Why a Subscription Business Might Consider Outsourcing their Subscription Billing
When launching a subscription product, one question merchants need to consider is how they’re going to solve for billing. Typically, merchants have pursued one of two choices – they can either build out a subscription billing system internally, or they can outsource billing to an external third-party.
Businesses will typically look into outsourcing their subscription billing if they’re just starting up in the subscription space or if they’ve tried to build one unsuccessfully. Specifically, subscription businesses may look at outsourcing options if they previously partnered with a vendor and found that there wasn’t enough value, or if the business scaled too quickly and outgrew the vendor.
Alternatively, businesses can look to the hybrid solution that Rebar Technology offers. You can read more about this third option here.
What It Means to Outsource Subscription Billing
Outsourcing subscription billing can mean a number of things. In some cases, outsourcing can be using external third party resources from a development shop or staffing firms to build out a solution. Typically, however, outsourcing involves a SaaS platform option where a merchant completely outsources the function to a third-party who hosts and manages the technology platform. In some cases this is through a managed service where the vendor builds and provides the technology platform, as well as the people and processes that operate and monitor subscription billing on the merchant’s behalf every day.
Pros of Outsourcing
There are many positives of outsourcing a subscription billing solution. First, outsourcing facilitates a much faster speed to market than businesses can achieve by building internally. Because the subscription billing system vendors already have a solution in place and experience implementing the solution into other subscription businesses, they are able to deploy the system quickly and efficiently. In fact, for some subscription businesses with straightforward use-cases, billing platform providers may even be able to have the system set up and operational the same day.
Another nod to outsourcing is that it greatly reduces capital requirements. In this case, ‘capital’ extends beyond just financial capital. In addition to saving the millions of dollars in IT costs to build out a system internally, outsourcing a billing solution also saves on employee capital. Instead of having internal employees dedicate large amounts of time to defining, building, and testing out a custom system, businesses can focus employees on what’s core to their business, instead of on things like subscription billing that are not a differentiator to the merchant’s core offering..
Outsourcing a subscription billing system has the added benefit of bringing in subject matter experts in subscription billing. Billing system providers have extensive experience in building, managing, and implementing billing systems specifically for the subscription industry. They have the latest knowledge on industry trends, rules and regulations, and more, that the internal resources of a subscription business may not have. Outsourcing a billing system typically leads to a better product, simply because of the vendors’ high level of experience and expertise.
What a successful outsourcing looks like
There are a number of indicators that suggest a business will have a successful outsourcing experience. The most important element that contributes to this is choosing the right vendor. Merchants should commit themselves to documenting their requirements, understanding what each vendor has to offer, and then selecting the one who is the best fit for those specific requirements.
Overall, continued success in operations from the provider is a very clear indicator of a successful outsourcing relationship. This includes performance metrics, such as payment processing uptime (e.g. minimal outages), to being able to seamlessly extend features and functionality over time.
Cons of Outsourcing
Although there are many upsides of outsourcing, there are also some potential concerns to highlight. When outsourcing a subscription billing solution, subscription businesses need to have a very clear idea about what they need and what they’re looking for in a solution. It’s essential that businesses have their requirements clearly documented out and ensure the RFP process is consistent.
Outsourcing can also be risky in terms of having the vendor over-promise on what they can deliver. In the initial stages of engagement, subscription businesses will most likely speak with a sales representative of the company instead of those who work on the operational and technical aspects of the solution. Because salespeople are typically not hands-on with the product, they may promise features that the technical team is not capable of delivering. Merchants may then choose a vendor because they claim to be able to meet all of their requirements, only to later find out in the implementation phases that there are gaps.
What an unsuccessful outsourcing looks like
Signs of an unsuccessful outsourcing relationship can be forecasted through a number of red flags. Hearing inconsistent messages from different people within the vendor organization, or the vendor continuously lacking attention to detail, especially within their documentation, are signs that tell subscription businesses they might not be a good fit.
In addition, subscription businesses should be cautious about being handed-off to different members within the vendor company, especially if it happens within a short period of time. Every time a business is handed-off to a new team member, the business has to re-explain everything about their company and requirements. They also lose the benefit of having a point-of-contact at the vendor organization who has been with the business from the beginning, and who is knowledgeable regarding the details discussed in the sales process..
Naturally, unreliable vendors are another factor that lead to an unsuccessful outsourcing. Unreliable vendors may consistently be late on delivering things they promised for the long-term product roadmap, or they may constantly be fighting their own internal fires.
There are precautionary steps that businesses can take to safeguard against entering into a poor vendor relationship. Inserting key terms into the service contract that states what happens when the vendor doesn’t live up to their promises is a key measure. This ensures that the vendor stays motivated to deliver on their promises, and it also gives merchants predetermined remedy if the vendor continuously underperforms.
One important note, however, is that an unsuccessful outsourcing can sometimes be attributed to the merchant as well. Businesses deserve some blame for an unsuccessful outsourcing if they don’t do enough initial vetting of the vendor, fail to properly document their requirements effectively, or communicate changes poorly to the vendor.
How to Decide if Outsourcing Is Worth It for You
Merchants can use a variety of approaches to determine whether outsourcing billing is right for them. One effective method is to use a scoring system where vendor responses are evaluated against requirements provided to them. In this case, it’s a good idea to weigh each requirement and assign values based on a relative level of importance.
Businesses should also approach conversations with vendors by knowing and communicating what they’re looking for in as much detail as possible. In some cases, the vendor’s sales representative may try to drive the conversation and sell a merchant on their solution’s features. This can derail the evaluation process away from core requirements, and merchants should instead have the salesperson focus on how they solve for the merchant’s stated requirements.
Another major factor to consider when deciding whether or not to outsource is the financial implication of the path chosen. Building out a solution internally typically requires a significant capital expenditure (Capex). On the other hand, outsourcing a solution means committing to an ongoing operating expense (Opex), through recurring licensing fees to the provider. Outsourcing comes with the added benefit of having subject-matter experts available.
Types of Businesses That Should Avoid Outsourcing
Outsourcing a true SaaS billing solution may not be the best option for highly specialized businesses, which often come with too many unique requirements that a multi-tenant solution can’t solve for. In some cases, the merchant is of a size that no vendor could realistically scale with (e.g. Amazon).
The Rebar Difference
While there are many subscription management services out there, Rebar’s solution is different. First, the Rebar team has experience with subscription billing from both the business and vendor perspectives. This means that they have firsthand experience with sourcing and integrating vendors, and they know the right questions to ask and common pitfalls to avoid.
Rebar is a sister company to W. Capra, a consulting firm that has extensive experience advising subscription-based companies. Rebar takes a consultative approach when working with subscription merchants. Rebar walks merchants through every use case and makes sure that businesses understand how each problem is being solved. Rebar also works closely with businesses to uncover requirements that they may not have accounted for in order to minimize any surprises later on. However, Rebar knows that in some cases, requirements still slip by, so they remain flexible to tackle surprise requirements.
Outsourcing a subscription billing solution can be a great option for many subscription businesses, especially if they take the time to select the right vendor, monitor the signs of a successful or unsuccessful engagement, and communicate their requirements and needs clearly and effectively. You can learn more about the pros and cons of building vs. buying in the subscription space here.