Subscription billing made simple: A guide for SaaS founders
The subscription economy is here
Recurring revenue is the most predictable and valuable form of income. But subscription billing introduces complexity: proration, upgrades, downgrades, failed payments, and revenue recognition all need to be handled correctly.
Choose your billing model
Flat-rate pricing is the simplest — one price, one plan. Tiered pricing offers multiple plans at different price points. Usage-based pricing charges based on consumption. Most SaaS companies use a hybrid approach.
Handle proration gracefully
When a customer upgrades mid-cycle, you need to credit the unused portion of their current plan and charge the prorated amount for the new plan. Get this wrong and you'll have angry customers and messy books.
Failed payments are inevitable
Credit cards expire. Bank accounts get closed. Build a dunning process: retry the payment after 1, 3, and 7 days. Send email notifications at each step. Only cancel the subscription after all retries fail.
Companies with automated dunning recover up to 70% of failed payments without any manual intervention.
Revenue recognition
Subscription revenue should be recognised over the service period, not when payment is received. If a customer pays $1,200 annually, you recognise $100 per month. CashSheet handles this automatically through its double-entry system.
