UserHub can serve as the engine that allows you to deliver a monetization process on par with the likes of major budget, fast-growing SaaS leaders.

UserHub serves as a drop-in solution atop systems like Stripe and Auth0 to allow for more modernized subscription management and accelerated growth.

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In this article, we walk through five key questions to help you design a Team Management Portal that unlocks product-led growth:

  • Is every Team Membership role considered billable?
  • How should your Team Management portal behave at each pricing tier?
  • How can users become team members?
  • What is the optimal moment to monetize an end-user?
  • How forgiving are your proration flows to billing admins?
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The Case For Free Roles
Examples: Coda, Figma
  • An organization has lower willingness to pay for secondary users; however, these secondary users enhance the product's value for primary users.
  • Since there is a free role for inviting users, SaaS companies tend to feel more comfortable granting user invitation privileges to all users by default, rather than limiting them to only admins.
  • For instance, Figma does not charge an organization for non-editors. This approach enhanced the product's value for designers by providing a platform for collaborative design processes. Subsequently, they monetized these non-designers by cross-selling their whiteboard product, Figjam.
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The Case Against Free Roles
Examples: Zoom, GitHub
  • There are no obvious secondary users, so offering a free role may lead to cannibalization of paying users
  • In the case of GitHub, introducing a free role could potentially have more drawbacks than advantages. Unlike Figma, users who cannot read code may not enhance the platform's collaborative utility. Furthermore, attempting to create a free role for non-engineers introduces the risk of cannibalization. GitHub could lose the ability to monetize engineers who do not write code but still provide valuable contributions through code reviews.

[Users with the role of] Viewer can upgrade themselves to a paid Editor role by performing an upgrade action. Admins don't need to approve these upgrades…. This allows people to get the access they need without requiring approval. Figma only includes them in the organization’s billing when they signal their intent and take an explicit edit action. As this is a provisional role, it's not possible to set someone's role back to viewer after they are upgraded. [Instead, they can only be placed back to a Viewer-Restricted Role].

PLG [product-led growth] works when end users experience value and bring their organization on board. That’s not possible in industries where the enterprise buyer holds all the power…. End-users need to have permission from the organization to solve the problem. This includes access to suitable systems/passwords & decision-making ability.

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Patrick Rafferty
Co-founder of UserHub

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