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Exclusive Q&A
What’s motivating B2B companies to shift their focus to selling subscriptions and what are the consequences if they don’t?
There are two important reasons for this shift. One is that companies that have infrequent sales cycles want a closer relationship with their customers to expand their sales opportunities and improve their chances of winning the next sale. Traditionally, companies that sell industrial equipment, for example, interact only sporadically with customers. By providing an ongoing set of services such as monitoring the condition of the equipment or offering ongoing delivery of related supplies, these organizations can generate incremental revenue. And having an ongoing positive relationship and dialog with the customer can improve the equipment manufacturer’s chances of getting follow-on sales and enhance the predictability of revenue streams.
The second reason for this shift is that organizations want to find opportunities to disrupt markets with new business models, for example, by transforming established distribution models to eliminate middlemen and lower costs. Another example is providing services and support on a recurring, as- needed basis to cut the customer’s total cost of ownership. Companies that don’t add a subscription or recurring revenue business model risk missing a source of incremental profits, a potential loss of market share and the consequences of being disrupted instead of being the disruptor.
What challenges do B2B companies face when they adopt a subscription or recurring revenue business model?
A subscription isn’t just a product but a relationship, and requires different ways of doing business than one-at-a-time sales. Adjusting an organization to a new approach almost always involves dealing with an interrelated set of people, process, data and software issues. Specifically, a company needs the right software and accurate data to be able to deliver reliable customer service and to have flexibility in structuring contracts to address customer needs. Many ERP systems are fine applications for a one-off sales approach but aren’t adequate for subscriptions because subscriptions are dynamic. During a subscription period, customers may want to add more services or reduce the number of users. Their usage might be seasonal. Subscription markets are increasingly competitive, so companies must be able to respond quickly to competitors’ moves or, better yet, find new ways to outdo them. Software designed to handle and record the sale of widgets one by one isn’t necessarily set up to handle ongoing changes.
How do you know that you’re using the wrong kind of software?
There are a few sure signs. One is that because changes to subscriptions or service levels are common, the accounting department is spending a lot of time checking and reconciling customer bills to make sure they’re accurate. And to do this they’re using spreadsheets to pull together data from multiple systems to make sure customers are invoiced properly. Or maybe they’re not checking, so the company is losing revenue when it undercharges or annoying the customer when it overcharges.
Another sign is when sales and marketing departments complain that they’re losing business because accounting doesn’t give them enough flexibility to modify deal structures or create new offers to respond to competitors’ moves. So, if your sales are falling short of the competition or your administrative overhead isn’t scaling, it may be a sign that you have software and data issues that must be addressed. Software that supports subscription businesses should be able to both provide sales and marketing departments with the flexibility they need and simplify and streamline accurate billing and accounting.
What basic capabilities should subscription businesses be looking for in a subscription management solution?
Managing subscriptions is a cross-functional process that usually involves multiple enterprise systems, so any new software must be compatible with existing systems. A subscription begins as an opportunity in sales that might involve bundles of products or services, and there may be incentives created by marketing. Part or even all the subscription may be usage-based and, if so, there’s some device that’s measuring how long or how much the subscriber is using.
The customer’s invoice is based on information about what’s in the subscription contract and usage data. To make the process run smoothly and efficiently in a way that gives sales and marketing the flexibility they need while ensuring that billing and accounting are accurate, organizations require end- to-end straight-through processing. In other word, the data and the process should move together seamlessly every step of the way.
That’s important when setting up a subscription and even more important every time there’s a change or renewal. Whenever a customer adds or subtracts a service or buys an upgrade, the information entered into the system by the sales rep should become the exact same data used to create the invoice and record the transaction.
Having reliable, detailed data about the subscription and immediately capturing changes is even more important today because complying with the new standards for accounting for contracts (ASC 606 in the U.S. and IFRS 15 in most of the rest of the world) requires more detailed information than previous standards did. To minimize the time and effort needed to do the accounting, all items, terms and conditions that are in the contract must be included in the end-to-end data flows.
What are some other important buying considerations?
Subscription software should be compatible with a company’s existing front-office, back-office and operational systems but should not lock an organization into a particular CRM or ERP platform. It must be possible to have and use the exact same data related to a subscription in each phase of managing subscription processes – selling, quoting, contracting, creating orders, billing and accounting.
The software also must scale to your existing and future business needs. It should be able to support all sales channels: direct sales, inside sales, partners and e-commerce. It is increasingly important so that customers are able to adjust their subscriptions or view and pay their bills online and with mobile devices if that’s their preference. Ultimately, a great subscriber experience is essential to leaving a lasting impression and ensuring that every interaction is satisfactory.
Companies that have a mix of one-time sales and subscription services should consider how well the solution fits their business model. Finally, it’s a good idea to understand a vendor’s technology capabilities, especially its breadth, technology direction (such as its roadmap for conversational agents, machine learning using artificial intelligence and predictive pricing and billing) and ability to deliver on its development roadmap.
Exclusive Q&A
What’s motivating B2B companies to shift their focus to selling subscriptions and what are the consequences if they don’t?
There are two important reasons for this shift. One is that companies that have infrequent sales cycles want a closer relationship with their customers to expand their sales opportunities and improve their chances of winning the next sale. Traditionally, companies that sell industrial equipment, for example, interact only sporadically with customers. By providing an ongoing set of services such as monitoring the condition of the equipment or offering ongoing delivery of related supplies, these organizations can generate incremental revenue. And having an ongoing positive relationship and dialog with the customer can improve the equipment manufacturer’s chances of getting follow-on sales and enhance the predictability of revenue streams.
The second reason for this shift is that organizations want to find opportunities to disrupt markets with new business models, for example, by transforming established distribution models to eliminate middlemen and lower costs. Another example is providing services and support on a recurring, as- needed basis to cut the customer’s total cost of ownership. Companies that don’t add a subscription or recurring revenue business model risk missing a source of incremental profits, a potential loss of market share and the consequences of being disrupted instead of being the disruptor.
What challenges do B2B companies face when they adopt a subscription or recurring revenue business model?
A subscription isn’t just a product but a relationship, and requires different ways of doing business than one-at-a-time sales. Adjusting an organization to a new approach almost always involves dealing with an interrelated set of people, process, data and software issues. Specifically, a company needs the right software and accurate data to be able to deliver reliable customer service and to have flexibility in structuring contracts to address customer needs. Many ERP systems are fine applications for a one-off sales approach but aren’t adequate for subscriptions because subscriptions are dynamic. During a subscription period, customers may want to add more services or reduce the number of users. Their usage might be seasonal. Subscription markets are increasingly competitive, so companies must be able to respond quickly to competitors’ moves or, better yet, find new ways to outdo them. Software designed to handle and record the sale of widgets one by one isn’t necessarily set up to handle ongoing changes.
How do you know that you’re using the wrong kind of software?
There are a few sure signs. One is that because changes to subscriptions or service levels are common, the accounting department is spending a lot of time checking and reconciling customer bills to make sure they’re accurate. And to do this they’re using spreadsheets to pull together data from multiple systems to make sure customers are invoiced properly. Or maybe they’re not checking, so the company is losing revenue when it undercharges or annoying the customer when it overcharges.
Another sign is when sales and marketing departments complain that they’re losing business because accounting doesn’t give them enough flexibility to modify deal structures or create new offers to respond to competitors’ moves. So, if your sales are falling short of the competition or your administrative overhead isn’t scaling, it may be a sign that you have software and data issues that must be addressed. Software that supports subscription businesses should be able to both provide sales and marketing departments with the flexibility they need and simplify and streamline accurate billing and accounting.
What basic capabilities should subscription businesses be looking for in a subscription management solution?
Managing subscriptions is a cross-functional process that usually involves multiple enterprise systems, so any new software must be compatible with existing systems. A subscription begins as an opportunity in sales that might involve bundles of products or services, and there may be incentives created by marketing. Part or even all the subscription may be usage-based and, if so, there’s some device that’s measuring how long or how much the subscriber is using.
The customer’s invoice is based on information about what’s in the subscription contract and usage data. To make the process run smoothly and efficiently in a way that gives sales and marketing the flexibility they need while ensuring that billing and accounting are accurate, organizations require end- to-end straight-through processing. In other word, the data and the process should move together seamlessly every step of the way.
That’s important when setting up a subscription and even more important every time there’s a change or renewal. Whenever a customer adds or subtracts a service or buys an upgrade, the information entered into the system by the sales rep should become the exact same data used to create the invoice and record the transaction.
Having reliable, detailed data about the subscription and immediately capturing changes is even more important today because complying with the new standards for accounting for contracts (ASC 606 in the U.S. and IFRS 15 in most of the rest of the world) requires more detailed information than previous standards did. To minimize the time and effort needed to do the accounting, all items, terms and conditions that are in the contract must be included in the end-to-end data flows.
What are some other important buying considerations?
Subscription software should be compatible with a company’s existing front-office, back-office and operational systems but should not lock an organization into a particular CRM or ERP platform. It must be possible to have and use the exact same data related to a subscription in each phase of managing subscription processes – selling, quoting, contracting, creating orders, billing and accounting.
The software also must scale to your existing and future business needs. It should be able to support all sales channels: direct sales, inside sales, partners and e-commerce. It is increasingly important so that customers are able to adjust their subscriptions or view and pay their bills online and with mobile devices if that’s their preference. Ultimately, a great subscriber experience is essential to leaving a lasting impression and ensuring that every interaction is satisfactory.
Companies that have a mix of one-time sales and subscription services should consider how well the solution fits their business model. Finally, it’s a good idea to understand a vendor’s technology capabilities, especially its breadth, technology direction (such as its roadmap for conversational agents, machine learning using artificial intelligence and predictive pricing and billing) and ability to deliver on its development roadmap.
Mark Smith
Partner, Head of Software Research
Mark Smith is the Partner, Head of Software Research at ISG, leading the global market agenda as a subject matter expert in digital business and enterprise software. Mark is a digital technology enthusiast using market research and insights to educate and inspire enterprises, software and service providers.