Usage-based pricing (UBP) is gaining traction among B2B SaaS companies, offering flexibility and alignment with customer value. In this blog post, we’ll explore why UBP is lucrative for SaaS companies, how to select the right value metric, key billing and pricing considerations, how to efficiently ingest usage data, and the downstream reporting impacts. Whether you’re considering UBP for the first time or looking to optimize your current strategy, this guide provides actionable insights from Maxio’s experience.

Why Usage-Based Pricing is Lucrative for B2B SaaS Companies

Big players are making the shift 

Usage-based pricing (UBP) is growing in popularity due to its alignment with the actual value customers derive from software. 

Even big companies like Salesforce who have notoriously used seat-based pricing are shifting toward UBP models. 

In a recent LinkedIn post, Kyle Poyar, author of Growth Unhinged, noted, “One massive enterprise customer recently deflected 90% of consumer inquiries with SFDC’s new AI agent. If this continues, they’ll need far *fewer* support personnel. Fewer people = fewer seats = less $$ for SFDC.” 

As a result, Salesforce CEO Marc Benioff is embracing UBP as a method to monetize the value being delivered to customers. 

Both Public and Private UBP companies are growing faster than their fixed-rate counterparts 

Studies further back UBP’s potential. According to a recent LinkedIn post from Todd Gardner, accomplished SaaS advisor and one of the co-founders of SaaS Capital,  public SaaS companies with UBP models are growing at 25% year-over-year, compared to 13% for those using fixed-rate pricing. 

Similarly, Maxio’s proprietary data reveals that UBP companies grew 19% in Q2 2024, compared to 14% for fixed-rate counterparts.

How to Pick a Value Metric That’s Actually Aligned to Value

Choosing the right value metric is a crucial first step in implementing UBP. This decision must focus on identifying what the customer perceives as valuable. For example, Front, a customer service platform, decided to price its new AI chatbot based on successful ticket resolutions rather than per chat query. This shift ensured that the pricing was aligned with the value delivered to the customer, reflecting outcomes rather than inputs. Picking a value-based metric helps reinforce the fairness and scalability of UBP.

Ingesting Usage Data Efficiently

Operationalizing UBP requires efficient data ingestion systems to ensure accurate billing. Maxio supports three main methods of ingesting usage events:

• CSV Import: Bulk import of usage data, often used by companies trying UBP for the first time.
• API Integration: A more automated solution where usage events are sent to Maxio via API calls.
• Real-Time Event Streaming: A more nuanced and flexible option that allows usage events to be streamed in real-time, offering greater alignment between value delivered and usage invoicing.

While API integration automates ingestion, real-time event streaming offers additional flexibility by allowing the system to capture more detailed usage attributes. For example, you can track multiple event attributes, such as video quality or frames per second, and price accordingly—giving you a more granular billing structure that closely ties to customer value.

Billing and Pricing Model Considerations

Once the value metric is determined, the next step is structuring the billing and pricing models. Maxio supports several flexible pricing formats, including:

• Tiered Pricing: Charges vary depending on usage tiers.
• Volume-Based Pricing: Pricing depends on the total amount consumed.
• Stair Step Pricing: Charges are based on distinct usage ranges.

Additionally, Maxio allows for both in-arrears billing, where customers pay after the usage period, and up-front billing, where customers prepay for anticipated usage. This flexibility ensures companies can tailor their pricing models to match customer needs while maintaining predictable revenue.

Downstream Reporting Impacts of Usage-Based Pricing

Implementing UBP has significant reporting implications, especially when it comes to forecasting and presenting revenue data to stakeholders. At Maxio, we faced our own internal challenges reporting on usage-based revenue to our Board. 

We found that monthly usage fluctuations made it difficult to provide predictable insights. By shifting to a trailing three-month reporting period, we were able to smooth out variability and gain clearer insights, which improved our ability to report accurately and make data-driven decisions.

Usage-based pricing offers flexibility and alignment with customer value, but it also requires careful planning and execution. From selecting the right value metric to structuring pricing models and addressing reporting challenges, UBP can transform the way SaaS companies manage and grow their revenue. 

Ready to explore how UBP can work for your business? Get a demo of Maxio today and see how we can help you implement and optimize usage-based pricing.

Pricing can make or break a company. A well-considered pricing strategy accounts for free trials, how much you need to charge, discounts, and billing frequency—and the latter is paramount for a B2B software-as-a-service (SaaS) company. While monthly billing plans are common among B2C recurring-revenue businesses, annual billing plans offer tremendous benefits for both your company and your subscribers and may be the better choice for B2B businesses.

In today’s blog you’ll learn how annual billing:

• Increases cash flow
• Creates more stable, predictable revenue
• Reduces churn
• Can benefit your customers

We’ll also discuss how to determine if annual billing is right for your company and how to incorporate annual plans on your pricing page.

Managing cash collections and structuring sales contracts are some of the most impactful initiatives a SaaS company can undertake to maximize their chances of success, particularly in the early days of the company’s life.

Tomasz Tunguz

Monthly Subscription Vs Annual Subscription Billing: What Are the Differences?

One of the key decisions SaaS businesses must make is which billing cycle to offer – monthly payments or an annual billing cycle? This decision shouldn’t be made lately. After all, the billing model you choose can significantly impact your cash flow, customer retention rates and lifetime values, your revenue management methods, and the operational effort to bill and collect. In other words, the billing methods you use impact almost every aspect of your business.

Let’s explore the core differences between these two types of billing and pricing models:

Payment Frequency and Cash Flow Impact

With an annual billing cycle, customers pay for the entire year upfront on the billing date. This provides a higher initial cash inflow compared to the frequent but smaller payments with a monthly billing period. For growing SaaS companies, optimal cash flow management is critical, which gives an edge to the annual billing option.

Revenue Recognition and Accounting  

Regardless of billing options, SaaS companies must follow ASC 606/IFRS 15 revenue recognition standards. With monthly payments, revenue is recognized over time as services are delivered each month. For annual billing, there are different rules around recognizing varying portions upfront vs. over the billing period. This can create a potential cash flow vs revenue recognition mismatch to manage.

Customer Psychology and Buying Commitment

Annual plans require a higher upfront financial and psychological commitment from customers. Monthly billing allows lower risk for trying the software initially before deeper commitment. This impacts customer acquisition and onboarding – monthly plans may have higher trial sign-ups but require more hand holding, while annual plans likely undergo more vetting but have higher intent to stick around.

Customer Retention and Churn Dynamics

Because annual subscriptions contractually lock customers in for the entire year, they can help reduce churn. Monthly billing provides an easier off-ramp for dissatisfied customers. Robust customer success and value realization efforts are crucial for both billing models to maximize retention.

Pricing Flexibility and Discounting 

To incentivize annual over monthly, SaaS companies often discount the total annual price vs. the monthly equivalent summed over 12 months. There’s also pricing psychology differences in showcasing a larger single “annual” price vs. smaller recurring “monthly” charges. Discounts on annual plans can be used to convert monthly subscribers.

Operational Impacts and Accounting Workload

Annual billing provides a more seamless, predictable revenue stream. But it also has a higher up-front accounting/invoicing workload compared to the recurring monthly cycle. For enterprise customers with intensive procurement processes, an annual vs monthly billing period may be preferred to minimize re-approvals.

Final Thoughts: Give Your Customers Options

While annual billing may be in the best interest of both your business and customers, it can be worthwhile to also offer a monthly subscription plan. This option may help you sell to those individuals who are looking to test out your B2B SaaS application without having to commit for the full year.

Another strategy that B2B SaaS companies use is breaking down annual prepay pricing into a monthly cost to combat the sticker shock that comes with seeing the total yearly price. 

One final tip on how to convert monthly customers into annual subscribers: Lars Lofgren, the former director of growth for Kissmetrics, says it’s never too early to market and upsell to monthly subscribers. “One month after a monthly user subscribes, send an email with a link to get your annual discount,” Lofgren advises.

Ultimately, the optimal billing model will depend on your company’s cash flow needs, customer profile, sales/marketing motion, and operational capabilities. So, now that we’ve covered the differences between monthly vs annual billing, let’s dig into some of the big advantages of using annual billing.

Annual Subscription Advantage No. 1: Increased Cash Flow

Growth requires cash. Collecting payment for an annual subscription at the beginning of the term will result in an instant boost in available cash on hand that can be reinvested immediately into your business.

Saasmetrics founder Leo Faria gives a good example of the power of increased cash flow from annual billing. Imagine a subscription-based B2B SaaS company that charges $480 per month and has a $4,000 customer acquisition cost (CAC). Faria’s hypothetical situation focuses on a 12-month period, with an understanding that the retention period would ideally be much longer. The below chart plots out the acquisition cost, subscription payments, and cumulative cash flow for one customer over a year.

“Note the classic problem: all the cash invested on customer acquisition must be spent in the first month, while the revenue comes over a long period,” Faria writes. The graph clearly shows the company would have negative cash flow until Q4.

However, if that same customer prepaid for the year at the beginning of their subscription, the company would receive $5,760 in up-front cash:

In both scenarios, the CAC is $4,000, but in the prepaid annual billing scenario, Faria points out that “you don’t get negative cash flow. You get a $1,760 balance that could be used to finance the acquisition of more customers.”

Tomasz Tunguz, venture capitalist at Theory, took this idea a step further in a blog post entitled “A Surprisingly Powerful Mechanism for Growing a SaaS Startup.” While Tunguz’s post focused on startups, his theory holds true for most established B2B SaaS companies. In the graph below, Tunguz plots the cash position of a hypothetical startup over a 24 months period based on the following billing structures: monthly, quarterly, biannually, postpay annually, and prepay annually. The results are telling.

While the cash positions converge at the end of each year (the 12- and 24-month data points on the graph), note the huge differences in available cash the rest of the time.

“It’s plain to see that annual prepay is the most advantageous position for the company. In the annual prepay scenario, the company generates negative working capital,” explains Tunguz. “Customers are financing the company’s growth by lending the startup money at effectively zero interest. The startup can take that capital and double down on growth if it makes sense for the business, a luxury the other parallel financial universes don’t allow.”

While cash flow is important, note that an increase of cash on hand doesn’t necessarily equal a sudden boost in revenue. With the newly implemented ASC 606 and IFRS 15 accounting standards, there are very specific revenue recognition rules that subscription businesses must follow. Maxio recently acquired ProRata to help our clients better automate revenue recognition that complies with these new regulations.

Annual Subscription Billing Advantage No. 2: More Predictable Revenue

Predictable revenue is one of the primary reasons businesses are switching to a subscription-based business model in the first place. By collecting a yearly payment upfront, businesses are better equipped to understand the financial state of the company, which leads to more strategic long-term planning and stability.

Quaderno’s Annie Musgrove states that “with the predictable revenue of a subscription model made even more predictable through a yearlong commitment, these companies can more confidently forecast and make decisions concerning their growth down the line.

But in addition to the stability that comes with an annual contract, there is another implicit benefit that you will soon see when it comes to customer retention.

Annual Subscription Billing Advantage No. 3: Churn Reduction

One of the greatest advantages of annual subscriptions is that customers have to use your software over a year, rather than dump it just because they find the learning curve steep or have an issue one month. This is not to say that your product should be onerous for users, but the nature of B2B SaaS solutions is that they are complex. Think of behemoths like customer relationship management or warehouse inventory management applications.

“My experience is that customers tend to view an upfront annual payment as a sunk cost. This means they will probably have taken more time to make their purchase decision but will also make more effort to get the most from their purchase,” writes Jonathan Gettinger, CMO at Pipe17.

Plainly put, users need a lot of time to become familiar with, adopt, and realize the value in these kinds of solutions. Overcoming this initial user friction is key to retaining customers—the gift of time is vitally important for a smooth transition and reduces the chance of customer churn.

Over the years, your customer success team must help your customers get to that “aha moment” when they experience the value in your product. And in doing so, your success team must also provide a positive customer experience, helping turn a customer into a true promoter. After all, happy customers renew their annual subscriptions, champion your product, and refer to new prospects, which also reduces CAC.

The caveat here is your product must be worth an annual commitment. Knowing that customers may take more time to purchase if they face annual billing, savvy B2B SaaS companies often provide longer trials, more in-depth demos, and a wealth of helpful blog posts and white papers to assist with that decision.

Annual Subscription Billing Advantage No. 4: Customer Convenience

While annual billing holds a lot of advantages for your company, it also provides some convenience for your end customers—especially in the B2B world. The largest benefit arguably has to be the fact that your customer will go through their internal procurement process only once a year.

Anyone who has ever purchased on behalf of a company knows how burdensome it can be to go through the procurement department and navigate that maze of corporate bureaucracy. Why would anyone want to inflict this pain on themselves 12 times a year? Annual billing solves this problem for your customers—at least for 11 months out of the year.

However, there’s also some connivance hidden in here for service providers using annual billing too. For instance, by using annual billing, you don’t have to worry about constantly updating existing customer details in your billing solution like the number of licenses they get, their preferred payment method, or their credit card info. These same rules apply to new customers too. Once they’re in your billing system, you can set and forget their information until it’s time for renewal the next year.

Finally, since most annual plans offer some kind of discount over their monthly counterparts, your customers can use these cost savings in the ROI calculation to further justify their selection of your B2B SaaS solution. This provides yet another tool in your customer’s toolbox to slash through the red tape.

Wrap-up

As you can see, annual billing increases cash flow, reduces churn, and provides predictable revenue, giving your B2B SaaS business stability and supporting its long-term planning. For your customers, it can often mean cost savings and only one trip through their internal procurement process each year.

Regardless of whether your customers opt for an annual or monthly subscription, Maxio is there to support you. Our robust platform can handle any permutation of recurring billing for your customers, on top of the fact that it lets you easily provide discounts and coupons out of the box.

Additionally, we offer built-in analytics and insight tools so that you can understand the health of your business.

Our subscription management features mean you can cater to your customers throughout their life cycle. It’s all protected by our enterprise-grade security, built on a PCI DSS Level 1–compliant system, the highest level of PCI compliance for a service handling sensitive payment data. Be sure to contact our billing experts if you have any questions about how Maxio can support your subscription business.

Most SaaS companies are worried about generating and retaining new customers. But have you ever given much thought to what happens when those deals are marked as closed/won? Or when a new free trial user converts to a paid plan?

Once money begins to change hands, this sets off what is known as the “order-to-cash” cycle—and if you don’t understand it, you could be creating serious cash flow problems as you start (or continue) to scale your business.

So, throughout this article, we’ll show you everything you need to know about the order-to-cash process, including what it is, how to optimize it, and where you can identify opportunities to automate it.

What is the order-to-cash process?

The order-to-cash (O2C) process, also known as the order-to-cash cycle or OTC, encompasses all steps from the time a customer places their initial order to the transaction completion, when the business receives payment. 

At a high level, the O2C process includes key stages such as: 

• Order management
• Invoicing and billing
• Collections and dunning

By managing all the stages of this O2C process effectively, businesses can accelerate order fulfillment, streamline cash flow, and ensure compliant revenue recognition across their business.

This is especially important for SaaS companies because with recurring billing cycles and ongoing subscriptions, there are more complexities around invoicing and revenue recognition than with your typical one-off transactions. Without the right controls and coordinated hand-offs between sales and accounting teams, you’ll have no way to accurately track the status of your deals, revenue, or collections..

Order-to-cash vs. quote-to-cash

Now that we’ve covered the O2C process at a high level, let’s take a closer look at a similar process: quote-to-cash (Q2C). While the order-to-cash cycle refers specifically to the steps after an order has been placed, the quote-to-cash (Q2C) cycle is much more comprehensive.

 The Q2C process includes every touchpoint starting from the initial capturing of customer purchase intent before an order is even placed. Q2C also encompasses all the discovery, relationship building, and pricing negotiation that happens pre-order. This includes processes like configuration and pricing and quoting that can occur if your SaaS business offers sales-negotiated contracts for certain customers.

 Q2C also includes contract lifecycle management, spanning initial subscription agreement to renewal and expansion. In other words, once a contract is signed, the order is placed, and the software subscription starts, only then does the narrower order-to-cash process begin. 

So while Q2C takes a more holistic view of the entire revenue operations process, O2C focuses strictly on order fulfillment to payment. However, optimizing both of these cycles is key for subscription and SaaS businesses to accelerate their deals and smoothly transition customers from prospects to long-term buyers.

Importance of the O2C process

At this point, you should have a solid understanding of order-to-cash vs. quote-to-cash—but why should you spend your time optimizing these processes?

For starters, O2C has a direct impact on cash flow and profitability. By ensuring accurate, on-time customer billing and collections, the O2C cycle keeps revenue recognition and cash availability consistent. This predictable revenue stream is the lifeblood that will fuel a SaaS company’s expansion goals and satisfy its investors. 

Second, the O2C process needs to be improved to ensure customer satisfaction. Missing charges, complicated bills, or discrepancies due to misaligned data will create a poor customer experience for your users, which may ultimately cause them to churn. 

Finally, a streamlined O2C process aligns teams across sales, accounting, finance, and operations to work in lockstep throughout the lifecycle of your SaaS deals. But without a dedicated platform or set of tools to coordinate everything from order management to collections, your departments will quickly fall out of alignment. Misunderstandings between these departments can then result in billing mishaps, order mistakes, and compliance gaps that could spell disaster for a SaaS business that’s trying to scale. 

This is why we suggest that growing SaaS companies invest in tools like Maxio, a dedicated platform that helps them streamline their entire order-to-cash process without needing to invest in multiple-point solutions or overpriced enterprise software.

Key components of the order-to-cash process

What exactly does a streamlined order-to-cash process look like?

To truly be efficient, the order-to-cash cycle depends on multiple interconnected components working together in harmony—from the moment a customer places an order to the final receipt of payment.

Specifically, the key components of the O2C workflow include order management, credit analysis, and order fulfillment. 

• Order management: Involves intaking purchase orders across channels, validating details, establishing pricing and payment terms, and tracking through order histories. Streamlined order management ensures accuracy from initial order placement to delivery. 
• Credit management: Examines customer creditworthiness to limit default risks that could disrupt a business’s cash flow.
• Order fulfillment: Confirms products or services are delivered on schedule as promised, ensuring customer satisfaction. If fulfillment suffers problems, customers frustrated by these delays or mistakes will ultimately churn. The downstream effects of poor order fulfillment can further bottleneck invoicing, collections, and revenue recognition. 

The main steps in the order-to-cash process

We’ve discussed the O2C process in high-level detail so far. Now, let’s examine each part of the order-to-cash process step-by-step. 

Order management

The order-to-cash process starts with order management—the capturing, order processing, and tracking of customer orders. 

Using order management system software, businesses intake purchases across channels, validate details, connect orders to catalog/pricing data, establish fulfillment timelines, and manage through final delivery. Tight order management integrates inventory management visibility to confirm product availability. It also aligns with the supply chain to schedule order fulfillment. 

Streamlined order management ensures accuracy from the customer’s initial placement through backend order delivery, providing transparency into an order’s status for both customers and customer service teams.

Credit management

After capturing the order, the credit management stage conducts a risk analysis on the customer to prevent uncollected payments in the future. 

Evaluating past purchase history, payment reliability, and financial health helps qualify suitable credit limits and terms. Strong credit management minimizes the chance of delinquent customers who fail to pay on time after services and product delivery. Especially with invoices paid in arrears, steady receivable collection relies on vetting customers upfront before extending credit. With visibility into customer credit health and patterns, SaaS and subscription businesses can apply measures to route high-risk orders to managers for review.

Order fulfillment

Once the order passes credit checks, the fulfillment stage ensures that the products or services are delivered on schedule as promised. 

While this stage is typically associated with physical goods and services, order fulfillment is crucial for maintaining healthy customer relationships. If order fulfillment encounters delays, substitutions, or mistakes, customers will rapidly churn out of frustration with a lack of inventory, shipping problems, or failure to meet their expectations. Efficient order fulfillment also requires integration between order, inventory, and supply chain data. Order details should dictate priorities as procurement teams plan, manage warehouses, and coordinate logistics. 

Order shipping

Once items are pulled and packed, streamlined order shipping gets purchases transported to the customer’s location. Of course, this isn’t the case with SaaS businesses, but this is a common stage in the O2C business process when physical goods are involved.

Order shipping leverages carrier integrations across freight modes to connect order data with logistics for delivery scheduling. Shipping teams can then route each order through carrier APIs to purchase labels, retrieve rates in real-time, print documentation like packing slips, and validate estimated transit timelines. 

Customer invoicing

Once orders are fulfilled—or your customers’ SaaS subscriptions have started—the next phase involves creating and sending customer invoices to secure payment. 

Successful customer invoicing relies on integrating order data with billing systems to trigger accurate invoices that include all the line items, fees, taxes, and credits owed. Your billing and invoicing teams should then promptly send these invoices through your customers’ preferred channels, like email and customer portals, to start the clock on your net payment terms and prevent any unwanted payment delays. 

Accounts receivable

Once invoices are sent, the accounts receivable (AR) stage focuses on collecting and reconciling customer payments. 

The ultimate goal of an accounts receivable (AR) should be to link incoming customer payments with their owed invoice balances. By rapidly matching receipts to open and outstanding invoices, your finance and accounting teams can update those account balances accordingly.

Additionally, AR staff should also monitor aging reports that show past-due invoices. Using this data, they can contact customers with overdue payments, with the ultimate goal of decreasing the “days sales outstanding” metric for faster cash flow turnaround.

SaaS and subscription businesses also face extra AR management complexity. As recurring billing cycles for existing customers renew each period, new corresponding invoices must be generated dynamically. AR teams reconcile these rolling invoices with customer-hosted payment methods that are already on file. They also oversee renewal payment collection for continuity.

AR teams then apply the dollars received to balance the linked open invoices as customer payments come in. Unfortunately, sometimes bad debt must be written off when customers can’t pay, which hurts crucial working capital needed to run and grow the company—this is why your business’ AR process must run smoothly.

Payment collections

Once invoices have been sent, the payment collection process ensures that a business will receive its funds on time.

Depending on the collections software you’re using, you can set up automations to route overdue invoices to collections agents for follow-up. Or, if you’re operating a mainly product-led SaaS business, you may consider setting up a self-service portal where your customers can view balances owed, their past payments, and log their preferred payment modes like ACH or cards.

Reporting and data management

At the end of the O2C life cycle, you’ll want to review deals from the previous month or quarter and gain real-time visibility into your organization’s financial performance. This means you’ll need dedicated SaaS metrics tools to monitor these trends.

Key O2C metrics like your days’ payables outstanding, billing accuracy percentage, and first pass yield should all be viewable within a central dashboard—and no, we don’t mean a homegrown spreadsheet.

For example, with a dedicated SaaS metrics tool like Maxio, you can filter data to reveal trends related to unpaid customer invoices, subscription renewal dropout risk, and reconciliation gaps between orders and payments. These insights will help you spot problems that are slowing down your company’s cash on hand.

Challenges in the order-to-cash process

A disjointed order-to-cash process will quickly spiral into lost revenue and frustrated customers if you’re not careful. 

Typical trouble spots can range from out-of-stock inventory failures to invoice errors and payment delays. These O2C breakdowns enable bad debt accumulation while restricting your company’s cash flow. And sure, your billing and accounting teams can try to reconcile these data gaps manually, but will ultimately take them away from higher-level work needed to scale your business.

However, with the right tool(s), you can optimize the O2C cycle in several key ways, including:

• By eliminating manual processes that are prone to human error, you can ensure accuracy across your order documentation, inventory checks, invoicing, and payment posting.
• Optimizing each stage of your O2C workflow will smooth the handoff between individual departments across your sales and finance teams, allowing you to get deals across the finish line and start collecting on invoices in less time
• Improving your data management with dedicated financial operations tools will provide your teams with a consistent customer record from initial quote through to accounts receivable, empowering your staff with real-time visibility into your company’s financial performance.

And if you’re looking for a tool that can do all this, Maxio is your best bet. We even created a complete guide that will show you exactly how Maxio and Hubspot work together to keep sales and finance teams connected and streamline the order-to-cash process.

O2C automation opportunities

To fully cover the topic of optimizing your order-to-cash process, we need to touch on the power of automation.

The repetitive manual processes involved throughout the O2C process, for one, present several opportunities for automation like rules-based order validation, dynamic invoicing, and payment collections. Ultimately, you should have dedicated systems and tools in place to handle the grunt work, enabling your people to focus on the higher-value tasks that will really move the needle in your business.

For example, with order management automation, you can standardize data intake from all your sales channels into a single, unified structure. Validating all of your sales details early will prevent any mistakes that could propagate through your fulfillment and billing stages later on in the O2C life cycle. 

The same principle of automating standardized systems applies to recurring customer invoicing. Or, in this case, automated recurring billing. By investing in tools that allow you to generate high volumes of invoices without manual effort, you can ensure that no revenue is lost through billing delays.

Collections automation also helps the O2C process through gentle payment reminders sent to customers with balances due. These friendly nudges encourage fast settlement so your customers avoid late fines or other penalties that could only cause them to churn later on. 

Transform your business performance with Maxio

An optimized order-to-cash cycle is crucial for business growth and customer loyalty. Streamlining everything from order intake through timely fulfillment, accurate invoicing and smooth payment collection directly impacts revenue and satisfaction. All you need is a dedicated tool to automate these processes and you’ll be able to scale your business without giving O2C a second thought. That’s exactly why we created Maxio, a dedicated financial operations platform for growing SaaS businesses.

Maxio offers an integrated financial operations solution purposely built to smooth order-to-cash friction. As a connected hub spanning ERP, CRM, and other systems, Maxio centralizes data for a single source of truth. 

Don’t settle for disjointed financial operations that sap your teams’ productivity as you scale. If you want more helpful tips on how to streamline your O2C process, check out this complete webinar we created on how to avoid order-to-cash mistakes in your SaaS business.

Subscription billing is a critical component of SaaS businesses, and the decision to build or buy a solution can significantly impact your operations. Both options offer distinct benefits and challenges, and determining the right path depends on your company’s specific needs, available resources, and long-term objectives.

Here’s a detailed look at the factors to consider when deciding between building your own subscription billing system or opting for an existing solution.

Advantages of Building Your Own Solution

For businesses with unique requirements or a need for full control, building a custom subscription billing solution can be an appealing option. This approach allows you to develop a system tailored precisely to your operational needs.

Full Customization

When you build a solution in-house, you can design every aspect of the system to align with your business processes. Whether it’s complex pricing models or specific billing workflows, a custom solution ensures the platform fits your exact requirements.

Complete Control

A custom-built solution allows you to maintain full control over every feature. This autonomy provides the flexibility to adapt and make adjustments as your business evolves, without relying on external vendors.

Scalability

With a custom solution, you can design it to scale as your company grows. As your customer base expands, your solution can evolve alongside it, accommodating increasing complexity in billing operations.

Challenges of Building Your Own Solution

Despite the allure of customization and control, building a solution from scratch demands significant investment and long-term commitment. Here are some of the key challenges to consider:

Resource-Intensive

Developing and maintaining a custom billing solution requires substantial resources. From the initial development phase to ongoing management and scaling, you’ll need a dedicated team, budget, and time commitment. These resources could otherwise be allocated to core business activities.

Complexity of Subscription Billing

Billing operations can quickly become complex, involving tiered pricing, metered usage, and various subscription models. Managing these intricacies in-house adds layers of responsibility, and unforeseen costs may arise as the system grows.

Ongoing Maintenance

Once built, a custom solution requires continuous upkeep. This includes updates, compliance with evolving regulations, and regular maintenance to ensure the system remains functional and secure. The burden of these tasks can detract from your team’s focus on strategic initiatives.

Advantages of Buying a Solution

For businesses seeking faster implementation or lacking the internal resources to build a solution, purchasing a pre-built subscription billing platform can offer several advantages. Leveraging a proven system allows you to avoid the complexities of custom development and benefit from expert support.

Cost-Effective in the Long Term

While buying a solution involves upfront costs, it often proves more cost-effective over time. With no need to invest in ongoing development or maintenance, your team can dedicate their attention to driving growth and improving customer experiences.

Faster Time to Market

A pre-built solution is ready to be deployed quickly, allowing you to begin billing customers with minimal delay. This can be particularly valuable for businesses looking to scale rapidly or startups aiming to generate revenue as soon as possible.

Expertise and Compliance

Pre-built solutions are developed by teams with extensive experience in subscription billing. This ensures that the system is optimized for compliance with industry standards and reduces the risk of errors that could arise from managing billing in-house.

Challenges of Buying a Solution

While buying a solution offers many benefits, there are trade-offs to be mindful of, particularly around customization and reliance on external vendors:

Customization Limits

Although many pre-built platforms offer configurable options, they may not provide the level of customization that a fully tailored solution would. However, APIs and flexible settings can still allow for a degree of personalization to meet specific business needs.

Vendor Dependence

When purchasing a solution, your business becomes dependent on the vendor for updates, support, and any future enhancements. If the vendor’s priorities shift or do not align with your business needs, it could pose limitations in the long term.

Billing Model Compatibility

Some pre-built solutions may operate on pricing models that don’t perfectly align with your internal structure, such as per-user or usage-based billing. These models could introduce additional costs or require adjustments to your existing processes.

What’s Right for Your Business?

The decision to build or buy a subscription billing solution is a strategic one that hinges on your business’s goals, resources, and specific requirements. Building a custom solution gives you the flexibility and control to tailor the system entirely to your needs, but it demands significant investment in both time and ongoing resources. On the other hand, buying a solution offers a quicker path to implementation, expert support, and reduced maintenance burdens, though it may come with some limitations in customization and vendor dependency.

For many businesses, the decision to build may make sense initially, but as they grow, scalability and efficiency become increasingly important. In these cases, solutions like those offered by Maxio provide a more reliable, scalable option right from the start, helping to streamline billing and support business growth.

If you’re looking to eliminate billing bottlenecks and position your business for scalable success, check out our website or request a demo to learn more.

It’s not often accounting folks get to wear a cape and be the hero of the story. There just aren’t many fairy tales where a Big 4 CPA turns business operator, revolutionizes the collection process, and gets a day named after them in their hometown. 

But make no mistake, if you see the cash conversion cycle in action – I mean truly RIPPING – it’s nothing short of magic.

Maybe I shouldn’t say “see.” The CCC is something you have to “feel” to truly understand. I experienced its wonders first hand last year. I’m the CFO at a company where we got our Days Sales Outstanding (DSO) down from 55 days to 37 days in the course of a year. That’s an 18 day improvement, or 33%.

And through some shrewd negotiating, we got our Days Payable Outstanding (DPO) up from 35 days to 47. 

And as a company that doesn’t produce physical widgets, we had no inventory. Our Cash Conversion Cycle was now negative 10 days.

From Tactical Changes to Real Results

What’s the net of it all? As a cash-burning company, this allowed us to hire three more people over the course of 12 months. Those three people happened to be developers, who helped us get new products to market faster, and increase revenues. 

OK, so let’s get tactical. How did we do it?

1. Adjusting Customer Agreements

First, we simply changed our “off the shelf” customer agreement. Every company has one. And it probably hasn’t been updated for… well, a long time.

Instead of 45 days, anyone new was handed a template that had 30-day payment terms penciled in. If they accepted the terms as they were, boom. We were already in the money by 15 days. 

We had long accepted that 45 days was industry standard. It sounds dumb – but we let inertia hold us back. We finally said, damn the torpedoes. Let’s just try it and see who pushes back.

The result: Only 5 out of 20 new customers said something.

The lesson: Change it and see who complains. It’s never as loud as you think. 

2. Encouraging ACH Payments

Next, we tried to convert customers who sent us physical checks each month to put down the pen and start paying us online via ACH.

This was a pain, I’ll admit it. It involved conversing directly with the payables teams of about 50 customers via email and phone. Just finding the right person was often difficult, especially when you are dealing with multinationals who have massive billing departments. I’d say half we sorted without picking up the phone, and the other half we had to have (SCARY) a real-life conversation. 

What I discovered was the person on the other side either kicked it up to their boss, causing a bit more back and forth, or really didn’t care to make a fuss and agreed. We did have to send over a few W-9 forms again (they seemingly always get lost. If you know, you know.) and sign a few papers. But hey, it was well worth it.

After that, we took inventory (no pun intended) of who was left paying us with paper checks (dinosaurs!). In the background, we set up a lockbox run by our bank in a central location in the US. This is a small thing, but we are located in MA and most of our customers were sending checks from their HQ in the Midwest or South. We were able to pick a lockbox closer to them to cut down on mailing “float” by a day.

We notified them that we had set up a lockbox with our bank, and provided them a new address to send the checks to going forward. This also meant we no longer had to go to reception at our shared office space each week, fish through the myriad of envelopes and junk mail, open the letters, and deposit any checks via mobile. This part of the process was a self-inflicted wound we were determined to rectify. 

The days of losing checks were over! I hate to admit it but it does happen. At the time we were receiving more than 50 checks a month, which was a headache to keep track of and scan. It gave back at least half a day per week to a member of our accounting team. 

As luck (or math) would have it, the interest we made on the account from deposits easily made up for the fees associated with the lockbox. Checks were getting deposited on average four days earlier, and cleared our bank account about a day faster than mobile, since it was the bank doing it on our behalf. 

So that’s how we systematically changed our collections.

The result: We dropped 18 days like a bad habit. 

The lesson: Never underestimate the power of small operation changes.

But we didn’t stop there. 

3. Renegotiating Payables for Better Terms

The next element of the cash conversion cycle we attacked was payables. The majority was tied up in software we paid other tech companies for, which we used to either build our product, market our product, or communicate with other employees internally. The good thing about software is that if you are on annual contracts, each year you have a built in chance to “play ball” and renegotiate terms. So upon renewal, I started asking for quarterly payments on every software contract I signed. Most of the reps I spoke to had a much easier time pulling this lever internally than price. We went from having 80% of our contracts billed annually and upfront, to more than half being quarterly… a few even in arrears!

The biggest contract I renegotiated was Salesforce, moving a massive up front annual payment to quarterly payments. This alone was a game changer. A big whack of cash no longer vanished from our account each year. It went in drips.

And remember, interest rates were also rising at the time. So the cash I kept on hand longer collected interest longer which helped pay off the lockbox fees and more. The interest that year helped pay for 4 more developer salaries. But that’s for another day… 

The result: We improved our DPO by 17 days by asking for quarterly payments at renewal.

The lesson: Payment terms are an easier lever to pull than pricing asks in a negotiation.

A Note on Inventory Management

There’s a conspicuous part missing from my CCC story: inventory. You can’t touch the products that my company builds – they’re bits, not bites (or whatever the saying is). But don’t forget that for the majority of companies in the world, managing inventory is a massive headache.

Much like the saying “planes don’t make money on the ground,” you could say that “clothes in a warehouse” or “car parts on a shelf” don’t make money either. I’ve taken some snapshots below of auto and apparel industry cash conversion cycles to give you a peak into who’s winning their CCC battle. The amount of cash tied up in inventory can seriously constrain growth.

I’ve anecdotally heard that some of the major auto suppliers don’t pay their suppliers until stuff has actually been purchased off the shelf. That’s the ultimate test of power in the relationship. 

The result: Growth can actually kill a company with inventory management problems.

The lesson: Inventory management terms are a true test of power in a vendor relationship.

Trust the Process

Overhauling my company’s cash conversion cycle was a journey – not a one time “event.” It was more tactics than strategy. And it wasn’t without its frustrations. For example, some suppliers continued sending paper checks to our old address for five more months. But if you trust the process and remain consistent in your communications and negotiations, it proves out in the numbers. 

My favorite email I sent all year was one to my CEO, congratulating my controller on this overhaul and explaining how it freed up resources for growth. And he agreed – our accounting team was nothing short of heroes.

What is Quote-to-Cash?

Quote-to-cash refers to the entire end-to-end sales process, starting with product configuration and pricing, quoting, customer acceptance, order fulfillment, and managing revenue.

However, it also includes related functions such as account management, order fulfillment, billing, and accounts receivables. Quote to cash occurs after the early stages of the buyer’s journey (marketing activities, prospect outreach, follow-up calls) have all been completed and has a significant impact on the revenue generated from a sales deal. 

That’s the technical explanation. In layman’s terms, quote-to-cash is just the process in which products and services are packaged to meet a prospect’s needs, the package is given a price, and the total amount is delivered as a “quote” to the prospect. If the prospect accepts the quote, their order gets fulfilled, and the finance team handles all the invoicing, billing, and revenue recognition afterward. 

The word “quote” refers to the initial quote or offer made to a prospect by a member of your sales team, and “cash” refers to the revenue generated from that deal. It is crucial for everything in between those two points in the sales funnel to work like a well-oiled machine.

What is the Quote-to-Order Process?

Quote-to-order is the sale—it describes the initial series of steps that exist within the quote-to-cash process: product configuration and pricing, quoting, customer acceptance, and order fulfillment. Basically, it’s everything that occurs before the finance team gets involved.

An efficient quote-to-order process is critical for sales teams because it is tied directly to their quote turnaround times and potential win rates. 

What are the 3 Layers of Quote to Cash?

With so many moving parts, it’s easier to break up the quote-to-cash-process into three separate layers. Those three layers are as follows:

Configure, Price, Quote (CPQ)

Exactly as its name suggests, CPQ involves:

• The configuration of a deal.
• The pricing of its different components.
• The final quote that a prospect receives.

Contract Management

This step involves drawing up, negotiating, and executing a contract that accurately reflects a proposed deal. A standard sales contract may go through several iterations where contract terms or clauses are redlined and changed. Then, it requires approvals and signatures from all parties before the order can be fulfilled.

Revenue Management

This is the final step in the quote to cash process that occurs after an order has been received, processed, and delivered. The rest of the process is executed by the finance department.

Revenue management can be broken down further into separate functions:

• Billing: An itemized invoice is sent to the customer for payment.
• Revenue Recognition: Once payment has been received, revenue must be recognized and recorded to stay GAAP compliant. Finance teams may need advanced FinOps tools to recognize complex and recurring revenue streams that are common in software-as-a-service.
• Renewals: Revenue generated through customer renewals must be processed, and the renewal must be logged.

Streamlining the Revenue Management Process 

Because quote to cash is connected to the sales process, order data spans CRM, order management, and accounting systems. 

These data silos force finance teams to wait until they receive the correct order data before they can generate invoices. This process gap in “quote to cash” bottlenecks invoicing and collections and causes SaaS companies to fall behind on cash schedules.

However, with advanced FinOps tools, invoicing and other accounting functions are integrated along with sales, fulfillment, and analysis tasks. This means finance teams can access real-time data and generate accurate invoices when an order is modified and placed. By integrating their FinOps software with the rest of the tools involved in the QTC process, finance teams can minimize collection delays and improve forecasting.

How to Improve Your Quote-to-Cash Process

The quote-to-cash process occurs throughout the entire sales cycle, the revenue management process, and is then subject to an analysis afterward to identify improvements. With so much data getting passed around, several key software tools are needed to complete each step.

For proposal creation, CPQ (configure, price, quote) software is the way to go. It helps sales reps explain and price out the features that a client wants. CPQ software can also save a business money by calculating margins alongside calculating the price of a client package.

The same goes for fulfilling client orders correctly. Automated order management systems have records that reveal any changes in the order or agreement that were made during the QTC process.

As for revenue management, Maxio allows finance teams to:

• Access real-time, integrated data from CRM, order management, and accounting systems.
• Recognize recurring revenue to stay GAAP compliant.
• Reference SaaS metrics and order histories to improve forecasting.

Key Quote-to-Cash Metrics to Track

Once you’ve ironed out your Q2C process, you’ll have access to a wealth of data that provides immense visibility into your overall business performance. But rather than getting overwhelmed by the volume of these key SaaS metrics, your company leaders should focus their analysis on three key segments of this data.

Monitoring the data points under these three buckets can quickly uncover operational bottlenecks impacting your company’s cash flow:

Sales Metrics

The first set of KPIs to track comes directly from the CPQ (configure, price, quote) part of the process. Key sales metrics to add to your QTC dashboards and reports include:

• Quote volume: The number of quotes created over a given period indicates sales rep productivity and efficiency in the CPQ process. Tracking any downward trends helps address these issues proactively.
• Quote conversion rates: Measures the percentage of quotes that convert into accepted orders. Lower conversion rates suggest product misconfiguration issues or unappealing pricing or discounts.
• Average quote size: Monitors deal size trends to assess pricing optimization tactics and provide guidance for sales enablement.
• Sales cycle time: Calculates the average number of days between quote creation to deal closure. Any delays here should warrant further investigation to streamline sales approval processes or contracts.

Order Metrics

The next layer of metrics focuses on order fulfillment and processing statistics:

• Order fulfillment times: Measures order accuracy and on-time delivery. Higher fulfillment times can directly stall your invoicing volume and cash inflow.
• Order modifications: Tracks changes to existing orders, which require additional processing time, affecting order accuracy. Too many modifications could indicate issues with your initial CPQ setup or signal that your sales teams are overpromising certain features to paying customers.

Revenue Metrics

Finally, KPIs managed by the finance team should be monitored:

• Invoice frequency: Evaluates the average number of days from order delivery to invoice generation. Optimizing this metric will improve your visibility into cash flow for new customers.
• Payment collection times: Highlights delays in converting your invoices to payment which hinders revenue recognition as a result.

Monitoring fluctuations across these sales, order, and revenue metrics derived from the quote-to-cash process serves as leading indicators of potential problems in your company’s underlying systems or workflows.

And while some business leaders may not think these are the most important metrics, creating a dedicated dashboard to monitor the data you gather from your Q2C process can help you uncover hidden revenue that may have gone previously unaccounted for.

For example, tracking and accounting for these metrics can have a massive ripple effect across all of your other key SaaS metrics, including your average revenue, average revenue per user (ARPU), how many new subscribers you’re earning each month, and the net new total revenue your company is bringing in each month.

The Importance of Data and Reporting in SaaS

After you’ve started building datasets based on your Q2C metrics, you’ll quickly learn that this data can’t all be housed in an Excel spreadsheet. Just like any other important set of metrics, you’ll want to house it in a dedicated SaaS reporting tool.

For example, Maxio users can leverage our integrations with Hubspot, Salesforce, and other CRM tools to automatically pull their data into a dedicated reporting dashboard. But there are so many other kinds of reports you build that aren’t related to your Q2C metrics.

Some of the most essential SaaS reports, in our opinion, cover all aspects of running a software business, including your customer lifecycle, customer retention, revenue growth, churn rate, and more. For example, with customer lifecycle reports, you can identify adoption trends, monitor renewals, and build out a brand new startup retention strategy just by understanding your average customer’s usage patterns.

Likewise, you can create granular sales reports to empower your sales leaders to pinpoint high-performing customer segments, refine their outreach, and replicate winning playbooks faster. However, at Maxio, our bread and butter comes from building our robust financial reports—our customers are currently using these to get real-time insights into their monthly recurring revenue (MRR), annual recurring revenue (ARR), customer acquisition costs (CAC), customer lifetime value (LTV) and other mission-critical SaaS metrics.

Not only can these reports improve your company’s decision-making, but they’re crucial for improving your overall business intelligence and keeping key stakeholders informed. Then, once you have these reports built out and ready to go, you can easily turn them into templates, pull in new data sources, create stunning visualizations, and benchmark your company performance month-over-month

In summary, relying on guesswork to measure your SaaS company’s performance can severely limit your executive team’s ability to make the right decisions. They can use your new Q2C data to optimize the productivity of your sales team, streamline the contract approval process, or enable more accurate forecasting of the total number of bookings your company is bringing in each month.

However you look at it, building out dedicated SaaS reports based on your company’s Q2C metrics is a sure way to make better business decisions.

Managing the QTC process in product-led and sales-led SaaS

Your SaaS company’s quote-to-cash process will function differently depending on your go-to-market strategy. Because product-led and sales-led SaaS companies appeal to different market segments, the CPQ, contract management, and revenue management processes will vary drastically.

Not only that, but many SaaS businesses are now using a hybrid of these two GTM strategies to expand into new markets and earn more revenue—what does this mean for your quote-to-cash process?

To bring some clarity to your financial operations, we’ve put together this ebook, How Product-Led Growth is Changing B2B SaaS. In it, you’ll learn:

• How shifting GTM strategies are impacting financial operations in SaaS
• Why product-led growth is being adopted so rapidly
• How to determine if product-led growth is right for you
• Is Sales-led SaaS dying?
• How PLG will affect your SaaS business
• How to introduce a hybrid GTM strategy

Sound interesting? You can download the ebook here.

As we enter a period of great uncertainty in SaaS, companies are re-examining their payment terms in light of their strategic objectives. Some businesses will look to maximize cash flow by moving from monthly to annual payments, while others may wish to mitigate churn by renewing annual customers on monthly terms.

Regardless of the objective, changes in payment terms can have a significant impact on the business that will not appear on the income statement. For example, a $3.0 million ARR SaaS business growing at 40% and billing annually in advance will collect $4.2 million in the next twelve months, while a SaaS company growing at the same pace but billing monthly will only collect $3.6 million.

Changing payment terms for renewing customers can also significantly, although temporary, impact cash flow. The Billing Change Calculator is designed to easily quantify the cash flow impact of changing billing terms.

Balancing Cash, Retention, and Price

Adjusting payment terms is a balancing act between cash flow timing, customer acquisition, customer retention, and discounts. Annual payments improve cash flow but typically require discounts, while monthly offerings may serve to mitigate churn or streamline adoption but generate less near-term cash.

The downloadable Billing Change Calculator will help answer questions like; if I move 30% of my renewals from annual to monthly payments, and that reduces churn by two percentage points, how will that impact my cash flow? Or, if we shift all new bookings in the coming year to annual payments from only 50% today, and the pre-pay discount is 10%, how will that impact cash?

Payment Term Fundamentals

Payment terms only impact a company’s cash flow to the extent that it’s adding new customers or changing the terms. As such, the impact of payment terms is most pronounced in high-growth companies. Said differently, the annual cash flow from an installed base of customers is the same regardless of whether they pay monthly or annually, and cash flow from the installed base only changes if the terms change. And if you do change the payment terms for renewals, cash flow is only impacted in the first year of the change.

One number to keep in mind when changing payment terms is 46%. When new bookings are spread-out evenly throughout the year, a cohort of annually paying customers will generate 46% more cash than monthly paying customers. This math is also true for the first year after changing renewal payment terms from monthly to annual. 

Conversely, new monthly bookings, or renewals moved from annual to monthly payments, will generate 46% less cash in the first year than if they were annual in advance payments.

The model supporting these percentages is in the Supporting Schedules tab of the Billing Change Calculator.

Variability in Cash Flows

For most SaaS businesses, bookings tend to be lumpy. This may be due to seasonality, quarterly sales cycles, or simply due to large customers. For companies with annual billing, the lumpiness in bookings translates into a lumpiness in cash flow during the year. 

Monthly payment terms, while a disadvantage from a cash flow perspective, have the benefit of eliminating this variability. Cash collection variability, particularly seasonality, can create meaningful operational challenges, which I will discuss in a future post.

The Valuation Impact of Payment Terms

Most SaaS businesses offer a discount for annual payments over monthly ones, which makes intuitive sense to both sides. However, because SaaS businesses trade at a multiple of revenue, and discounts decrease revenue, they have an outsized impact on valuation. The decrease in valuation will equal the annual dollar amount of discounts times the valuation multiple. For a $5.0 million SaaS business offering a 10% discount for annual payments and trading at six times revenue, the valuation reduction is $3.0 million. 

In addition, heavy discounting will lower the company’s growth rate, which will then lower the valuation multiple. 

And one final point; annual payments create deferred revenue, which is deducted from the company’s value in a transaction. This offsets the working capital benefit of advance payments at the time of the transaction.

This is not to suggest that annual discounts are a bad idea. In fact, they may allow the company to avoid raising incremental equity (especially early on), thereby creating significant value for the founders and early investors. I know of one entrepreneur who secured fully paid-in-advance contracts from his first few customers. By doing so, he funded his business without raising a seed or Series A round of equity. 

Scenario Planning Changes in Billing Terms

While billing terms are a powerful operating lever, most SaaS businesses will want to avoid making wholesale changes. There are likely good reasons why the terms were established the way they are now. That said, some businesses will want to increase the flexibility they offer their customers, or they may want to model changes in customer preferences amongst their current payment offerings. 

In addition, some companies may wish to layer usage-based pricing (UBP) models on top of their annual subscription models. UBP is predominately billed monthly and has different cash flow implications.

The Billing Change Calculator is a quick way to model the high-level impact of changes in payment terms on cash flow over the next year. It should be used as a starting point to work through different scenarios and their overall impact on cash. Changes may have a larger or smaller impact than you imagined. Once the billing terms for the upcoming year have been determined, and full cash flow forecast should be built.