Subscription Based Billing Best Practices
As a Microsoft Partners, start to scale, we are faced with the challenge of collecting funds and chasing payments for the subscription-based products and services that we sell. Time spent talking about collections can be invested in improving products and services.
It’s important to understand the reasons why B2B customers don’t pay on time or worse don’t pay at all:
- Customers don’t feel like they have a relationship with you
- Your Service or Product Quality is not meeting expectations
- Your Credit Policy is too liberal and not aligned with the service
- Your Service is not correctly aligned with the Sale.
To address some of these issues, we apply some of the best practices to align your CSP business with the tools and capabilities in Work 365. This article addresses the issues around how to ensure your service, sales, and billings are aligned with customer expectations.
Align Payment Terms with Service Terms
Cloud and Subscription services are like rent payments. Just like Rent payments, they should be collected upfront for the duration of the service term.
Typical terms that partners use are annual, quarterly or monthly payment terms. For each term, incentivize your customers correctly. Making every customer purchase with either monthly or annual terms erodes customer experience.
If a customer wants to purchase monthly then they must pay immediately. Also, they get the flexibility of adding or managing CSP licensing counts on a month to month basis. This is the typical case with usage-based Azure subscriptions. And a customer with a monthly billing plan needs to pay via credit card or some form of automatic debit. Customers have a perception of value through how much they pay. If it’s a few hundred bucks a month and takes some time to write a cheque – the payment can be delayed.
If the customer is paying on an annual basis then provide at least 15 to 30 days to collect the funds. You have enough time to collect the funds for a service that they are pre-paying and resolve any disputes.
For a customer paying annually, they are looking for
- Ease of purchase
- And Savings
These customers are likely to have a stable number of users and well-defined expectations of the service. Their incentive is going to be a discount for making the annual payment. As a CSP, you can collect the payment upfront and continue to pay the providers monthly. You may want to recognize the revenue using a Deferred Revenue Report. However, you should not provide refunds for any reduction in licenses. In fact, any additions to the license count during the term should not receive the upfront discount. Paying for Licenses upfront is a commitment to using those licenses and receiving the discount for paying upfront.
- The customer saves money
- They don’t have to request for changes through the year
This makes sense when your agreement is aligned with your Sales and Billing System. Work 365 aligns these processes for you.
Some partners think that providing credit for unused licenses is part of the service offering they provide and this is what differentiates them.
Imagine a rental agreement with similar terms. On an annual agreement if you offer a discount for an upfront payment, incentivize your customers to buy the bulk of the licenses upfront. If you continue to honor the upfront discounts for licenses that are purchased over the course of the year the customer is not incentivized to make a significant commitment upfront.
Have an Agreement that Models Customer Reality
One consistent billing challenge for Microsoft CSPs is coordination between accounting and sales. Having standard prices is great with terms that everyone can have access to.
However, your system for billing should be able to support the customer reality – do they want one service billed on an annual basis and others on a monthly basis? Are you providing discounts on some of the services and using a retail price for other services?
If your billing system is not flexible to a model of the customer reality then it will take a lot of manual effort to service the customer.
Recently, a partner reached out to inquire about Work 365 and how it could help them with their Billing Automation Scenario.
They had sold a deal and found themselves in a bind where the billing and service management would become very tedious. They had a large organization with a lot of small subsidiaries.
Collectively the organization had many seats but at an individual subsidiary level, they had very few licenses, sometimes only a handful. Additionally, they had decided to send them an Annual invoice but also agreed to give them a refund if they terminated the licenses during the annual term. Each subsidiary wanted an individual invoice and they were provisioning these licenses through a distributor.
There was a lot of things wrong with this but the main thing they were looking for how to model a single distributor scenario with multiple invoices on their end.
Work 365 Billing Solution
Experienced partners with systems like Work 365 would have no problems being competitive in this situation. They would know the costs and processes required to get this done. But if you are looking to implement a system after having to sell this deal, it’s an uphill climb to make this a profitable deal.
As part of the Work 365 onboarding process – we discuss sales and billing alignment. This is one of the most significant outcomes of the process for both Direct and Indirect CSP Billings.
Work 365 is built to scale your CSP business profitably. It is built on Dynamics 365 using the Partner’s IURs, which allows the partner to keep ownership of all the data. Microsoft Dynamics 365 is at the core of the Digital Transformation Agenda. Microsoft partners that use Dynamics 365 to run their business will be able to help their own customers with these initiatives, promoting enhanced customer experience, thus nurturing revenue growth.
Work 365 helps Microsoft CSP Partners grow revenue, provide exceptional customer service, and increase profit margins by unifying common functional areas in a single solution.