The article below is taken from SaaS Mag Issue 3. To order your free copy, click here.
More than a decade ago, four friends set out on a journey to build a company together. It took a while, but they finally found their calling in subscription management and by January 2013, Chargebee had their first customers. Today, the global team behind one of the leading recurring billing and subscription management tools that helps SaaS businesses streamline Revenue Operations, are steadfast in their mission to change the world. Recently named number one on G2‘s Top 50 Products for Finance in 2021, the Chargebee team continues to strive to push the industry forward and go beyond payments to power all aspects of a subscription relationship.
That’s why we sat down with Chargebee co-founder and CEO, Krish Subramanian, to talk about his experience founding and scaling a successful SaaS business, how other SaaS entrepreneurs can keep a global mindset and what is next for Chargebee. Here’s what he had to say:
Why is right now the time to scale a SaaS company? What is it about today’s market that makes it friendly for Chargebee (and other SaaS companies) to scale?
When I started my career after University, starting a software company with the tools and services that were available was incredibly expensive compared to today. What would have taken months and tens of thousands of dollars, now takes minutes to set up with nearly every tool to build and deploy a solution nearly free. Even building a SaaS company, there is a vast amount of example code, libraries and plug-ins to rapidly stitch things together and build an MVP. With an MVP built, say over a weekend, Monday morning, it can be launched to seek product-market fit. Chargebee’s offering which is one of the elements that can be set up and configured quickly, allows the entrepreneur to understand the dynamics of a repeatable, sustainable subscription business. Scaling becomes a matter of clearly identifying segments of a large category and creating value for each segment you address.
Is Chargebee seeing an increase in high-growth, early-stage SaaS companies in Europe? What do you think is contributing to the expanding number of SaaS companies in the EU?
Europe is one of our fastest-growing markets. While it’s no surprise that startups are looking at subscription from their inception, it’s also refreshing to see that many large, household brand names are augmenting their business models and looking at subscription revenue as part of executing on their digital transformation strategy. What I think is contributing to the overall growth is the concept of Vertical SaaS. These are companies that are intimately focused on address a niche and laser-focused on their segment and rapidly expanding to dominate their category. Examples of this are:
● Countfire, a UK-based company focused on the Construction industry
● Whiteboard Mortgage CRM, a US-based company focused on the Real Estate industry.
Why are more European customers moving to a subscription model? Increased revenues?
In 2018, the Royal Mail commissioned a study to understand how they can support the increase in subscription e-commerce and found that the growth rate will be 72% by 2022, worth over 1 billion Euros, just in the UK. The study suggests the number of deliveries will grow from 40.1 million to an estimated 65.3 million annually. The reason for this growth is not on the mechanics of the subscription itself, but rather the customer experience that subscription business models generate. McKinsey published a report effectively stating that delivering a personalized, end-to-end customer experience is what is driving adoption as well stickiness for these products and services. Finally, the distance between the company and the customer has decreased, almost eliminating the middleman or distributor, giving the company detailed insights and dialogue with customers, like never before.
What are some similarities across European SaaS companies proving themselves successful? Age, MRR, churn?
SaaS companies that are built to be global from the start are generally more successful by virtue of targeting a much larger market. Besides what better way to build the best SaaS companies than benchmarking against the best in the world? European SaaS companies that are English first, with global perspectives of localized currency, language support tend to have a huge advantage over the North American counterparts.Most global benchmarks apply to successful European SaaS companies as well: a) net negative revenue churn, b) consistent growth in net MRR additions each month – both are factors that contribute to the compounding effect of SaaS growth.
Has GDPR been an obstacle to Chargebee’s expansion in the EU so far?
GDPR has actually been a positive event for Chargebee. WIth customers being exposed to new brands, products, and services at an escalating rate, the need for increasing trust mechanisms, becomes table stakes, especially for Personally Identifiable Information (PII) and financial transactions. Safeguarding customer information is one of our tenets for building a company that is elemental to running a business. Additional certifications such as ISO 27001, implementing SCA as part of the PSD2 regulations, and PCI certification are marks of quality that the European market has come to expect for vendors in our space as well as a barrier to entry for new upstarts who want to participate in the value chain.
“Even building a SaaS company, there is a vast amount of example code, libraries and plug-ins to rapidly stitch things together build an MVP. With an MVP built, say over a weekend, Monday morning, it can be launched to seek product market fit.”
Which industries are you seeing heavy movement in? How about B2B vs. B2C?
Fortunately, both. We see a huge uptick in subscription services in the B2C space which are gaining traction worldwide – these are variations of subscriptions with pay-as-you-go models but long-term customer relationships with personalized services. The world is moving towards a consumption-driven model and we see this accelerating. Specifically, subscriptions can have a starting fee to gain access to the service and customers don’t mind paying more if their rate of consumption increases. This is also reflected in high tiers where you see the unit price typically go down as volume increases, either expressed as a stair-step or linear function. The SaaS Wave has been huge and we see significant acceleration of both horizontal and vertical SaaS businesses worldwide.
What are the hottest pricing strategies right now?
We see two key trends in pricing: 1) Free to Paid and 2) Consumption-based Subscriptions. Free to Paid or Freemium allows for a low customer acquisition cost and if done correctly, a fairly high conversion ratio. High growth companies will quickly move to higher-tier plans as their appetite and reliance on the tools that become elemental to running their business. For consumption-based subscriptions, this is the way that the company and customer grow together, both in revenue, but also value. Calculating the appropriate tiered models along with additional charges based on usage continues to drive the conversation for always delivering value. Specifically for B2B, we also see a trend towards annual contracts, where customers want a fixed or predictable cost to budget against. Irrespective of B2B or B2C, there needs to be a constant experimentation with both strategies on a consistent basis to optimize sustainability and growth through the company’s evolution and maturity.
How can Chargebee help SaaS businesses ease their subscription management burdens? Why is this important?
We see the emergence of Revenue Operations (RevOps) being a distinct trend that is gaining momentum. An IDC data report stated that growing businesses, especially in the SaaS space, lose 20-30% of their revenue to operational inefficiencies. Operational inefficiencies strike at every step across the revenue cycle – right from the point of demand generation, and all the way through to retention, upsells, and revenue recognition. Every department in your organization that directly or indirectly impacts revenue has scope for driving up RevOps efficiency. Subscription-based businesses need a platform that can handle real-time chang-es based on customer demands throughout the subscription lifecycle. Revenue recognition is an example of one complex process for subscription companies, where usage, billing, and revenue by default occur on different schedules. Improperly managed accounting rules can become a risk to the business, and the new revenue recognition rule ASC 606 has made it even more challenging.
What’s next for Chargebee?
Unabashedly, our aim is to become the AWS for Billing and become synonymous with Subscriptions and Billing. There is much to do in this category to push the industry forward and we are on a path to create a case for businesses to trust and build on top of Chargebee as their first consideration.