July 18 by Michael Carrell
According to Gartner, more than 80 percent of software vendors will abandon traditional license and maintenance business models in favor of subscription models by 2020. If you are considering making such a change to your business, it’s important to make sure you are preparing your entire business for success.
To successfully adopt subscription models into your business, it’s not enough to equip Sales with new selling methodologies or to launch new marketing campaigns. As part of the transition, you must also prepare your front and back end systems for success. A poorly managed revenue management process has far-reaching consequences, ranging from increased customer attrition (58 percent of all shoppers say they will never do repeat business after a bad experience) to crippling fines (just one lawsuit for non-compliance in recently cost a large security software company close to $40M in refunds and subscription extensions.)
If you’re moving toward becoming a subscription business, and you’re trying to solve revenue management with enterprise resource planning (ERP) or a homegrown hybrid solution, read on to see why these approaches fail, and why modern subscription management solutions are critical for supporting blended business models.
ERP Tells You What Happened In The Past — But Can’t Manage Business “On The Fly”
Even though it may be the ultimate storage location for financial data, ERP is ineffective for handling the complexity of most modern businesses–especially when recurring revenue is involved. While it’s an excellent tool for executing back-end processes and tracking transactions efficiently, ERP is ultimately concerned with financial reporting, and has little concern for customer facing aspects of the revenue lifecycle, like discount management, billing, renewals, or changes to an order.
Because ERP is rigid by design, information ultimately gets locked away from the teams interacting with customers and from customers themselves. Not only does this slow down day-to-day operations and response times, but as the lack of flexibility makes it difficult for you and your customers and partners to do business, custom coding, workarounds and spreadsheets are added to “fix” the problem, which opens your business up to risk.
Additionally, markets served by subscription offerings are often highly competitive, and require more dynamic and agile business processes. A digital service economy is broader than a simple subscription economy, because a digital service economy involves engaging with customers in a blend across a full spectrum of offers: subscription products, usage-based services, after market services, milestone-based services, professional services, and physical products. In a digital service economy, businesses must be able to innovate quickly, based on customer engagement data and changing buyer preferences. This type of agility is limited when the simple process of launching a new product requires months of manual coding in order to effectively execute and manage the associated billing and fulfillment process.
Home-Grown Subscription Management Solutions Fail To Scale
When looking to bridge the gap between CRM and ERP to support a subscription business model or product offering, some technology-centric companies have tried leveraging their existing engineering resources to develop a custom subscription and revenue management system, which is tightly integrated with their digital service or software, or tied to layers of complex spreadsheets.
These homegrown solutions can provide a stop-gap or quick fix solution, but they quickly become a problem as the business grows. Consider this: if it takes weeks to get monthly invoices correctly tabulated and sent to customers when the system is first implemented, what happens when business doubles? What happens to a home grown revenue management system when you acquire three companies, each with their own billing systems?
Whether you choose to manage the revenue lifecycle in your ERP, CRM, a home-grown solution, or a combination, the complexity and silos introduced by using ineffective vehicles for the job ultimately impacts your ability to do business. And without a centralized place to manage real-time knowledge about customer fiscal commitments and delivery expectations, you will lack the agility needed to maintain happy customer relationships.
Avoid Subscription Management Challenges By Adopting The Right Tool For The Job
As subscription-based business models become one of the standard ways to do business, it’s critical to have a dedicated revenue management system to avoid:
• Billing and invoicing errors
• Billing disputes with customers
• Revenue leakage due to inaccurate invoices
• Manual processes and spreadsheets
• Extremely long billing and invoicing cycle times
• Inability to generate invoices for blended offers, like software, hardware, and services
• Inability to invoice based on usage/consumption
• SKU proliferation, as product catalog grows
• Limited ability to handle order changes, or co-term billing
• Lack of visibility into anticipated revenue