To succeed with subscription business models, focus on the customer

August 16, 2021 | 3 minute read
Lynne Sampson
Managing Editor
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The pandemic permanently changed how some businesses operate, and smart ones are responding with investments in new business models. In a recent blog post, we looked at four big moves companies can make right now, in which we noted that the aftermath of a crisis is an ideal time to rethink core business models. One big move that many companies are exploring is the “as-a-service” or on-demand business model, in which consumers and businesses subscribe to software, service, data delivery—even equipment and vehicles—rather than purchasing them.

Subscribers like being able to use a product with little or no capital expense, paying for what they use without worrying about maintenance costs. Vendors like the reliable recurring revenue of these models, and the ability to up- or side-sell customers during the renewal process. But these new models, although great opportunities, are a challenge for many organizations. Research shows that 70% of business leaders believe that subscription business models will be key to their future success, but just 7% are generating any significant revenue from them. Why not?

One reason could be that processes have not been properly re-oriented around the customer. With subscriptions, customers are buying more than a service. They’re buying an experience. They don’t care whether they’re dealing with the front office or the back office. They just want a seamless, connected experience across every step in the relationship.

Because of these expectations, subscription business models often require head-to-toe change. Deloitte has determined that the majority of a typical company’s operational capabilities—more than 65%—are affected by shifting to a flexible consumption model.

Finance teams often leave customer service to other departments and only worry about the back end. But in a subscription model, things like billing and invoicing, online purchasing, and pricing can have a profound impact on renewal rates. Too many wrong invoices, or too many price hikes, and the customer will take their business elsewhere. So how can finance support customer satisfaction? Here are a few considerations to keep in mind.

Put the customer at the center

Expect to refocus your entire business culture on supporting and sustaining long-term relationships. The right technology is key to this endeavor. Integrated cloud suites can help you configure an offer, price it, provide a quote, simplify contract negotiations, and provide self-service options for customers to modify or change their subscriptions.

Reimagine ERP systems

Subscription billing and revenue-recognition capabilities are key to support a subscription model, but they’re not enough. A comprehensive solution should include support for sales and ecommerce, configure-price-quote, order management, and supply chain management (especially if you’re offering product-as-a-service). More complex offerings will also require revenue management integrated with financials and accounting. And if you’re offering equipment as a service, you might also need field service and logistics to schedule repairs, and IoT to monitor equipment in the field.

Support the complete customer lifecycle

To get the highest ROI out of your innovation efforts, break down silos and create a process that involves multiple stakeholders. A connected suite of cloud applications that integrate subscription billing with enterprise systems such as tax, general ledger, cash collection, and others provides support for the complete customer lifecycle, from sales on through renewal and service.

Rework reporting systems

A subscription business model requires a new set of metrics that emphasize customer satisfaction and retention, such as monthly and annual recurring revenue, churn and renewal rates, and customer lifetime value. The finance team should share these KPIs with lines of business to help them optimize product pricing, bundling, and feature development.

Subscription business models offer tremendous new revenue opportunities in nearly any industry. But established companies will need to rethink their operations from top to bottom. Just as important will be an agile technology platform that incorporates subscription management into enterprise software such as ERP, CX, SCM, and more. With built-in integration and a common data model, Oracle Cloud can help you get started.

Read our starter kit to learn best practices and take the first steps.

Lynne Sampson

Managing Editor

Lynne has 25 years experience in journalism and marketing. She spent the first 10 years of her career at the Canadian Broadcasting Corporation, covering major news events such as the Quebec referendum, two federal elections, and the crash of Swissair flight 111 - coverage of which won a Gemini Award for “Best News Special Event Coverage.” Since then, Lynne has worked in marketing and communications for high technology companies such as Whitehill Technologies and Skywire Software. She currently works at Oracle as managing editor of The Modern Finance Leader, winner of a 2018 Killer Content Award from Demand Gen Report.

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