To build or to buy?
If you’re caught up in making this decision for a new software system, you’re not alone.
Businesses make a lot of decisions on a daily basis. Deciding whether to develop new capabilities in-house or invest in an off-the-shelf solution is undeniably one of the most challenging decisions. One that you don’t want to rush.
For your billing process, the ‘build vs. buy dichotomy’ is no different.
Many businesses decide to take the easy route of building a ‘just-good-enough’ billing system. Building in-house billing systems makes sense for elementary use cases like automating repetitive manual tasks or creating invoices for basic subscription plans.
As your company grows — your client base doubles, and you start integrating with more tools and databases and introducing new business models and flexible pricing strategies.
All this results in your billing workflows becoming more complex.
Soon, the process of building a home-grown billing system that started out as a two-month sprint will become a full-blown one involving at least 10 engineers and extending way beyond 12 months. Recent reports confirm that even with the best business leaders and product managers on board, developing in-house technology solutions almost always goes over budget. Approximately 53% of projects surpass 189% of their initial cost estimates and often end up facing unforeseen delays.
On the other hand, switching to a vendor with an off-the-shelf billing solution — saves a year of opportunity costs and helps you get up and running with a billing solution in just a month.
That said, whether you decide to build or buy — there are a multitude of factors that need to be considered. We’re here to walk you through them. Let’s start by understanding why getting this decision right is of utmost importance.
Billing is the engine driving your company’s financial momentum
In our discussions with various businesses, we've come to realize that each stage of company growth demands tailored solutions to meet specific needs.
For instance, for a startup with limited resources and the need to scale up rapidly, buying a billing system is the preferred choice. Opting for a ready-made solution allows them to channel resources towards bolstering their core business operations, thereby propelling their growth trajectory.
A more seasoned enterprise may have employed senior back-end engineers to build a home-grown billing system.
In both of these cases, what you need to understand is that you require a billing solution that scales with your business.
Here are a few of the many reasons why you need to think long-term about billing:
- Revenue generation
Timely invoicing is key. As per reports, 87% of businesses are paid late. Without reliable billing, the company will struggle to collect payments, resulting in a revenue loss.
- Cash flow management
A flexible billing platform allows companies to promptly send out bills to customers, ensuring a steady influx of cash to cover operational expenses, invest in growth initiatives, and drive business success.
- Customer Satisfaction
A well-executed billing process provides transparency, clarity, and convenience, enhancing customer satisfaction. It is also crucial to ensure that customers easily understand their charges.
The build vs. buy decision: Key factors to consider
Prior to making the decision to build or buy a billing system, there are several important considerations to take into account. Such as:
- What are the risks involved in both?
- Which decision will help you in the long run?
- How will this decision affect your customer's experience?
Let’s discuss these in detail:
Requirements
It’s important to evaluate the specific requirements of your business. This includes the technical expertise and resources within the organization, scalability, scope, integration with existing systems, customer needs, and compliance requirements.
Development time
How soon do you need a billing system in place? When you’re building a billing system that takes into account all the above requirements, you need a tremendous amount of time and resources. Developing an in-house billing system takes anywhere from several months to a couple of years.
Cost considerations
Costs for building a billing system and buying a ready-made solution vary depending on several factors.
Building a billing solution
- You need to consider upfront development costs, ongoing maintenance expenses, and potential costs such as infrastructure, security, and compliance.
- Building a billing system from scratch can be cost-effective, especially if you have a team of skilled developers on board. Having said that, hiring mid-level developers in the US typically incurs an average hourly rate of $75, which contributes significantly to the overall development expenses.
Buying a ready-made solution
- This includes licensing fees for acquiring the software, which can vary depending on the vendor and the features included in the package. Implementation costs are also a consideration, covering expenses related to configuring the system, data migration, and training employees. Furthermore, ongoing subscription fees may apply for continued access to updates, support services, and additional features. It’s also essential to carefully evaluate the total cost of ownership over the long term, including any potential customization or integration expenses.
Scalability
As mentioned earlier, it’s important to consider the long-term strategy and future growth plans of your organization.
Maintenance
Billing is a continuously evolving system. Committing to ongoing bug fixes, maintenance, feature enhancements, and security updates poses a considerable challenge.
If you are building in-house, can you accommodate upgrades and ensure timely fixes?
If you choose to buy a billing system, the vendor should be experienced in managing the most complex billing scenarios.
As your business scales, the complexities of maintaining a bespoke billing platform continue to multiply.
Testing and validation
Ensure you are able to test and validate the billing system before deployment. Automating testing processes is essential for efficiency, while techniques like black box testing help uncover hidden errors, ensuring the system functions flawlessly.
Building a billing system in-house: What does it entail?
Developing a billing platform from scratch can potentially be cost-effective. However, the decision to build internally calls for a comprehensive understanding of the associated costs and complexities.
As your business scales, the stakes become higher, billing needs become more complex, and the costs of errors are likely to skyrocket. The question is—can your in-house system meet your evolving billing needs?
Errors in billing processes can lead to significant financial repercussions, emphasizing the critical importance of evaluating whether an in-house system can effectively meet evolving needs over a three-year timeframe.
SaaS companies lose approximately 9% of their Monthly Recurring Revenue (MRR) due to failed payments and involuntary churn. Beyond monetary losses, billing errors can damage a company's reputation and lead to customer dissatisfaction and potential business losses. Missed renewals, inefficient usage monitoring, manual data entry errors, and reliance on spreadsheet-based systems worsen these issues. Incorrect versions of spreadsheets and inadequate data validation further compound billing errors, undermining customer trust and confidence. Therefore, ensuring the accuracy and reliability of billing systems is crucial for safeguarding the financial health and reputation of the organization.
While basic use cases with manual processes may be supported by an in-house solution, the complexities of billing often extend beyond initial estimations. Many businesses find themselves integrating internally built systems with external billing platforms due to the limitations of traditional solutions in accommodating their specific use cases. The challenge lies in defining the feature set of the in-house solution, as complexity increases with additional functionalities such as automated invoice creation, payment collection, reconciliation, analytics, and metering. Each added feature incurs additional costs, with the overall expense varying based on the scope of the project and the level of flexibility required to support diverse business models.
Top reasons to consider buying an off-the-shelf billing solution
Flexible billing solutions expedite your time-to-market for new business models, resulting in increased ROI. Moreover, you can capitalize on the knowledge and expertise of your billing system provider to ensure smooth integration and compliance with the latest regulatory requirements.
We’re listing a few more benefits that you stand to gain from buying a billing solution:
- Time and cost savings: Off-the-shelf billing solutions can be quickly implemented, saving time and reducing development costs compared to building billing systems in-house.
- Scalability and flexibility: Many off-the-shelf billing solutions are designed to handle large-scale operations and often provide flexible pricing models, billing cycles, and options to accommodate various business needs.
- API-first design: An API-first approach ensures that the billing solution provides well-documented and comprehensive APIs, allowing smooth data exchange, integrations, and workflow automation.
- Enhanced subscription management: As the subscription economy continues to grow, advanced billing tools provide subscription management capabilities like trial periods, prorated billing, metered usage tracking, and flexible subscription lifecycle management.
- Security and compliance features: Billing tools prioritize robust security measures, encryption, and adherence to industry standards, along with audit logs and data access controls that are essential for organizations handling sensitive customer information.
- Advanced analytics: Most billing tools today offer in-depth analysis of revenue trends, customer usage patterns, and pricing strategies.
- Enhanced payment processing: Integration with popular payment gateways simplifies the payment collection process for your customers, allowing for a variety of payment options.
- Support and maintenance: Off-the-shelf billing solutions typically come with dedicated customer support teams that provide assistance and address technical issues.
- Zero engineering effort: As your product evolves and new pricing methods emerge, advanced billing tools enable seamless scaling with innovative solutions, requiring minimal or zero engineering effort.
A strategic framework for evaluating vendors
If you are deciding to buy and you’re in the market evaluating a third-party billing tool, we recently shared a checklist to help you pick the right billing tool for your business.
Additionally, you need to research and evaluate the reputation and track record of the vendor. This includes screening customer reviews, testimonials, and case studies to assess their credibility.
We’re sharing a framework below to help you get started with vendor assessment.
Make the right decision for your organization's billing system
In our webinar — ‘Building vs. Buying a Billing System’, we delve into the pros, cons, and real-world examples with industry expert Mountu Jinwala, Senior Engineering Manager at Confluent. Watch it here.
Whether you decide to build or buy, managing the flexibility and complexity of billing should be a key consideration influencing your decision.
We built Zenskar to automate financial operations such as billing, collections, and revenue recognition for companies. Zenskar’s billing solution offers limitless flexibility and a range of functionalities to configure complex pricing plans and billing rules. Our graphical object-based data model makes it seamless to encode complex pricing or contractual terms to automate billing, collections, and revenue recognition. The best part? All this can be done without requiring any engineering support from your side.
Book a demo with us to learn how we work as an extension of your in-house team and help you scale in a future-proof manner.
