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May 11, 2020
3 Ways that Subscription Management Impacts CFOs
Humans are hardwired to view uncertainty as a risk. It’s called the fight-or-flight response, and it’s part of our genetic make-up. This survival mechanism is brought on by a combination of stress as a reaction to life-threatening situations. Over the course of humanity, we have evolved in a variety of ways, but the fight-or-flight response remains. It’s part of human existence. Our stress triggers have changed greatly, but to adapt to this response, we have also evolved to add a planning component to our lives.
From planning meals as hunters and gatherers to planning all aspects of our children’s lives, their education, we sacrifice while searching for ways to make sense of the changing world around us. But, there is no resisting the changing world. Our world is in constant motion, and if we want to survive, we have to adapt.
These adaptations take on new nuances in the business world, especially when talking about how customers are consuming and wanting to make purchases. In the era of The Experience Economy, the idea of ownership is no longer viable. We have entered a new era, that is depicted in a recent blog post, “The End of Ownership.” What thrives in this new era is the power of recurring relationships through subscription management.
When subscription management is brought up in a discussion, whether personal or business in nature, it always means a change in buying behavior. There is no one more interested in the impact buying in a business setting than the CFO.
Subscription Management Means a Shift to Recurring Relationships
As a CFO, much of your job revolves on planning and forecasting. As you know, when buying relationships shift to subscriptions, you can no longer simply look at what closed this month or this quarter. You have to shift your view to fully look at all avenues of the future. This impacts how you allocate and spend money as you better understand what’s to come in the future.
Below are three ways that subscription management impacts CFOs.
- ERP is the gold-standard system. As CFO, your ERP system forms the basis of your company’s revenue existence. If any upstream inefficiencies or inaccuracies arise, and they aren’t stopped before they go downstream, this impacts the data in the ERP system. Thus, it’s vital that correct revenue recognition is kept in your organization’s ERP, not integrated through complex models outside ERP. These complex models fuel inaccuracies and hard-to-decipher integrations. It’s also important as a CFO that you not only have a clear view of the correct financial numbers and data but that you are also complying with all financial tracking regulations that investors require. Again, revenue recognition needs to be contained within the confines of the ERP.
- Maximize revenue through new relationship paths. As your business builds new types of relationships—those brought on by recurring revenue— you’ll need to understand which levers to pull to get maximum value from your goods and services, just as you did in a traditional model. By understanding and investing in the long-term life-time value of a customer, you are establishing pricing and contract terms with your sales team that will get the most value not just for you, but for your customers as well.
- New challenges will always arise. Certain complexities will always appear when adopting new business models, and this is especially true for those managing complex changes around subscriptions. These complexities in subscription management manifest as mid-month cancellations. Those types of cancellations can create chaos in financial systems if not handled correctly. For those just starting out with a subscription business model, they may turn to a simple offline model for tracking and monitoring, believing that this will be the easiest way to manage these challenges. However, chaos will rear its ugly head soon enough. The best way to alleviate these challenges is to take an automated approach. Automation and supporting workflow can help sort out the cancellations and make sure the customer is billed correctly.
In these challenging times of uncertainty, customers are making decisions to reduce anxieties and investments that can be difficult to validate. This influences many to take a subscription-based service that will give them the flexibility to scale up or down with the evolving needs of their business. There is no resisting the constant motion of the changing world. Adaption by forecasting and planning is the only way to truly evolve alongside uncertainty.
To learn more about Subscription Management please visit here.