“You could try to upgrade your existing billing and financials infrastructure to handle recurring and consumption revenue models, but the cost of maintaining and upgrading existing software will likely be expensive. Granted, you have to modernize, but do you really want to build your future on legacy systems?” - James Messer, Gotransverse Founder and CEO, in Forbes.

Gotransverse CEO James Messer was featured in Forbes, discussing the challenges businesses face when they adopt subscription and usage-based billing models, and the hidden costs that can all but negate the benefits of the new models if the shift isn’t managed correctly.

With subscription and recurring billing, taking the B2B and B2C worlds by storm, Messer says, more companies than ever are looking to modernize their billing processes:

“According to CFO Research, 53% of respondents said 40% or more of their companies' revenues were from a subscription-based or usage-based model. What's more, 23% of C-suites and boards said they were incorporating recurring revenue into their future strategy, and 17% were planning to launch a recurring revenue business in the near future.”

And yet despite their popularity, these models are not without challenges, Messer says, noting that the same survey reported 65 percent of respondents noting that operational issues blocked the way to subscription billing models.

System Requirements for Subscription Billing

So what are the challenges recurring billing models pose for businesses? Messer lists five, to start with:

1. Managing Billing Volume

When companies offer subscriptions and usage- or consumption-based models on top of one-time purchases, the sheer volume of activity increases, and tracking requirements skyrocket as a growing customer base expects more regular invoices on a variety of terms.

2. Usage and Consumption Calculations

Mediation — the process of converting raw usage data into usable information for rating and invoicing — becomes more complex as customer plans become more varied. While usage-based billing increases revenue potential, most traditional billing offerings can’t handle complex mediation, meaning finance teams are saddled with significant manual effort, adding time, cost, and potential for error to the billing process.

3. Billing Flexibility

Under subscription models, invoices and payments must be processed on different cycles depending on each customer’s start date and subscription terms, not to mention special discounts, tiered services, and other varied offerings.

4. Automated Invoicing

While automated invoicing may be fairly simple for one-time sales, it becomes much more challenging — and more critical — with flexible service pricing, requiring automation of first-time purchases, renewals, cancellations and more.

5. Revenue Management

With the added volume and complexity, revenue management requirements also increase, and a billing system has to be able to accurately recognize revenue and aggregate information to avoid revenue leakage or regulatory lapses.

Why the “Easy Way” Is Often the Costly Way

Despite the vast potential of recurring billing, Messer says most conventional billing systems just aren’t equipped to handle the added requirements:

“For example, ERP systems are designed to execute back-office functions and track transactions, but they are not designed to manage the revenue life cycle. They can't handle discount management, change orders, billing and renewals on the fly.”

However, many businesses looking to modernize their billing models try to save costs by upgrading their existing systems. Unfortunately, Messer says, this means most enterprises spend up to 80 percent of their IT budgets on maintenance rather than monetization. In other words, coaxing a legacy system to manage modern billing requirements is often more trouble than it’s worth. Other businesses turn to custom software, but Messer points out that maintenance costs on custom software often add up to 20 percent of the initial development cost each year, not to mention the expenses that come with IT consulting and licensing.

The ideal solution, he says, is a cloud-based platform that can scale and adapt to changing market conditions and business requirements.

“Recurring revenue business models are here to stay, and the best way to compete is to adapt your billing ecosystem to accommodate customer demand. As your business evolves, your invoicing and revenue recognition systems need to evolve as well. Take a hard look at your current billing system, and ask yourself, ‘Can I keep up?’”

The power of subscription and recurring billing models to grow revenue and turn one-time buyers into loyal customers is enormous. But the shift to these new models isn’t easy, and if it’s not managed well, it can lead to lost revenue and frustrated customers. At Gotransverse, our goal is to help our clients implement a modern, agile billing system designed to grow and evolve as rapidly as they do. If your business is looking to make the change to subscription and/or usage-based billing, we’d love to talk about how Gotransverse can help. We invite you to take a tour of the Gotransverse platform and its capabilities and, when you’re ready, schedule your complimentary, personalized demo to find out whether Gotransverse is the right choice for your business.