Legacy Billing Systems vs Subscription Business Models
By Shannan Hearne, Summit Technologies LLC Marketing Specialist
Legacy billing systems refer to outdated, traditional billing processes that were designed for one-time transactions, rather than recurring revenue streams. Such systems can cause significant problems for companies looking to adopt a subscription-based business model, particularly as they scale. The warning signs of a legacy billing system include the need for re-coding to enable pricing changes, difficulty tracking contract terms and deviations from standard terms, and the requirement for manual intervention to upgrade or downgrade customer orders mid-cycle. Invoicing inaccuracies can also lead to disputes and revenue loss, while multiple product catalogs and SKUs may not be in sync.
The traditional revenue process using legacy billing systems involves multiple systems, with spreadsheets in between, from quote to cash. This approach often creates gaps in customer data, making it difficult to track, particularly during the invoicing process. The disconnect between two groups responsible for negotiating and closing contracts and setting up accounts to bill in the billing system can lead to manual intervention, which increases the risk of human error. Such errors can lead to leaving money on the table, causing a significant loss for the business.
Customer retention is the key to success in the subscription business model. It involves follow-on transactions like renewals, add-ons, extensions, and swaps that traditional billing systems were not designed to handle. In this new lifecycle, approximately 80% of the customer's lifetime value comes after the first order. Therefore, it is crucial to streamline the billing process for retaining customers, which involves a shift in mindset. Billing is no longer just a back-office function but is now part of the customer journey itself.
To bring billing into the new customer journey, companies need to unify their sales and finance teams on the same platform, integrate customer data across all stages, and automate as much as possible. Sales can benefit from having access to purchase and payment history when discussing the next opportunity or add-on with customers. At the same time, finance can automate order data flow from the quote to the bill, minimizing discrepancies and avoiding billing inaccuracies.
Summit Technologies has found legacy billing systems can present a significant challenge for companies looking to adopt the subscription business model. Overcoming this challenge requires a shift in mindset, unifying sales and finance on the same platform with a tool like Salesforce, integrating customer data across all stages, and automating the billing process as much as possible. By doing so, companies can retain customers and succeed in the subscription business model.