By Scott Bailey, Managing Director, Oracle Global Alliance, PwC
Subscription-based business models offer the possibility of new, ongoing revenue streams, making them highly attractive for companies in just about any industry. But they also present challenges for finance professionals accustomed to a more traditional approach to selling products and services.
The subscription (or “as-a-service”) business model came to the forefront with cloud-based software licensing. During the COVID-19 pandemic, customers fully embraced the as-a-service model, with subscriptions for digital media and entertainment, education, software, and consumer goods seeing growth. In April 2020 alone, subscriptions saw a peak weekly growth of 85 percent with the weekly data staying above 60 percent the entire month. In an October 2020 survey, 62 percent of companies said they’ve responded to an increased demand for online interactions and services. And more than half of respondents (53 percent) believe the change will stick after the pandemic subsides.
To ensure a return on investment, CFOs and their teams are an essential part of decision-making for new business model innovation. The finance team must evaluate lines of business, geographies, and products to shift to the most profitable investments. But assessing the performance of a subscription service is not the same as evaluating traditional products and services. Finance needs new measurements—and new tools.
Customers evaluate a traditional product based on qualities like durability, features, and functions—essentially, what the product can do, and how long it can do it. When it comes to subscription-based purchases, customers focus more on what the services can help them achieve. This changes the metrics you should track to measure your offerings’ performance. These might include:
Time to value: Bringing a product to market takes time and upfront capital investment. The same is true for a subscription-based offering, but the difference is obvious: expenses must be amortized over the subscription period, instead of built into a one-time sales price. The advantage of subscriptions is that new offerings can be brought to the market quickly and then continually, incrementally improved—meaning the time to value is much faster.
Customer satisfaction: Because subscriptions depend on renewal, keeping customers happy is paramount. As soon as your service stops being useful, customers will cancel their subscriptions. This is where finance needs to collaborate closely with line-of-business leaders to keep them informed about what’s working well—and what isn’t—so that the business can quickly change course for a better outcome. KPIs for a new business model might include annual recurring revenue (ARR), customer churn, renewals, and customer lifetime value.
Customer behavior: Closely related to customer satisfaction is customer behavior—that is, how are customers using the product or service? Are there features that they don’t care about? Is it missing needed capabilities? Is it updated frequently enough to stay ahead of the competition? The iterative nature of as-a-service deployments means you can quickly pivot to make your offering more attractive to your customers.
To monitor these performance indicators, you need a continuous stream of accurate data, as well as the ability to ingest and analyze it in real time. Cloud-based enterprise platforms, such as ERP, are the key to turning this data into actionable insights. Modern, leading ERP systems offer these advantages:
Data collected from everywhere: The best cloud-based enterprise platforms can connect to just about any data source, internal or external. Imagine the insights you can derive from IoT input—not only from internal operations, but from products themselves. You can gain visibility across the value chain, from suppliers to customer sentiment and behavior.
Data shared with everyone: A modern, cloud-based ERP solution provides end-to-end visibility into shared data for every department—not just finance. That means that everyone is working from the same, harmonized data—moving away from cut and paste, spreadsheets, or human error.
Real-time analytics: Traditional analytics rely on historical data that, by its very nature, is outdated as soon as it’s reported. Modern enterprise software platforms can leverage artificial intelligence (AI) and machine learning (ML) to produce insights from a stream of current data for real-time decision-making.
The advantage of using a cloud-based ERP like Oracle Fusion Cloud ERP as part of an integrated platform is that it connects with the components of an as-a-service delivery model through a seamless set of transactions that can be monitored from start to finish.
A platform that includes ERP along with supply chain management (SCM), customer experience (CX) and other components can encompass self-service purchases and renewals, and also incorporate data from suppliers, distribution networks, and marketing campaigns. The entire customer lifecycle, from acquisition through renewal and termination can tie into the platform, creating an entirely new dynamic for your finance organization to manage. As the business scales, the platform scales along with it.