Building Vs. Buying your billing solution: A never-ending conundrum

Are you part of an organization that has finally decided to modernize its monolithic legacy applications? Or a fast-scaling company that needs an agile billing system that can address new complexities? Irrespective of the category your business falls into, the need to modernize your billing system starts with deceptively simple questions: Should you build the new billing capabilities from the ground up or buy a prebuilt billing solution? Is it prudent to buy multi-point solutions and patch them with custom code to fill in the functionality gaps?

To catch up to changing customers' demands, companies are starting to sell their products following a hybrid business model. But pivoting alone doesn't guarantee success. The billing and collection engine, which sits in the center of your monetization ecosystem, is a definite make-or-break factor.

Despite its far-reaching impact, often, the approach to this decision is short-sighted. Most organizations plan for the initial implementation and ignore the costs of adapting to new capabilities to keep the customer experience evergreen. What happens when the billing system you hastily built or bought becomes obsolete or insufficient as the business scales rapidly? Did you think about the opportunity cost when you decided to build it in-house? There's a lot to consider, and it is crucial to lay everything out on the table to make an optimal choice.

This article presents a framework to help you decide and put your enterprise on a suitable path by starting with key considerations followed by the analysis of both options.

Understanding key requirements

An effective billing system matters not just because it is tied directly to revenue, but because it impacts everything from the core product to ERP, CRM, and pretty much every customer-facing communication system that the company has. Determining the right choice requires you to take stock of your current situation and evaluate it against multiple criteria. While there will be benefits, downsides, and trade-offs associated with every choice, you need a solid framework to help you find the answer. When you take a realistic look at the factors, such as business goals, team size, revenue, and expertise, you will be able to break down the overarching build or buy question. You should also answer some basic questions:

• What issues should the billing software solve?
• How complex will your pricing models be?
• Do you plan to expand your business to new regions? If so, what are the currency, tax, and data compliance implications of the expansion?
• Do you have different or specialized charging rates?
• What integrations would be required with the rest of the monetization ecosystem?
• What is your current compliance status for financial reporting and security? As your compliance requirements evolve, will the billing system be able to evolve with them?
• Do you have the resources to deliver and support this solution internally?
• Will you be able to assemble a team of experts with suitable competencies?
• Have you formulated a budget for all costs in the equation?
• Do you have a clear path to the ROI of your decision?
• Will you be able to absorb the resources, time, and financials invested if it ends up costing substantially more than expected or planned?
• How quickly does that new platform need to be in place?
• Do you think the solution will not only meet your needs today but also allow you to innovate in the long term?

It is easy to get sidetracked while pondering over the cost, resources, and other factors to develop a solution, but if the billing engine doesn't continue to meet your requirements, you will soon find yourself back at square one of the build cycle. So, it is certainly worth comparing options with a broad, long-term perspective.

Building it your own way

An ideal homegrown solution is one that isn't a drain on resources, yields anticipated ROI, and is already in the business's wheelhouse. It provides what every enterprise seeks: customization, compatibility, and control over fit and function. The logic will be tailor-made to your business's ecosystem, and the data remains in-house, retaining ownership of the more critical and complex needs.

However, a business's billing system is intertwined with multiple business functions. This means, in a shockingly short amount of time, bottlenecks from the billing solution can lead to issues in accounting, payments, and product.

For instance, if you are a SaaS business offering services under different pricing plans, there is an inherent complexity when implementing gates and enabling the product to lock and unlock certain features. Say if a customer signed up for the free tier of a product, they shouldn't be able to access the premium features. In this way, the billing issue easily becomes a product problem, not to mention the accounting implications associated with the price changes.

Every single billing event in a SaaS business—the pause, suspend, and resume tier changes—have downstream revenue implications. Without a robust product catalog of a billing system, the accounting department will be ill-equipped to handle the agile pricing changes.

Billing complications don't necessarily start or end with pricing models. Even when all the work is done and the bill is calculated, a new set of complications could arise in processing customer payments, handling refunds, credits, chargebacks, or payment methods.

When the status quo is to go in-house, there should be a compelling reason to do so other than to lean on the notion that it looks deceivingly simpler to build at first glance. However, there are different variables at play, including wide-ranging costs over time to design and build basic features, risks of feature and cost creep during development, and the equally probable risk of project abandonment due to lack of support or resources.

Let's look a bit more into the intricacies of them.

A. Expensive endeavor

Building a peripheral platform, like billing, is not a one-and-done business. It will, in fact, become a second product within the core product that demands enormous engineering horsepower and labor hours. You will need development talent with strong domain expertise to build even basic functionalities, not to mention the ongoing maintenance required to scale across geographies with changing tax and PCI compliance, being abreast with security, and ever-evolving billing logic, where your business doesn't deal with just one-time orders anymore. 

Recurring revenue models introduce diverse monetization strategies such as subscriptions, usage-based billing, freemium models, and tiered pricing. This billing system requires significant reconfiguration, recoding, and extensive customization of your billing infrastructure.

B. Losing focus on your forte

What would your answer be if you had to state the raison d'etre of your business crisply? If it isn't "building a future-proof billing software that caters to every business," then devoting resources to building and maintaining your own billing software is like taking a daunting detour.

An established enterprise with significant engineering muscles can theoretically meet all its requirements from time to time, but the question of practicality remains. Billing logic may look pretty straightforward, but if building it is going to be one of many priorities in the organization, the odds that the outcome isn't going to be as robust as it needs to be are high. Moving upmarket increases complexity, especially with enterprise solutions that demand great pricing customization. In such cases, using the existing "quick fix" in-house billing system that is surviving on workarounds will only lead to scope creep, which is a disaster in itself.

C. You don't know what you don't know

While chalking out a path to build your internal billing system, it is hard to anticipate all the complexities that will pop down the road unless you have experienced them. Even if you believe you know what features you would need from a billing system to support your scaling business, will you prioritize building them all upfront? On the other hand, focusing on aspects that are not immediate might cause over-engineering risks. A classic catch-22 situation!

As you acquire new customer personas, expand into new geographies, and experiment with pricing strategies, will you start building, giving precedence to complexity today, and face the risks of over-engineering tomorrow? Or will you address complexity as it comes up, increasing the risk of missed opportunities?

• New customers mean unconventional billing cycles, different payment methods, advanced invoicing options, credits, promotions, discounts, backup payment gateways, and payment recovery options.
• Expanding to new geographies brings in the need for localization—configuring the system for new tax laws, currencies, new invoicing regulations, security compliance requirements, and multi-lingual support.
• Trying new pricing strategies includes price changes for multiple products across different locations, grandfathering in existing customers, and the ability to roll back changes if the experiment doesn't yield desired outcomes.

There is a limit to which you can preempt the eventual needs of the customer, and new use cases and edge cases always crop up, ready to devour your precious resources to build and rebuild the in-house billing system.

Nothing ever gets built on schedule or within budget.
— Robert A. Heinlein

Not to mention there are other issues like what happens if the people who build and maintain the billing solution leave your company. You have to deal with lost institutional knowledge and the cost to onboard new employees to your homegrown infrastructure, requiring months instead of days of ramp-up time.

Onboard with the off-the-shelf solution

More often than not, the case for buying the billing software is not backed by the favorable facts that argue why buying is a sensible decision but by analyzing why building it is a bad idea. Going by that approach, we reiterate why reinventing the wheel might not be the optimal decision.

A. Save a fortune

Buying an existing billing solution unburdens your team from development, quality assurance, debugging, maintenance, platform migration, and patch fixes, and enables your business to rollout the changes faster compared to building it from scratch. Although there is an associated integration cost with the purchased software, you will usually find they charge less for implementing your preferred capabilities than it would cost to develop a one-off, in-house application. 

Besides saving spiraling costs and time, outsourcing your billing needs allows you to unshackle the business from developer dependencies and devote resources to capture additional revenue opportunities across industries, geographies, and payment preferences to accelerate growth.

B. Let the experts handle things

In the same way, your organization has its own core competencies; other software companies do too, and they wouldn't exist if they didn't solve a problem. Provided you do your due diligence, you will find a prebuilt, pretested, purpose-driven solution to support your business growth. You can tap into that company's rich knowledge and expertise through years of innovation and research—elements that can rarely be supplanted by the resources of your company where this is not a proven skillset.

C. Purchase the build that scales

As your growth strategy evolves to capture the next big deal on the market, you need a billing technology designed to handle self-service, sales-driven, and hybrid business models with equal vigor. As commercial software providers constantly have their finger on the pulse of industry trends and ongoing customer needs, by partnering with them, you get access to continually acclimated and well-honed features that scale with your business. In this way, you thwart the risk of overlooking important considerations and requirements that an experienced provider would have already vetted and validated.

D. Caveat: A glimpse into the flip side

Despite such strong favors on its side, there are risks of buying a billing system. With more enterprising businesses becoming targets of large-scale cyber attacks resulting in millions of compromised accounts, exercising caution while partnering with a commercial software vendor is necessary to prevent these threats.

Apart from forfeiture of data and associated privacy concerns, there are other risks, like the solution failing to adequately address your company's problem and its inability to weather a market downturn, dragging your business into chaos.

The third side of the coin

As a reasonable decision-maker, you know customization and scalability are paramount to your business, while also acknowledging the limitations of your finite internal resources. So instead of seeing the whole "build vs. buy" discussion as a restrictive dichotomy of two singular choices, it is wise to frame it as a spectrum of options and find the common ground to benefit from the best of both worlds.

More businesses are adopting agile thinking, leading them to take a plastic approach: combining, buying, and subscribing with in-house billing functionalities to fit the company's changing goals. In this way, the basic "Do we buy, or do we build?" question transcends to a more nuanced one: "What off-the-shelf billing components can I selectively buy, integrate, or assemble to create a flexible software stack?"

Efficiently assembling the billing system requires buying a cloud-based, metadata-driven billing platform that provides a technical framework to easily integrate modules and create a dynamic layer to bind the customizable components into a coherent and extensible billing engine. This modular-driven development offers the customization of an in-house solution with the plug-and-play convenience of an off-the-shelf system, allowing the business to support complex pricing and billing processes.

Keep simple things simple and make harder things possible

Building an in-house billing system offers the allure of complete control and customization, but the hidden costs and complexity can distract from your core business objectives. While tailoring a system to fit your unique needs seems advantageous, the reality often proves otherwise. Developing such a system in-house can become a significant drain on resources and focus.

In contrast, partnering with a specialized third-party provider offers speed to market, better ROI, access to expert skill sets, and reliable ongoing maintenance. This approach allows you to configure a solution to your specific requirements while benefiting from proven practices honed through numerous implementations, ensuring you stay aligned with your strategic goals without unnecessary distractions.

Instead of reinventing the wheel, check out Zoho Billing Enterprise edition, a billing system that helps drive modern revenue strategies and seamlessly fits into your organization's tech stack.