Companies today are confronted with a myriad of challenges, not least of which are integrating new billing models and creating seamless customer experiences across different touch points. In a recent conversation with Arnon Shimoni, a veteran in billing infrastructure and product monetization, we explored both topics and how billing is, ultimately, a product problem. Below are some key takeaways that can help product and engineering leaders build pricing and packaging systems with more foresight and with an eye towards accelerating their businesses.
Key Takeaways:
Billing has shifted from a back-office function to a core part of the customer experience.
It’s necessary to separate entitlements from billing systems to enable monetization flexibility.
Modularizing pricing, packaging, and billing systems allows for easier system maintenance and faster experimentation.
The acceleration of recurring revenue models has fundamentally changed how companies should approach monetization. No longer is it sufficient to simply sell a software license and charge a one-time fee; companies now need to continuously deliver value to justify ongoing payments. This shift necessitates robust infrastructure that can support recurring billing and can provide a seamless customer experience around it.
At Pleo, a spend management platform, the company’s billing system had to evolve from simple invoicing to a system that supported recurring revenue model. The transition required not just a change in technology but a shift in mindset — internalizing that billing is not just a financial function but a critical part of the customer experience that impacts new sales and retention.
However, building great customer experience with respect to billing requires a deep integration with product. The traditional method of sending out invoices from a billing system with flat subscription fees and waiting for payments is no longer sufficient.
Companies are increasingly dynamically adjusting billing based on real-time product usage, implementing forms of value-based pricing. Those types of billing models require that customers are billed accurately and fairly.
Moreover, companies are supporting a variety of customer contexts, including geographies and distribution channels such as marketplaces. Each may carry its own revenue model to match local regulations and customer preferences.
Without treating billing as customer experience problem and building for that, B2B businesses can lose customer or market trust quickly.
For instance, at Storytel, an audio book company, they built a highly complex system with hundreds of SKUs and varying rules across different countries. The challenge was to ensure that the billing system could adapt to these variations while maintaining a seamless user experience. This required a deep integration between the product and billing systems, ensuring that any changes in user access were reflected immediately in their billing status.
Two key investments materially impact a business’ ability to both respond to and deliver better billing experience:
Decouple entitlements from the billing system
Modularize pricing and packaging components
Decouple Entitlements from Billing Systems
The decoupling of entitlements from billing systems allows companies to control the customer experience without directly impacting financial systems. For instance, if a customer needs access to a new feature, that can be granted without altering the underlying billing structure. This approach not only increases flexibility but also reduces the risk of errors in financial reporting.
At Pleo, initially entitlements were directly tied to billing, meaning any change in customer access had to be mirrored in the billing system. This tight coupling led to significant operational challenges and errors in financial reporting. By decoupling these systems, Pleo was able to provide a more flexible and responsive customer experience without compromising financial integrity.
Modularize Pricing and Packaging Systems
Decoupling entitlements is the first step to modularize pricing and packaging, breaking down the system into distinct components — such as a product catalog, company profiles, metering, subscriptions, and flags. Companies are then able to manage and update each part independently. This modular approach not only simplifies implementation of changes but also allows for targeted experimentation to optimize the customer experience.
For example, at Storytel, the modular approach allowed the team to run pricing experiments in specific geographies without disrupting the entire system. This flexibility was crucial in understanding regional differences and optimizing pricing strategies accordingly.
There are a host of benefits of investing in more flexible pricing and packaging; foremost are increasing the pace a business can respond to customer needs and creating more trustworthy experiences for the end user that accelerate customer acquisition and maximize retention.
Experimentation and Iteration
Experimentation is crucial for optimizing pricing and packaging so it matches customer preferences. However, without the right systems in place, even small changes can take months to implement. A well-structured system that decouples pricing from application code and uses modular components can facilitate rapid experimentation and iteration, enabling companies to respond swiftly to market changes.
At Pleo, a planned pricing experiment was delayed for over a year due to the inflexibility of the existing system. This delay not only impacted potential revenue growth but also frustrated the engineering and product teams. By adopting a modular approach, future experiments could be implemented swiftly, ensuring that the company could capitalize on market opportunities.
Transparency and Customer Experience
Ultimately, the goal of any pricing and packaging system should be to enhance the customer experience. Transparent pricing, easy-to-understand packages, and flexible billing options are essential. Customers should feel that they are getting value for their money and have control over their usage and spending.
At Storytel, customers often encountered confusing billing scenarios, such as not being able to upgrade to a discounted yearly plan through the app. This lack of transparency led to customer frustration and churn.
Conclusion
By decoupling entitlements from billing and and modularizing key components, companies can create a more appropriate billing infrastructure that supports growth and enhances the customer experience. Doing so isn’t easy, but increasingly it’s necessary.
