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Introduction: The Multi-Million Dollar DecisionCOPENHAGEN 2009

It was a miserably cold, damp, and drizzly morning in Copenhagen, the kind of morning they don’t talk about in tour books. Our Danish busi-ness unit was expanding, hoping to increase their usage-based business and add new subscription options. Supporting that growth required the

had just completed three days of long, tense meetings trying to sort out what needed to be done to get it back on track.

We had started our project with high hopes and expectations of a quick win that could easily be repeated across other business units. Now, eleven

expectations and the vendor seemed unable or unwilling to fix our prob-lems. The project was late and hemorrhaging money, with no end in sight. Our business partners were unable to provide adequate project resources, the regional CFO was threatening to kill the project, and I was in charge—at least for the moment.

I remember looking out the window of the train that morning on the way back to the airport and asking myself, “How in the world did we get into this mess?” and, more importantly, “How are we going to get out of it?”

How we got into that mess was easy to understand. We were a global com-pany growing rapidly through an aggressive acquisition program and in the process of standardizing financial operations on a global ERP platform. We asked our ERP provider for a billing solution and they provided one—on a beautifully executed PowerPoint presentation.

there were a couple of items that should have been red flags, that should

quantities of blood, sweat, Prilosec™, and proprietary information that I

months to complete and was over budget by an undisclosed amount. Our solution limped along in production for many months until our vendor was finally able to resolve several key issues. The last time I checked, the solu-

that there had to be a better way. Subsequent projects have convinced me there is a better way.

DEFINITIVE GUIDE TOCLOUD-BASED BILLING

FOR THE ENTERPRISE

TODAY

It’s your turn. You’ve been tasked to look at whether a recurring revenue initiative will work for your company. Or maybe that decision has already been made and your task is to figure out how to make it happen.

There are a host of questions to answer: What business capabilities are re-quired for success? What questions do you need to answer before getting started? What about software? What do you really need, now and in the future? Where are the potential land mines?

You’re faced with a potentially multi-million dollar decision that could shape the trajectory of your company (and your career) for years to come. How do you get started? Then, how do you make the effort successful? And how do you do that faster than your competitors?

The goal of this guide is to answer those questions, to provide the infor-mation you need to get started, and to help you make informed decisions along the way. In the process I’ll try to separate hype from reality, give you a clear view of the decisions you’ll need to make, and provide a framework to help you with those decisions.

In the guide, I’ll explain:

→ Why recurring revenue is an unprecedented opportunity for your business and why this opportunity is available now

→ How you’ll need to change your thinking to manage a recurring revenue business

→ Why creating recurring revenue offerings may be as simple as repackaging existing products and services

→ What business and system capabilities you will need to have in place to support your new business model

→ How to go about selecting vendors to help you achieve your goals

→ What elements are necessary for success in a recurring revenue implementation program

→ How recurring revenue changes the way you look at data and measure success

→ The steps you need to take to get started on your recurring revenue journey

→ What the future holds for recurring revenue

Introduction


FOR THE ENTERPRISE

One of the things I’ve learned through multiple projects over the years is that where there is opportunity there is also the potential for pain. They seem to go hand in hand. Meaningful change is almost always disruptive and painful in the short term, but the right knowledge can help ease that disruption and prepare for it.

This guide is about the things I wish I had known before we bought off on that PowerPoint presentation several years ago. It’s about lessons I’ve learned on different projects supporting businesses in a dozen different countries on five continents. It’s about the things you need to think about from start to finish to improve your chances for success in the recurring rev-enue world. It’s about helping you wade through the hype and BS surround-ing subscriptions and recurring revenue to get to the answers that will help propel your business forward. Some of the material is theoretical, but much of it comes from practical lessons learned over many years as a practitioner.

In the interest of full disclosure, it should be noted that this guide was commissioned by Aria Systems. Aria provides a monetization platform for recurring revenue businesses. While Aria provided design help and reviewed the book, they provided editorial freedom in its creation. The design effort is primarily Aria’s. The content is mine. I am grateful for the opportunity to work with Aria in creating this guide.

Because I’m a consultant, I need to add a disclaimer: Each business situa-tion is unique and should be viewed individually. The information provided here is made available to help you understand the choices you will need to make, but should not be viewed as direct advice for your specific situation.

About the Author Bob Harden has nearly 30 years of IT experience in diverse industries. For the past 16 years, he has focused on billing and receivables systems, with experience as a programmer, analyst, development manager, service man-ager, and program manager. Bob served 4 years as a global software direc-tor for Experian before leaving to start The Harden Group LLC, a consulting practice based in California.

Introduction


FOR THE ENTERPRISE

“We think subscription-as-a-service is the future. However, we think people’s shift from packaged software to subscription services will take time. Within a decade, we think everyone will choose to subscribe because the benefits are undeniable.” i

clint patterson Former Director of Communications, Microsoft Office & Office 365

“Customers are overwhelmingly choosing subscriptions instead of perpetual model licenses, which are accelerating our transition to a new business model. We are building a stronger, more predictable model for Adobe which will drive higher long-term growth.” ii mark garrettCFO, Adobe Systems

“From a financial perspective, companies that are able to generate a growing audience of subscribers producing predictable revenue streams are far more capital-efficient than companies that need to acquire, and then reacquire, each customer interaction.” iii

dan burkhartCEO, Recurly

Recurring revenue is a disruptive trend empow-ering companies across diverse industries to grow revenue and gain competitive advantage by changing the way they package and sell their products and services. The potential is staggering: some estimates place the total market value of the opportunity for recurring revenue business at $500 billion or more.iv

Recurring revenue models provide stable, predict-able revenue streams and cash flows that CEO’s and CFO’s love and investors covet.

Venture capitalists and Wall Street investors are rewarding companies that embrace these models with infusions of seed money and with stock valua-tions that exceed market norms.

A convergence of cloud computing technologies, mobility, and changing consumer preferences has created an unparalleled opportunity for companies to gain competitive advantage, often by simply repackaging products and services that are already in the marketplace.

“CEOs are beginning to appreciate the value of recurring revenue in a way I’ve never seen before… I think that the software industry adopted it, which caught people’s attention. Now you’re seeing companies in just about every kind of industry embracing it.”v

Jim Schleckser | Inc Magazine CEO Project

IN THIS CHAPTER WE WILL:

Examine the recurring revenue trend

Identify the convergence of factors driving this shift

Explain why investors reward recurring rev-enue strategies

1An Unparalleled OpportunityForward-thinking companies like Netflix, Salesforce, Adobe, and others have disrupted established industries with new consumption and distribution models built on recurring revenue—undermining their competition, reaching new customers and markets, and rapidly growing shareholder value.

DEFINITIVE GUIDE TO CLOUD-BASED BILLING FOR THE ENTERPRISE 5

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Chapter 1: An Unparalleled Opportunity

THE OPPORTUNITY

The shift to recurring revenue monetization models presents a high-value opportunity for companies to transform their markets with new or existing prod-ucts. A growing number of companies are taking advantage.

Subscription and usage-based monetization mod-els have become pervasive in the marketplace, with analysts predicting the annual recurring revenue opportunity for business to be $500 billion or more.vi

This new way of monetizing products, fueled by a convergence of new technologies and changing consumer preferences, is driving a global transfor-mation in business.

→ By the end of 2012, the average American consumer spent $857/month on subscription servicesvii

→ A recent survey from The Economist’s Intelli-gence Unit (2014) showed that 51% of com-panies have changed (or are in the process of changing) how they price and deliver goods and servicesviii

→ The same Economist study showed that 72% of companies agree that their business’s own consumption preference is shifting to rental and subscription modelsix

→ Gartner forecasts that by 2015, 35% of Global 2000 companies with non-media digital prod-ucts will leverage recurring revenue models to boost revenuex

→ A study from Incyte Research found that 47% of U.S. businesses have adopted (or are consider-ing adopting) a recurring revenue business mod-el for at least some of their product offeringsxi

High visibility, early-adopter success stories like Netflix and Salesforce have created a sense of urgency in C-Suites and boardrooms. Individual companies and even entire industries are scram-

bling to provide recurring revenue options. Estab-lished companies like Microsoft, ESPN, Toyota, Philips, Ingersoll Rand, and United Airlines have added recurring revenue offerings, often by simply repackaging existing products. Startups like Zip-Car, Pandora, and ShoeDazzle have brought new consumption models into established industries. Even traditional big-box and warehouse retailers like Best Buy and Costco have gotten into the act, expanding into recurring services to add predict-able revenue streams.

“The entrepreneur always searches for change, responds to it, and exploits it as opportunity.”

Peter Drucker

C A S E S T U D Y

Disrupting Markets

Netflix is a prime example of how to completely disrupt an industry with a new product distribu-tion model. Over 44-million people and count-ing subscribe to their video streaming services worldwide. Netflix didn’t create a new product, but instead jumped into an existing market with a unique and disruptive distribution, consumption, and monetization model: providing a subscrip-tion-based service by mail. While Blockbuster and Hollywood Video invested in new retail stores (the old model), Netflix developed a whole new way of doing business. Netflix’ success completely dis-rupted the market, driving their competitors

With this change comes opportunity—opportunity to gain competitive advantage, undermine the competition, and disrupt your markets by reaching new customers and market segments.

DEFINITIVE GUIDE TO CLOUD-BASED BILLING FOR THE ENTERPRISE

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to insolvency. Netflix has since cannibalized their own business model, migrating from providing DVD’s by mail to video streaming services while maintaining their industry leadership position.

consumer preferences are shifting

Customers are looking for a more personal and continuous value proposition and they are growing more sensitive to aligning value with cost.

monetizing the internet of things (iot) requires new models

Gartner predicts that by 2020, there will be 26-bil-lion connected devices on the Internet of Things (IoT), providing an almost limitless array of ser-vices and generating over $300-billion in annual revenue.xvi IoT service providers are focusing on re-curring revenue models to monetize their services, providing customers a low cost of entry and an opportunity to closely tie costs to value received.

The bottom line is that cloud computing provides a highly cost-effective platform for enabling services. The emergence of mobile computing platforms means consumers are always just a click away. Consumers understand that the pay-per-use mod-els enabled by these technologies provide better value than traditional pay-to-own models. The convergence of these factors drives a new busi-ness strategy, “Anything-as-a-Service,” in which an ever-growing variety of products are now available to consumers on a pay-as-you-go basis.

WHY NOW?

This transformation in how consumers purchase and use goods and services is driven by two converging trends: cloud computing and mobility.

With all of the hype about subscription commerce and recurring revenue, you might think it’s a new idea. It isn’t. You can find examples of subscription and usage based services dating back to at least the early 16th century.

So why is the rush to recurring revenue happening now?

business is going digital

A June 2014 global survey from McKinsey & Com-pany found that over half the companies surveyed expected significant revenue growth from digital initiatives over the next three years.xii

cloud computing enables digital business

Cloud computing is driving the surge in digital business. Commoditized computing services expo-nentially reduce the costs of IT infrastructure and remove barriers to entry.xiv

consumers are moving online

Your customers spend more time online today than ever before. A December 2013 study from Ven-tana Research proclaimed, “The digital customer is here.”xv

mobile computing is ubiquitous

There are over two billion smart phones and tablet devices in service globally. Each is a potential point of sale.

Riding the Cloud

Salesforce popularized a radical new idea: software in the cloud on a subscription basis. Salesforce went to market with a new concept, providing a service that eliminates the need for on-premises software. Taking advantage of cloud technology and the need for mobile sales solutions, Salesforce bumped on-premises provider Oracle from the top position in the CRM application space. In the process, Salesforce became the model for a new

C A S E S T U D Y


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GAINING COMPETITIVE ADVANTAGE

The migration to new monetization models opens access to new customers and market segments, allowing companies to gain competitive advantage in their markets.

Consumer preferences change. Markets go un-der-served. Competitors offer new products, packaging, and pricing. Technology brings new opportunities. Competition is a continual process and change is constant.

Against that backdrop, you’re looking for ways to differentiate your services, reach new custom-ers and market segments, and gain some kind of competitive advantage. A growing number of companies are seeking new ways to distribute and monetize their existing offerings to take and keep that advantage.

Recurring revenue models can make it easier for customers to choose your products by removing economic barriers to entry, reducing purchase risk, and providing better overall value. This allows you to reach new customers and markets.

In a recent Economist Group survey, companies listed differentiation from competitors, access to new customer segments, and new revenue oppor-tunities as the top three benefits of moving to new delivery models.xviii

For many companies, the next big thing won’t be a new thing at all, but instead a new way of distrib-uting and monetizing existing products. Getting there first will give you a competitive advantage. If your competitor gets there first, you’ll need to follow quickly to defend your existing turf.

Reaching New Customers

Philips Medical Systems, a division of global giant Philips, is one of the largest electronics companies in the world, with a large and growing footprint in the health care industry. Products include home monitoring devices, imaging devices (Magnetic Resonance Imaging (MRI), X-ray, etc.), and just about everything in between. Devices like MRI machines are multi-million dollar purchases. Philips found that this up-front capital expense was a barrier to entry for smaller regional hospi-tals in the U.S. and for medical providers in devel-oping markets.

Philips’ solution has been to make the machines available on a pay-per-use basis. This shift, enabled through IoT technology and recurring revenue monetization models, has allowed Philips to enter markets that were previously closed to them. In the process of reaching a new market segment, Philips has also made inroads to serving new customers in existing markets.

C A S E S T U D Y

Adobe Grows its Customer BaseAs of this writing, Adobe has 2.3 million customers (and counting) for its Creative Cloud service. Over 20% of those cus-tomers are new to Adobe. For many of those customers, the $1,800 purchase price for software was a barrier to entry, but the $50 monthly access fee is low-risk and provides continuous value.

generation of SaaS business application providers like NetSuite, Workday, Aria Systems, and Zuora. With a market cap now in excess of $35-billion and over $4-billion in annual revenue, xvii Salesforce is an example of what’s possible in a world where technology and customer preferences evolve rapidly.


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Cannibalizing Your Customer BaseSteve Jobs once said, “If you don’t canni-balize yourself, someone else will.” If you add a new pay-as-you-go subscription or usage option to an existing product line, you will cannibalize some portion of your existing one-time-sales customer base. That’s a feature, not a bug. Apple is betting that the loss of one-time sales on iTunes will be more than offset by a growing, stable, and predictable (i.e., more valuable) recurring revenue stream from Beats. When looking at your own situation, make sure to take this factor into account in your packaging and pric-ing strategies and financial forecasting.

Defending Their Turf

For years, Apple worked to build a dominant po-sition in the music industry. By taking advantage of the shift in consumer preference from CD’s to downloadable music, iTunes became the world’s largest music retailer. By mid-2013, Apple was seeing that position erode with subscription music streaming services like Spotify and Pandora chang-ing the way listeners consume music content.

With download sales declining, Apple made a move in May 2014 to defend their turf by acquiring Beats for three billion dollars.xix Beats was best known for its designer line of headphones, but the real prize was the Beats Music Service, a subscrip-tion streaming service that will allow Apple to directly compete in the music streaming subscrip-tion market. While the Beats service may further erode download sales on the iTunes platform, Apple decided it is better to cannibalize their own business than to allow others to do it to them.

C A S E S T U D Y

Whether they seek to disrupt existing markets like Netflix, pursue new customers like Philips, or defend turf like Apple, recurring revenue monetiza-tion models allow companies to gain or maintain competitive advantage in their industry.

BUILDING SHAREHOLDER VALUE —CASHING IN ON PREDICTABILITY

The predictability of recurring revenue streams and cash flows adds value for investors. Companies moving in this direction are being rewarded with increased stock valuations.

We’ve all heard the phrase “A bird in the hand is worth two in the bush,” and most of us agree with that concept to some degree. The more risk averse you are, the more true that statement is.

Investors are by nature risk averse, which leads to another truism, “Not all revenue is created equal.” Predictable revenue carries less risk and is there-fore more highly valued by investors, resulting in higher valuations for companies with predictable revenue streams.


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Building Shareholder Value

On April 23, 2012 Adobe stunned the software world by announcing the Adobe Creative Cloud. The day before this announcement, Adobe’s stock closed at $32.92, with a market cap of just under $16 billion.xxi Fast-forward 27 months to mid-2014, and the stock is trading in the low seventies with a consensus target price of $80 and a consensus recommendation of ‘Buy.’ Market cap currently sits at $35.5 billion, an increase of 115%.xxii

In the same period that saw the stock price double, revenue declined from $4.4 billion in fiscal year 2012 to $4.06 billion in fiscal year 2013 and net income-per-share dropped from $1.68 to $0.58.xxiii This was by design: It was inevitable that replacing a software purchase of $1,800 with a $50/month subscription would impact revenue in the short term. The key to Adobe’s success was letting Wall Street in on the plan.

C A S E S T U D Y

From Adobe’s VP of Investor Relations, Mike Saviage: “To help the financial community under-stand this business model transition, and with a goal to communicate our creative business remained healthy during the transition despite declining reported revenue, we introduced several metrics to indicate the value of the new business we were building… This transparency calmed concerns about our reported financial results.” xxiv

“We needed Wall Street to understand a different model for valuing the company, otherwise we would have been dealing with a significantly under-valued stock price in addition to having to deal with all that transition.” xxv

David Wadhwani SVP and General Manager, Adobe

Adobe’s Annual Recurring Revenue (ARR) in the most recent quarter was 53% of total revenues, compared to about 20% at the end of 2012.xxvi

As Adobe shifts from a product-based to a ser-vices-based company, investors are rewarding the shift by placing a premium on the rapid growth in low-risk recurring revenue.

“Wall Street rewards recurring revenue streams...” xxviii

Andre Kindness | Forrester Research

Adobe’s investment performance over the past two-plus years is fairly typical. Public software-as-a-ser-vice companies using recurring revenue models enjoy enterprise-value-to-revenue (EV/R) multiples of more than twice that of their on-premises peers.xxvii The research is industry specific, but the effect is not.

customers and creating an annuity of cash flow, you begin reaping the benefits of what is known as a recurring revenue stream.”xx

Jim Schleckser | Inc Magazine CEO Project

“There’s an inconvenient truth in business that most CEO’s and entrepreneurs alike tend to overlook: not all revenue is created equal. Sure a dollar in sales is a dollar in sales. But the more predictable that dollar is, as in the more likely that you will receive that dollar from your customer every month, the more valuable it becomes. When you begin to multiply that dollar by adding new


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Silicon Valley and tech corridors from San Francisco to Boston are teeming with venture capitalists looking for the next big recurring revenue opportu-nity, with billions of dollars invested annually. Wall Street investors are looking for predictable, low-risk revenue streams in all industries. Recurring revenue is the gold standard for the investment community. One private equity firm even gives out bumper stickers that say “I ♥ recurring revenue.”xxix

CONCLUSION

The rapid growth of recurring revenue represents a disruptive shift in the way goods and services are sold and presents an unparalleled opportunity for companies to change their market position. Driven by new technologies and a shift in consum-er preferences, recurring revenue models enable companies to reposition themselves in the market-place, often by simply repackaging existing goods and services. Companies are using these models to reach new customers and underserved markets, often undermining competitors in the process. Recurring revenue businesses boost shareholder value by producing predictable revenue streams and cash flows that investors love.

To be successful in the shift to recurring revenue you have to think differently about your business and your customers. We’ll explore those changes in the next chapter.

THINKING ABOUT RECURRING REVENUE

What is stopping your company from at least con-sidering a shift to recurring revenue?

How would recurring revenue offerings change your value proposition to your current customers?

Could you serve unserved or underserved markets with a new monetization model for your current products?

Could you compete in new markets or market seg-ments where you’re not currently competitive by just repackaging a current offering?

Is there any appetite for cannibalizing existing sales to build new recurring revenue streams? How would you explain the value of doing this?

What would the impact of an increase in (EV/R) multiple be on your business and shareholders?


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References i The Big Book of Recurring Revenue Innovators, Tim Clark, The Fact-Point Group, 2014

ii The Big Book of Recurring Revenue Innovators, Tim Clark, The FactPoint Group, 2014

iii Understanding the New Boom in Subscriptions, Dan Burkhart, All Things D, 2013-03-27, http://allthingsd.com/20130327/understand-ing-the-new-boom-in-subscriptions/

iv New Rules of the Road for the Subscription Economy, Tien Tzuo, 2013-11-05, The Economist Group, http://www.economistgroup.com/leanback/consumers/zuora-rules-of-the-road-for-the-subscription-economy/

v Among Online Entrepreneurs, Subscriptions Are All The Rage, Darren Dahl, The New York Times, 2012-03-07, http://www.nytimes.com/2012/03/08/business/smallbusiness/selling-online-products-by-subscription-is-all-the-rage.html?_r=2&

vi New Rules of the Road for the Subscription Economy, Tien Tzuo, 2013-11-05, The Economist Group, http://www.economistgroup.com/leanback/consumers/zuora-rules-of-the-road-for-the-subscription-economy/

vii 47% of Businesses Are Jumping on the Recurring Revenue Bandwagon Infographic, Aria Systems, Inc., http://www.ariasystems.com/resource-center/infographics/47-businesses-are-jumping-recur-ring-revenue-bandwagon

viii Supply on demand: Adapting to Change in consumption and delivery models, The Economist Intelligence Unit sponsored by Zuora, November 2013

ix Supply on demand: Adapting to Change in consumption and deliv-ery models, The Economist Intelligence Unit sponsored by Zuora,

x Building a Strategy for the Subscription Economy, Gartner Inc., 2011-04-11

xi The Anatomy of a Recurring Revenue Model, Incyte Research, info.ariasystems.com/IncyteWhitePaper.html

xii The Digital Tipping Point: McKinsey Global Survey Results, McK-insey & Company, June 2014,http://www.mckinsey.com/insights/busi-ness_technology/The_digital_tipping_point_McKinsey_Global_Sur-vey_results?cid=DigitalEdge-eml-alt-mip-mck-oth-1406

xiv Understanding the New Boom in Subscriptions, Dan Burkhart, All Things D, 2013-03-27, http://allthingsd.com/20130327/understand-ing-the-new-boom-in-subscriptions/

xv Companies Struggle to Engage with Customers Digitally, Richard Snow, Ventana Research Perspectives, 2013-12-11, http://richardsnow.ventanaresearch.com/2013/12/11/companies-struggle-to-en-gage-with-customers-digitally/

xvi Gartner Says The Internet of Things Installed Base Will Grow to 26 Billion Units by 2020, Gartner, Inc., 2013-12-12, www.gartner.com/newsroom/id/2636073

xvii Yahoo Finance, http://finance.yahoo.com/q?s=CRM, as of 9/30/2014

xviii Supply on demand: Adapting to Change in consumption and delivery models, Economist Intelligence Unit Sponsored by Zuora, November 2013

xix Apple to Acquire Beats Music & Beats Electronics, Apple Press Release, 2014-05-28, http://www.apple.com/pr/library/2014/05/28Ap-ple-to-Acquire-Beats-Music-Beats-Electronics.html

xx The Power of Recuring Revenue: Building a Better Business Model, Jim Schleckser, http://www.ceoprojectinc.com/pdf/Articles/The%20Power%20of%20Recurring%20Revenue%20-%20Inc%20CEO%20Project.pdf

xxi Wikinvest, http://www.wikinvest.com/stock/Adobe_Systems_(ADBE)/Data/Market_Capitalization

xxii NASDAQ, Adobe Systems Incorporated (ADBE) Analyst Research, 2014-07-09, http://www.wikinvest.com/stock/Adobe_Systems_(ADBE)/Data/Market_Capitalization

xxiii Adobe Condensed Consolidated Statements of Income, Adobe, 2012-12-12, http://www.adobe.com/aboutadobe/pressroom/pressre-leases/pdfs/201312/Q413Earnings_is.pdf

xxiv Tech Industry Subscribes to New Revenue Model, Tom Kaneshige, CIO.com, June 5, 2014, http://www.cio.com/article/2375702/market-ing/tech-industry-subscribes-to-new-revenue-model.html

xxv The Pain and Pleasure of Cloud-Based Subscription Billing, Strictly VC, June 5, 2014, http://www.strictlyvc.com/2014/06/05/pain-pleasure-cloud-based-subscription-billing/

xxvi Adobe’s Cloud Solutions Fuel Strong Financial Results, Adobe Systems Inc., Adobe Systems Inc., 2014-06-17, http://www.adobe.com/news-room/pressreleases/201406/061714Q2FY2014results.html

xxvii Q1 2014 Software Industry Financial Report Q1 2014, Software Equity Group, LLC, http://www.softwareequity.com/Reports/1Q14_Software_Industry_Financial_Report.pdf

xxviii Brocade Offers I&O An Opportunity To Control Costs With Their Subscription Program, Andre Kindness, blogs.forrester.com, 2011-09-22, http://blogs.forrester.com/andre_kindness/11-09-22-bro-cade_offers_io_an_opportunity_to_control_costs_with_their_sub-scription_program

xxix The Power of Recuring Revenue: Building a Better Business Model, Jim Schleckser, http://www.ceoprojectinc.com/pdf/Articles/The%20Power%20of%20Recurring%20Revenue%20-%20Inc%20CEO%20Project.pdf


Recurring revenue requires a shift in focus from managing sales transactions to managing cus-tomer experiences over time. In this environment, customers have more control over the relation-ships with companies they do business with, forc-ing changes in the way you engage and manage customers.

Managing every aspect of the customer experience becomes the driver for a successful recurring rev-

enue business, changing the way you market and sell products and measure success.

Maximizing customer lifetime value (CLV) be-comes key and CLV becomes a critical metric for understanding the success or failure of a recurring revenue program. The more each sale supports the goal of maximizing CLV, the more valuable it is to your business over time.

“In the 21st (century) economy the way customers buy and consume their products and services is changing. It’s actually pretty simple: their customers want what they want, how they want it, when they want it, and the competitive environment to acquire and retain these target customers is fierce… This new dynamic requires that CIOs invest in the technologies that can enable all the processes and responses that create suc-cessful long-term relationships with the end customer.”

Tom Dibble | CEO, Aria Systems


Explain how recurring revenue is different from traditional transaction models

Identify why some sales are more valuable than others

Define customer lifetime value (CLV) and its importance

2

A New Way of ThinkingRecurring revenue changes the focus of your business from managing sales transactions to managing customer relationships with the goal of maximizing the lifetime value of each relationship.


Chapter 2: A New Way of Thinking

RECURRING REVENUE IS DIFFERENT

Rather than creating a one-time revenue trans-action, in recurring revenue each sale creates an ongoing, predictable revenue stream and cash flow. That cash flow lasts for as long as the customer stays enrolled in your service.

The traditional sales cycle

It begins when you identify a potential customer. It ends when you close the sale, deliver your product, and collect payment. In the middle there might be any number of steps: matching customers with products, performing proof of concept, generating quotes, marking up contracts, or taking orders. But in the end, it’s a simple process that ends with a single sales transaction.

Because it’s easier and more profitable to sell to repeat customers, companies like Apple, Ama-zon, and Zappos have perfected the art of getting customers to come back over and over again. But repeat sales do not equate to recurring revenue. Each purchase is made separately. The “Prospect-to-Cash” sales cycle repeats itself for each separate sales transaction.

Recurring revenue is about relationships

In our mobile, on-demand world, customers have relatively simple expectations: They want what they want, when they want it, the way they want it. That means a personalized experience, delivered anytime, anywhere, on any device. If you can’t de-liver, they’ll happily find someone else who can.

“We believe that the subscription model puts control back in the hands of the customer.”

Iain Gray | VP Customer Engagement, Red Hat

New research from McKinsey & Company found that “Consumers expect to be valued by compa-nies and treated as individuals,” citing Spotify and Netflix as examples of the “for-me” experience

that customers look for. McKinsey also found that “The demand for ‘quick and easy’ is compelling companies to modify how they deliver real-world offerings.”i

A recent report from Forrester Research described a phenomenon they labeled ‘the age of the cus-tomer,’ in which “customers increasingly control the relationships that they have with companies with whom they do business. Customers have become more demanding, staying loyal to brands only when they deliver ROI.”ii

Your customers are in control, and they’re looking for value and a consistently high-quality, person-alized experience. They’re in the driver’s seat. The successful company is one that caters to this new reality, putting new emphasis on customer en-gagement and the overall customer experience.

Vendor or PartnerYour customers aren’t just looking for vendors or products. They’re looking for trusted partners. Partnership becomes part of your value proposition. That has implications for every aspect of your business from your eCommerce site, to your acquisition and on-boarding pro-cesses, to how you manage preferences and handle customer service needs. This means keeping data and processes in sync across platforms and organizations. Every interaction is an opportunity to build trust or kill it. Getting these things right increases the perceived value of your product. Getting them wrong reduces value, and customers stay or leave based on value.



NOT ALL SALES ARE CREATED EQUAL

The value of a recurring revenue sale is dependent on the predictability and growth potential of future cash flows and their impact on customer lifetime value.

Recurring revenue sales create revenue streams that extend over time. Sales that create longer, more predictable, or larger revenue streams will result in higher CLV.

Traditional Sales Recurring Revenue Sales

Transactional Relationship and event based

Order/ Payment is the end point

Order/Payment is the start-ing point of the acquire, nurture, and grow model

Repeat Sales · Nurture

· Retain and renew

· Upsell and cross-sell

One Time Iterative and interactive

Growth by repeat sales

Growth by retention and upsell/cross-sell

“In the recurring revenue world, every con-tract signed, every customer gained or lost, every upsell or downsell has the potential to impact revenue, not only in the quarter in which it occurs, but every quarter thereafter for many years or decades to come.”

Ron Gill | CFO, Netsuite

You’re not just selling a product any more. In re-curring revenue, you are building a relationship. At point-of-sale (enrollment), you create a continuous relationship with your customer. Your customer re-ceives value from the ongoing use of your service. You receive periodic payments (monthly, annually, etc.), creating a revenue stream and cash flow that will last for as long as the relationship continues.

This customer relationship is made up of dozens or even hundreds of individual interactions or events. Each event is an opportunity to provide your customer with the personalized customer experi-ence they’re looking for—to add value—which can ultimately lead to more revenue.

Retaining customers over time becomes a matter of not just how your product performs, but of how you perform at each interaction. Maximizing the value of each customer relationship requires you to nurture the customer relationship at every op-portunity. As the customer derives more value over time, the door opens to growing the relationship through cross-sells and upsells.

The Acquire, Nurture, and Grow Framework

The ‘prospect-to-cash’ sales cycle allows you to manage the steps needed to acquire a customer and close a sale. Managing recurring revenue re-quires an expanded framework that takes custom-er relationships into account. In its simplest form, it can be defined as acquire, nurture, and grow. You acquire a customer (the traditional customer acquisition process), you nurture the relationship by providing continuous value over time, and you grow the relationship through upsell and cross-sell opportunities. Your focus shifts from generating sales transactions to maximizing the customer lifetime value of each relationship.

There’s an old way of doing business and a new way. The old way looks at sales transactions that occur at a single point in time. The new way, the recurring revenue approach, looks at managing relationships.



Sales have differing values to an organization, de-pending on the value and predictability of the rev-enue generated. The Sales Value Pyramid defines a hierarchy of sales value.

The four levels of the pyramid are:

→ One-time sales: Sales that generate revenue at a point in time with no future revenue stream

→ Recurring revenue month-to-month: An ongoing revenue stream with no fixed length and a built-in risk of churn at any time

→ Recurring revenue on multi-period agreement: An ongoing revenue stream with a minimum duration; churn risk is greatly reduced

→ Recurring revenue with cross-sell and up-sell: Increases the value of the recurring revenue stream, especially when the added service makes it more difficult for a customer to leave.

The acquire, nurture, and grow framework is designed to drive customers toward the top of this pyramid, with the goal of maximizing the custom-er lifetime value of each relationship. In recurring revenue models, customers are generally acquired at the second level (recurring revenue month-to-month). As you nurture customers and they receive value from your products, there are opportunities

Recurring revenue with cross-sell and upsell

Recurring revenue on multi-period agreement

Recurring revenue month-to-month

One-time sales

Hierarchy of value in sales, which is represented by the Sales Value Pyramidiii first proposed by Jim Schleckser, CEO of the Inc. CEO Project and adapted for use here.

to reduce risk and offer additional value through fixed-length agreements and to grow monthly recurring revenue through cross-sell and upsell.

CUSTOMER LIFETIME VALUE

The prime target in recurring revenue is to maxi-mize the customer lifetime value of every customer relationship.

Customer lifetime value (CLV) has multiple defi-nitions. For our purposes, it is defined as the net financial value realized over the life of a customer relationship. It’s a simple calculation that encapsu-lates key recurring revenue metrics (retention rate, monthly recurring revenue) and personalizes them at the customer level.

A simple view of average CLV for a business or product line is shown in this formula:

CLV = Initial Margin + (1–Retention Rate %)

Monthly Margin



Add the discount rate to view the present value of future cash flows and the average CLV formula looks like this:

→ Initial margin includes revenue from activation fees, equipment purchases, and any other one-time charges minus any costs associated with customer acquisition

→ Equations assume constant margins and reten-tion rates

→ Time period is monthly for this equation; use monthly values for discount and retention rates OR use annual margin with annual values for discount and retention rates

This formula points out clearly that there are two ways to increase average CLV:

1) Increase Retention Rates: Reduce churn, keep-ing customers longer (nurture each relationship resulting in higher retention rates). This can also be accomplished by increasing the length of term on fixed-term contracts, which effectively increases retention rates.

2) Increase Monthly Margin: Cross-sell and upsell to increase Monthly Recurring Revenue (grow the relationship) or reduce costs.

A recent survey from Ventana Research across all levels of management shows varying degrees of priority placed on CLV across the average enter-prise.iv The survey showed that the higher you go in an organization, the more important CLV is rec-ognized to be, with C-Suite executives ranking it near the top of their lists.

In recurring revenue, CLV becomes a critical metric in understanding the success of managing cus-tomer relationships. Since the healthiest recur-ring revenue businesses can often see a third of

Maximizing CLVCLV is the lifeblood of your recurring revenue business. Every decision you make, every process you build, every system you deploy, everything you do as a business should be viewed through the lens of “How will this help me improve customer lifetime value?” Since C-suite execs seem to have a clearer under-standing of this than their subordinates, it might make sense to build awareness across your organization by adding CLV growth targets to your incentive plan as part of a recurring revenue initiative.

their growth come through upsell and cross-sell, CLV trend lines become a strong indicator of the success of the nurture and grow portions of the acquire, nurture, and grow strategy.

CONCLUSION

Recurring revenue is different. How you sell is different, how you market is different, how you en-gage customers is different, and how you measure success is different. The focus shifts from manag-ing sales transactions to managing the myriad inter-actions and events that make up each customer relationship. Your customers want what they want, when they want it, the way they want it. Maximiz-ing customer lifetime value depends on delivering that level of customer experience.

CLV = Initial Margin ($) +

Monthly Margin ×

[ 1 + Discount Rate (%) – Retention Rate (%) ]

Retention Rate(%)



THINKING ABOUT IMPROVING YOUR CUSTOMER RELATIONSHIPS

Is the concept of nurturing customer relationships already a driver in your business, or will it be a culture shift?

What are the impediments in your current business environment towards managing long-term cus-tomer relationships?

If you truly believed the customer was in control, what would you change about your business?

How is the customer lifetime value (CLV) metric viewed in your enterprise? Is there visibility to this metric across the enterprise?

References i Ten IT-enabled Business Trends for the Decade Ahead, Jacques Bughin, Michael Chui, and James Manyika, McKinsey & Company, May 2013, http://www.mckinsey.com/insights/high_tech_telecoms_inter-net/ten_it-enabled_business_trends_for_the_decade_ahead

ii Measuring Customer Health To Drive The Right Conversations, Forrester Consulting, Forrester Research Inc., 2014, http://access.gainsight.com/csm-forrester-3/?mkt_tok=3RkMMJWWfF9wsRogvan-MZKXonjHpfsX56%2BgqXKaylMI%2F0ER3fOvrPUfGjI4ARMpgI%2BSLD-wEYGJlv6SgFSLPEMaVhzrgFXxE%3D

iii The Sales Value Pyramid is derivative from several sources, most notably Jim Schleckser, CEO of the Inc. CEO Project

iv Subscription Billing Model Can Maximize Customer Value, Richard J. Snow, Ventana Research, 2013-02-07, http://www.ventanaresearch.com/blog/commentblog.aspx?id=3682


Many companies have already proven that recur-ring revenue models provide a wide variety of op-tions for packaging and repackaging products and services. While most of the industry buzz is focused on basic subscriptions, there is a much broader range of monetization options available than many companies are aware of.

You have choices. Whether your business strategy is to grow your customer base, revenue, market

share, share of wallet, or all the above, recurring revenue provides many options, often by simply repackaging products that you already sell.

Nearly any product in your catalog can be repack-aged into a recurring revenue service with a vast array of pricing options. A key constraint may be the ability of your existing revenue systems to support the full range of recurring revenue pricing tools.


Describe the various monetization and pricing options available

Identify the key characteristics of recurring revenue products

Provide simple advice on pricing strategies

3

On Products, Packaging, and PricingRecurring revenue models can provide a multitude of options for creating new revenue streams from new or existing products.

“Pricing is actually a pretty simple and straight forward thing. Customers will not pay a penny more than the true value of the product.”

Ron Johnson Former SVP Retail Operations, Apple


Chapter 3: On Products, Packaging, and Pricing

MANY PATHS TO SUCCESS

Recurring revenue monetization models provide your business with a wide variety of options for meeting your business objectives.

What is your strategy to grow your business?

Are you trying to rapidly grow your revenue or customer base? Are you trying to increase profit-ability or market share? Are you trying to grow your share of wallet from existing customers? Are you an upstart in your market, trying to disrupt your competition? Are you trying to defend existing turf from competitors? Are you trying to create a whole new market?

Whatever your goals, you have options—lots of options. And it may be as easy as repackaging existing products or services.

Building Revenue

Struggling with the loss of revenue from declin-ing subscription sales, the Times decided to buck industry trends and charge for online access to existing content. The Times “paywall” has become a model for a struggling industry trying to reinvent itself for the digital age, reaching new customers while providing new options for its existing sub-scriber base. With subscriptions ranging from $14–45 per month, the Times has reached over 600,000 paid online subscribers, creating a $160-million dollar annual recurring revenue stream by repack-aging its existing content in multiple ways.

Repackaging a Classic

Microsoft legitimized software-as-a-service for the masses with the announcement of the Office 365 suite. For a monthly or annual fee, subscrib-ers receive access to the same set of services that they can purchase in shrink-wrapped form. Aimed primarily at consumers and small and medium businesses, Office 365 grew to over $1 billion in annual recurring revenue in less than three years.

The business world is currently abuzz about subscriptions, but subscriptions are not the only option. There are three basic monetization models:

→ Subscription: A customer pays in advance for a defined set of services to be delivered over a specific period of time.

→ Usage: A customer is given access to a product or service and is charged periodically on a per-unit or per-event basis.

→ Subscription plus Usage Hybrid: A customer is charged a combination of a subscription rate plus some type of usage charge.

C A S E S T U D Y

C A S E S T U D Y

“Our goal with this next phase of our paid products strategy is to satisfy the demand for Times journalism by giving new subscribers the ability to choose the amount of access they desire at a price point that suits them, and to enhance the value we offer our current loyal subscribers.”

Mark Thompson | CEO, New York Times Co.



Your product offerings can be as simple or complex as they need to be. The three basic models provide a starting point that can then be supplemented with a wide variety of pricing treatments and fea-tures including:

· Monthly vs. annual subscriptions

· Activation fees

· Cancellation fees

· Monthly minimums

· Flat-rate pricing

· Tiered pricing

· Volume-based pricing

· Thresholds

· High water marks (a usage measurement based on peak usage)

· Accumulated usage pooling (family plans, associations, etc.)

· Overages

· Rollovers

· Pay-as-you-go

· Discounts

· Surcharges

· Complex mediation rules (pricing driven by business rules)

· Promotions and free trial offers

· Combinations of the above

When you combine the basic monetization models with various pricing treatments and features, the options are almost limitless.

Looking to increase your customer base? Build a simple subscription plan with a 30-day free trial offer, or combine models and methods to create a family plan with activation fees, standard subscrip-tion pricing, overages with pricing tiers, and usage rollovers. Looking to increase share of wallet from

The right monetization model can accelerate your business strategy, whether your chosen objective is building customer base, revenue, market share, share of wallet, or all of the above. The ability to quickly define and deploy a new monetization mod-el can help you out-maneuver your competition.

Combining Subscription and Usage

Zipcar created a new concept in the car rental industry, called ‘car sharing,’ by combining sub-scription and usage based monetization models. For a small monthly membership fee, members get access to hourly or daily car rentals. In addition to monthly fees, members are billed for the hourly or daily usage. Pricing plans are available that provide discounts for pre-paid usage. By mid-2013, Zipcar had over 810,000 members globally. The model has become popular in urban areas like Boston, San Francisco, and London where car ownership is not always the best option. It has also spawned a wave of imitators, the true sign of success.

C A S E S T U D Y

existing customers? Create a usage based plan that features tiered usage and discounted cross-sell opportunities. Looking to differentiate your brand from your competitors? Create another usage plan that features complex mediation schemes, offering tiered discounts based on the purchase of defined sets of products.



In addition to Hootsuite, streaming music provider Pandora, online collaboration solution Dropbox, and online publisher Issuu provide popular freemi-um services.

Recurring revenue provides many pathways to reach your business objectives, giving you the freedom to try new things, test new options, and make educated guesses aimed at building market share and growing your business. Who really knew that millions of consumers would pay for stream-ing music services until someone actually tried it? The company that got there first gained a compet-itive advantage. If your first bet doesn’t pay off, try something else. Packaging and pricing become an iterative process, allowing you to learn from expe-rience. Recurring revenue monetization models provide that flexibility.

Whatever monetization model you choose, you need to get to market fast. You don’t have time for years of R&D to build your recurring revenue prod-uct. The alternative is repackaging something you already have. But how do you determine whether products you currently offer will work with recur-ring revenue models?

PRODUCTS

The Consumable, Measurable, Repeatable (CMR) Model provides a simple tool for identifying products that can easily be marketed and sold using recur-ring revenue models.

In one-time sales, you sell items. In recurring reve-nue, you combine items and consumption models to create services. For example, software-as-a-ser-vice is a specific method of consuming software products. Microsoft delivers several versions of Office as shrink-wrapped items and also delivers Office 365 (the same software) as a recurring reve-nue service. Items in your product catalog can be repackaged over and over again into any number of recurring revenue services.

A fourth model, freemium, is a popular way to at-tract market share by providing a minimum level of service for free. This provides a captive audience for offers of higher levels of paid service.

Freemium Service

Social media management pioneer Hootsuite started in 2008 as a free service that attracted hun-dreds of thousands of customers through word-of-mouth marketing. Today, Hootsuite maintains its freemium offering for customers who require a basic level of service. Users requiring higher levels of service (primarily businesses) purchase paid subscriptions based on their needs. The majority of business and enterprise users started with the free service. While freemium subscribers still make up nearly 95% of Hootsuite’s subscriber base, the paying customers keep the business profitable.

C A S E S T U D Y

Use All the ToolsMost of the hype today is about subscrip-tions, and many of the high-visibility early adopters like Netflix and Salesforce focused primarily on subscription mod-els. Subscriptions are a powerful tool for building predictable revenue, but they are just one of the tools in your toolkit. You wouldn’t try to build a house with just a hammer, so why would you limit your business with a single monetization tool? Recurring revenue provides more and you should look at every tool in the bag to ac-complish your goals. If you don’t, there’s a good chance you’ll end up leaving money on the table.



The CMR Model for Recurring Revenue Products

The CMR Model defines three basic characteristics shared by virtually all recurring revenue ‘products’:

→ Consumable: Anything that a customer can use (i.e., physical goods, digital content, services, etc.).

→ Measurable: Consumption or usage can be mon-itored and measured.

→ Repeatable: Usage is not a one-time event but is repeated over time.

As illustrated by the CMR Model, almost anything can be packaged as a recurring revenue offering. The table below illustrates several well-known sub-scription and usage-based services, identifies what

Company/Service

What is being sold?

Monetization model

What is being consumed?

What might be measured/recorded?

Amazon Prime

Shipping services, Streaming Video, Music & e-books

Subscription Shipping services, digital content, bandwidth

Page visits, shipping, titles accessed, band-width consumed

Netflix Streaming Video Subscription Digital content, bandwidth

Page visits, titles viewed, bandwidth consumed

Adobe Creative Cloud

Software-as-a-service

Subscription with custom enterprise pricing

Computing resources

User time online, mod-ules used, processing cycles, storage used, bandwidth consumed

ZipCars Car rental on-de-mand service

Subscription plus usage with over-age and late fees

Time and mileage Odometer and GPS readings, check-out and check-in times,

ESPN Insider

Exclusive online content

Subscription Digital content, bandwidth

Time on site, page views, bandwidth consumed

Philips Medical imaging services

Usage with usage pooling

Operating cycles on imaging systems

Who used, when, for how long

Experian Credit Reports Varied models Information Volume of reports and value-add options

MONETIZING YOUR SERVICES

The Sky’s the LimitIf you’re looking at the CMR model and saying,

“That could include just about anything,” then congratulations. That’s the point. How many of your existing products already fit this model? You probably don’t need to create anything new. You can probably re-package the products you already have as recurring revenue services.

is consumed (not always what you think), how the services are monetized, and what might be measured as services are delivered and used by customers.



Your company already sells products and services. How many of those could you make more money from if you could repackage them as recurring rev-enue services? And how do you go about packag-ing and pricing those services?

PACKAGING AND PRICING

Whether creating new products or repackaging existing offerings into recurring revenue services, packaging and pricing become iterative processes that provide a wide variety of opportunities to meet business and customer needs.

This is not an exhaustive text on pricing. There isn’t time or space here to do justice to the topic in any detail. Instead, this section contains a few general observations specific to recurring revenue.

Iteration

Packaging and pricing are iterative processes. You make your best guess based on marketing re-search. You test-market new offerings, price plans, and promotions. You keep what works, discard what doesn’t, and repeat the process. It’s called adaptive selling and it is the trademark of success-ful recurring revenue businesses.

Pricing is IterativeThere is no perfect price. It doesn’t exist. Pricing is not a ‘set it and forget it’ process. It is iterative, driven by compet-itive pressure, evolving usage patterns, changing customer preferences, and shifting value propositions. If you watch successful companies like Adobe for any length of time, you will see that they continually fine-tune their offers to meet the current value expectations of both existing and potential future customers.

Simple or Complex

Recurring revenue options allow your pricing strat-egy to be as simple or as complex as it needs to be. Need to provide a simple set of subscription offers? Or do you need to create a complex subscription usage hybrid scenario with tiered usage? Want something even more complex? Recurring revenue models provide tools to support these scenarios and more.

Enterprise PricingRecurring revenue models support the simplicity or complexity you need to differentiate your product offerings and remain competitive. Where complexity exists in pricing, it should exist to accom-plish a specific business purpose. At the simple end of the scale, there are any number of online content providers offer-ing various flavors of bronze, silver, and gold subscription plans. These are simple and easily understood by their target audiences, supporting high volume traffic with little need for sales, finance ops, or CSR intervention. At the other end of the scale, enterprise pricing often requires much more complex arrangements to re-main competitive. Amazon Web Services provides roughly 5,000 different price points for a virtual machine, dependent on dozens of options. The complexity supports a specific business purpose: pro-viding the exact platform configuration a customer requires.



Know Your Customers —Customer Personas & Value Propositions

Customer personas and value propositions can change as you shift from one-time sales to recur-ring revenue. New models can create new custom-er personas and value propositions that you hav-en’t previously considered. Customers should be able to recognize themselves and their own wants/needs when they look at your list of offerings.

Customer Personas

As of this writing, Adobe has broadly defined two key customer characteristics for its Creative Cloud Application Suite: User Type (Individuals, Business-es, Students and Teachers, Schools and Universi-ties, and Enterprises) and Service Type (Photog-raphy, Single Application, Complete Suite). Adobe has combined those characteristics to create a set of customer personas (individual user of photo app, individual user of complete product suite, small business user, etc.) and created service defi-nitions and price points for each of those personas. The rate structure provides discounts for annual purchases, encouraging customers to move from Level 2 to Level 3 on the Sales Value Pyramid.

C A S E S T U D Y

The Impact of Systems

While recurring revenue monetization models and pricing methods provide a broad array of options in theory, many businesses are constrained by their revenue management software platforms (billing, ERP, etc.). Taking advantage of the full potential of recurring revenue requires having sys-tems in place that don’t constrain your monetiza-tion options but allow you to exploit the full set of recurring revenue tools. Adaptive selling requires agility and flexibility, which are not common char-acteristics of traditional billing and ERP systems.

CONCLUSION

Regardless of your business objectives, recurring revenue monetization models can provide many options for you to reach your goals, often by simply repackaging products that you already sell. The CMR Model (Consumable, Measurable, Repeatable) provides a framework for identifying candidate products for recurring revenue models. Pricing strategies can vary from simple to complex de-pending on the needs of your business and cus-tomers. A key to success is having systems in place that put lots of options and permutations at your fingertips, allowing you to discover what works best through iteration.


To manage recurring revenue customer relation-ships and meet customer experience expectations, a business must be proficient in a set of core busi-ness and operational capabilities. This includes cus-tomer engagement, responsiveness, service delivery, customer service, invoice and payment, scalability, channel management, analytics, and agility.

Data fragmentation is a common business problem that can be amplified by the scale and pace of re-

curring revenue business. Compliance and security concerns should be identified and mitigated early in any recurring revenue initiative.

Businesses should assess these areas prior to launching a recurring revenue initiative and miti-gate key gaps and risks as part of their implemen-tation process.

“Success depends upon previous preparation, and without such preparation there is sure to be failure.”

Confucius


Identify business capabilities necessary to support a recurring revenue business

Identify key data, compliance, and security issues to be assessed

Provide a list of key consideration questions

4

Business ConsiderationsRecurring revenue transformation requires strategic assessment of gaps between new and current business capabilities.


Chapter 4: Business Considerations

There are two key areas of preparedness busi-nesses must examine as they enter the recurring revenue world: business readiness and systems readiness. In this chapter we’ll focus on business readiness. The next chapter will look at systems.

BUSINESS CAPABILITIES

To gain competitive advantage, you have to give your customers what they want, when they want it, the way they want it. Delivering a customer experi-ence that meets those expectations challenges your business capabilities in several areas.

Customer Engagement

It starts with the initial customer engagement. Do you have capabilities in place to answer customer questions in real time as part of the enrollment process? Once enrollment is complete, can you automatically provision service? If not, you’re likely falling short of the “when they want it” expectation. Does the service you provide take into account individual customer preferences? Do you have the tools in place to create promotional strategies based on customer history and usage patterns?

Can you adequately communicate with and instantly respond to your customer across multi-ple channels throughout the customer lifecycle? A Ventana Research study recently showed up to 17 possible channels of communication in play between you and your customer,i with the average company supporting only seven channels. Your customers are looking for a consistent experience across all channels and they will quickly expose any gaps.

Service Delivery

Recurring revenue is a volume business and if you sell online, you must be available 24/7. How will customers access your services and how will those services be delivered? From a browser? From a mo-bile app? Do those channels already exist? Provid-ing a variety of access methods is part of meeting the “way they want it” expectation.

Communication ChannelsVentana Research identified 17 possible customer communication channels. Needs vary based on industry and cus-tomer demographics, but an enterprise business should be proficient at 8-12 of these, with a growing emphasis on mobile and social channels, to meet the

“way they want it” expectation.

Possible customer engagement channels according to Ventana Research:

· Telephone

· Email

· Letters or printed forms

· Customer portal

· Social media

· Web-based self-service

· eCommerce site

· Text messages

· Chat (instant messaging)

· Service locations

· Mobile business app

· Social media forums

· IVR-based self-service

· Retail locations

· Mobile customer service app

· Video calls

· Virtual agents



Mobile AppsYounger buyers want mobile apps. Many companies rush to market with apps that are poorly conceived and buggy. App stores are full of brand name apps with 1 & 2-star reviews (i.e., customers hate it). You can’t afford that. Mobile should not be an afterthought; it should be core to your strategy and execution. Make the investment in time and resources to do this right.

Recurring revenue speeds up the pace of your busi-ness. Can your supply chains handle the demands? Are there any weak links in your infrastructure or supply chains that could cause interruptions in service delivery? Can you give your customer “what they want, when they want?”

Scalabillity

Service delivery is tied to the ability to scale your business to support a growing customer base. You’ll need infrastructure and systems that are scalable and secure to support rapid growth. Client-facing business processes, call center operations, supply chains, and security capabilities will all need to scale to support recurring revenue volumes.

Customer Service

Your recurring revenue business operates 24/7 and customers expect you to deliver on their time-line, not yours. From enrollment through the entire customer lifecycle, your customers expect their issues to be resolved on their first contact with your customer service center. Customer service efficiency becomes part of meeting the “when they want it” expectation.

“Customers… generally don’t care with whom they interact or what technology is employed. They want answers, they want

“Customers… generally don’t care with whom they interact or what technology is employed. They want answers, they wan-them fast… hence the increasing impor-tance of first-contact resolution rates.”iii

Richard Snow | Ventana Research

Customer Service ChannelsSince a goal in relationship commerce is to stimulate customer engagement, you might consider making customer service help pro-active, i.e., providing a “Do you have questions?” dialog box that pops up when customers visit your web site.

Invoice & Payment

Recurring revenue allows you to leverage new monetization models and pricing schemes. These can range from the simple to the complex. Billing and payment processing become strategic busi-ness enablers. Recurring revenue also introduces time-based concepts like proration and deferred revenue recognition. Traditional billing systems and processes often don’t support these concepts and may not give you the flexibility you need to respond to changes in the marketplace.

On the payment side, the ability to schedule re-curring payments, automatically renew accounts, collect charges from multiple sources, and remain PCI compliant may stress existing processes and systems. These issues must be addressed to gain the full competitive advantage recurring revenue can provide.



Channel Management

It has become common practice to create part-nerships and distribute services through multiple channels. Channel relationships can be highly complex and difficult to track. Because business scales and operates in real-time, manual processes and spreadsheets will be inadequate. If you man-age a channel operation, you’ll need a better way to sort through who sold what to whom and where the money should be allocated.

Predictive Analytics

Recurring revenue is a new way of business built on acquiring and then retaining customers and maximizing customer lifetime value. It’s not enough to monitor past customer behavior. Analyt-ics should give you the ability to identify customer behavior patterns that are predictive of future behavior. Your analytics tools should help you identify potential churn risks and upgrade op-portunities, allowing you to respond in ways that maximize customer lifetime value. New metrics like customer lifetime value, churn rates, retention rates, and monthly recurring revenue will help you monitor the health of your business.

“Companies lose business consistently due to the lack of attention to customers and shifts in buying patterns.” v

Gartner

“There is nothing permanent except change.”

Heraclitus

Agility

Markets will change. Customer preferences will change. The things you will need to do to satisfy your customers will change. Successful recurring revenue businesses have the ability to respond, adapting to new market conditions and compet-itive pressures whenever necessary to maintain competitive advantage. An agile business can in-troduce new product offerings, pricing, or promo-tional opportunities quickly. It can adjust to new technology opportunities and shifting customer preferences. Flexible business systems and pro-cesses that don’t constrain your ability to change create agility.

These are the minimum table-stakes capabilities for entering the recurring revenue world. You may have additional needs based on specific products and markets.

UNDERSTANDING YOUR DATA

In large enterprises, data is often fragmented, impacting your ability to get a complete view of the customer and provide adequate customer service.

You probably have data about your customers, their contracts, and their transactions sitting on multiple platforms. CRM systems hold the data you need in order to sell to customers. Fulfillment plat-forms hold the data you need to process and ship orders or provide services. Billing platforms hold the data you need to generate and send invoices. Receivables platforms hold the data you need to collect on debt. By definition the data is fragment-ed, residing in multiple places. It can be difficult to get a complete view of the customer, resulting in a fragmented customer experience. The scale and real-time nature of recurring revenue businesses can amplify this problem.

“The bill presentment and payment process is an often overlooked and under-leveraged opportunity to drive business efficiency, in-crease cash flow, enhance profitability, and make—or break—customer relationships.”

Mitch Rose “The Strategic Value of Billing Practices” iv



Fragmentation can also result when your custom-ers update their information, like changing names or addresses. If your business acquires or merges with another entity, you can end up with multiple views of a single customer. The same can happen if a B2B customer goes through acquisition or merg-er. Industry best practices point to data cleanup as an important step in managing a transition to new revenue models and systems.

SECURITY AND COMPLIANCE

Recurring revenue models may bring new chal-lenges in security and compliance areas related to financial reporting and data management.

Customers expect you to protect their security and privacy. Software systems must provide adequate protection for customer data and financial transac-tions. Payment processing and storage of customer data should meet PCI Level 1 compliance stan-dards at a minimum. In the EU, you’ll also encoun-ter EU Safe Harbor data compliance requirements. Other regions may impose additional compliance standards.

Investors and regulators require accurate financial data in compliance with GAAP/IFRS standards. Recurring revenue complicates revenue recogni-tion processes with advance payment for services and revenue recognized when services are deliv-ered, not when payment is received. If you manage deferred revenue with spreadsheets and manual processes, those processes can become a failure point as your business scales.

WHAT YOU SHOULD THINK ABOUT BEFORE YOU START

The shift to recurring revenue is a transformational process, requiring alignment of strategy and action across your business.

Here is a set of questions on topics you may or may not already be considering to stimulate thought and discussion as you continue to work through transforming your business. The list is by no means exhaustive, but is intended as a starting point for

internal discussions that need to occur in your business. The questions are organized by function-al area, but many of the questions cross functional boundaries.

Enterprise

· What does success look like and how will you measure it?

· Who owns the initiative? Is it enterprise driven or line of business driven? How much autonomy will the recurring revenue business have? Will it operate as a stand-alone business unit, or will you treat it as a product line within an existing business unit?

· Is there any possibility the recurring revenue product line could spin off as a stand-alone business or IPO? If so, how would that possibility impact business and systems decisions?

· Who are the ultimate decision makers? Who has veto authority and over what types of decisions do they have that authority?

· What trade-offs are you willing to make in your business plan and decisions? How will you balance time-to-market, cost, functionality, and scope of offerings? How will you prioritize these dimensions in decisions?

· How urgent is this initiative? What is the intend-ed launch time frame? How critical is that time frame? What compromises are you willing to make to avoid extending the time frame?

· What would the impact be if you could go to mar-ket sooner? How can you accelerate the process?

Customer Experience

· If you repackage existing products for recurring revenue, some of your existing customers will migrate to the new service. How will you manage people through that transition? Will the customer experience improve or degrade?



· What needs improvement about your current customer experience? What will the impact be on customer experience if your customer base grows?

· How do customers want to buy the product? How will they interact with your product line (on-line, mobile app, customer service, sales reps, etc.)?

· Starting with the enrollment process, do you have customer service operations that can an-swer customer questions on first contact, 24/7? What would it take to achieve that capability? In-house or outsource?

· How are customers acquired? What systems are used? Are there multiple pathways? How does this change in a recurring revenue world?

· What does the connection between the com-merce system and the service system need to look like? How are services provisioned? What service response times are required?

· What information do you need or want to provide to your customers?

· Will customers self-manage their own customer experience? What constraints would hinder or prevent this?

Information Technology

· How well are your current infrastructure/back-end systems working? Where is there room for improvement? How do current needs impact a recurring revenue initiative?

· How well do current systems scale?

· Where does this initiative fit within your enter-prise systems roadmap? Will this initiative oper-ate stand-alone or leverage corporate resources?

· What is your future software direction (custom, on-premises, or cloud)?

· What is your core competency? How does that align with changes necessary to support recur-ring revenue? What skills do you have on your team to implement and manage a recurring revenue solution? What skills will you need to acquire?

· In choosing systems to support this initiative, do you have everyone you need involved with this project or are you going to select something you like and hope everyone else will love you for it? Who owns the decisions? Finance? Line of Busi-ness? IT? Who has veto authority? Are Sales and Marketing involved in the process?

Sales/Marketing

· How do you acquire customers today? What systems and tools do you use? How is this likely to change?

· What does your minimum viable product look like? Is there a need to go to market with more than a minimum viable product at initial launch? How do you prioritize time-to-market vs. product features?

· How will you differentiate from your competitors (products, pricing, placement, cross-sell/upsell options)? How can you differentiate on customer experience?

· If you repackage existing products for recurring revenue, some percentage of existing customers will migrate to the new service. Is there a target mix of net new customers vs. migrating custom-ers? What is the impact of under or over-perform-ing against that target?

· How frequently will you roll out new products and pricing?

· How do you sell the product and how is it con-sumed today? How will this change six months from now, two years from now, and beyond? What will change about this over time?



· What are your current thoughts on monetization strategies and how might this change over time?

· What specific thoughts or plans do you have around customer retention strategies? How will you boost retention and minimize churn?

· Who owns the product catalog and product data across your environment? Sales? Finance? IT?

· What are your current capabilities around recur-ring revenue sales KPI’s (churn, retention, cus-tomer lifetime value, monthly recurring revenue, etc.)? Do current BI solutions provide actionable customer behavior data?

Finance

· How will a recurring revenue initiative impact existing pain points? How can you leverage this project to mitigate current issues and derive added value from existing teams?

· Do current business processes scale? What do you currently do manually?

· Do current systems support recurring revenue monetization models and provide the necessary levels of flexibility and complexity?

· Do you have visibility into revenue leakage? How do you mitigate leakage? How will this be im-pacted by new business and added volume?

· How do you manage accounting for indirect sales? What level of support do you provide for channel operations? What is the impact of a re-curring revenue initiative on channel support?

· How will compliance and security requirements change?

· Is there any potential for geographic expansion and how would that affect compliance and secu-rity requirements?

· How does the initiative impact current business risk assessments and mitigation strategies? What new risks are introduced? How will you mitigate these?

References i Companies Struggle to Engage with Customers Digitally, Richard Snow, Ventana Research, 2013-12-11, http://richardsnow.ventanare-search.com/2013/12/11/companies-struggle-to-engage-with-custom-ers-digitally/

iii Companies Struggle to Engage with Customers Digitally, Richard Snow, Ventana Research, 2013-12-11, http://richardsnow.ventanare-search.com/2013/12/11/companies-struggle-to-engage-with-custom-ers-digitally/

iv The Strategic Value of Billing Practices, Mitch Rose, The Credit and Financial Management Review, http://www.billtrust.com/sites/de-fault/files/newspdfs/StrategicValue-of-Billing.pdf

v The Gartner CRM Vendor Guide 2013, Gartner Consulting, 2012-12-04

· What are current processes around non-sales transactions (e.g., upgrades, downgrades, can-cellations, refunds, etc.)? How will these process-es change due to this initiative?

· How do you future proof your recurring revenue business?

· What type of reporting is required at corporate and line of business levels?

· What level of flexibility will you need in business models and pricing plans?

CONCLUSION

Recurring revenue success requires competence in a core set of business capabilities. Assessment of current capabilities and gaps is an important early step in a recurring revenue initiative. It’s not just products or monetization models, recurring revenue transforms many aspects of your busi-ness. The more time spent preparing, considering alternatives, and planning, the more likely you are to be successful.

In the next chapter we’ll look at system require-ments to support your recurring revenue business requirements and growth.


In a recurring revenue business, monetization is more than just a billing or payments system. It’s an end-to-end process that spans the entire customer relationship from activation through cancellation.

Traditional revenue systems are designed to man-age one-time sales. The demands of managing recurring revenue relationships expose gaps in the capabilities of traditional processes and systems.

These gaps most commonly appear in the perfor-mance of legacy billing platforms.

Modern billing systems designed to support recur-ring revenue management include the functionality and integration capabilities necessary to coordinate and manage business processes and customer touch points across the enterprise.


Define the scope of recurring revenue monetization processes

Identify the common failure points of traditional billing platforms

Describe the capabilities of modern billing systems necessary to support recurring revenue monetization processes across your enterprise’s ecosystem

5

What About Systems?A recurring revenue business requires a modern and agile approach to monetization. Not just about billing or payments, monetization covers every aspect of the customer relationship.

“Billing is no longer a commodity service— instead it is a strategic differentiator for managing customer relationships and mon-etizing 21st century products and services.”

Brendan O’Brien | Aria Systems


Chapter 5: What About Systems?

MONETIZATION IS A PROCESS

Monetization is a process that changes as your focus shifts from traditional item sales to recurring services.

In recurring revenue, monetization is a continu-ous business process that begins with customer engagement prior to account activation and ends when an account is closed. Every customer inter-action in between has an impact on your ability to maximize the customer lifetime value of a relation-ship and must be managed accordingly.

The monetization process spans a variety of sys-tems, including eCommerce platforms, customer and CSR portals, CRM, sales quote tools, financials, and traditional revenue systems like billing and receivables. Activities must be coordinated across systems and data must be kept in sync across plat-forms to deliver the seamlessly connected experi-ence customers look for.

Author Story from the FrontlinesA couple years ago I had a meeting with a line of business president at a global company. I was deploying a new reve-nue management solution to support his new recurring revenue product line. He asked a simple, but revealing ques-tion: “It’s only billing, why does it cost so much?” I was ready for a lot of questions that day. I could have quoted chapter and verse on his project and budget, but that’s not what he was asking about. The question was more strategic—it was really more about the scope of revenue management in his business operation. The basic assumption behind his ques-tion was that the monetization process is a commodity. Nothing could be further from the truth.

Traditional billing and receivables systems were predominantly designed to manage one-time sales transactions. Monetizing recurring revenue is fun-damentally different and adds the element of time and the dynamics of managing customer relation-ships to monetization processes.

Recurring revenue monetization models are time-based. Charges are generated and payments are received on a recurring periodic basis. Payment methods shift from checks and electronic trans-fers to card-based processes. Credit cards expire and credit payments are rejected, requiring new exception processes. Revenue is recognized over a period of time as services are delivered. Customers upgrade, downgrade, or cancel service during a billing period, requiring proration of charges and revenue recognition. Customers change address or contact information, which can impact invoicing, payment processing, and service delivery. Custom-ers consume services and want a current view of their usage data.

All of these elements must be managed in re-al-time or near real-time to meet customer expec-tations, with processes and data often crossing system boundaries. Systems like CRM, ERP, billing, fulfillment, and e-commerce that might not cur-rently talk to one another must be linked together. Existing integrations may prove inadequate for

new business models impact the custom-er relationship and require companies to connect marketing, sales, customer service, and finance because these and other busi-ness units all interact with customers but through different channels and at different times in the customer life cycle.”i

Richard J. Snow | Ventana Research

“More companies are adopting the telecom-munications model of introducing packaged services that include multiple products and services, use-based invoicing, bundled pricing, and volume discounts... These



increased demands. Manual, paper-based, and spreadsheet processes that may have been ade-quate to support one-time sales quickly become unworkable and obsolete.

The weakest link in this process usually turns out to be the billing platform, where traditional billing or ERP systems tend not to support the basic mon-etization models, time-based processing, and level of cross-platform integration necessary to manage customer relationships.

KEY FAILURE POINTS OF TRADITIONAL BILLING SYSTEMS

Traditional billing and ERP systems often fall short of meeting the needs of recurring revenue monetiza-tion models.

Traditional billing and ERP systems are built and configured to sell items at a single point in time. In the recurring revenue world, a business delivers services over a period of time, which exposes gaps in functionality and common failure points.

Failure Point #1—Billing functionality

Traditional billing systems often fall short of pro-viding the functionality needed to support recur-ring revenue monetization. The most common gaps are:

monetization models

Many traditional systems do not support subscrip-tion models, usage aggregation, or a combination of the two.

pricing

Traditional systems often lack support for complex usage pricing models, discounting, promotional offers, or the ability to mix and match complex pricing capabilities in new and creative ways.

product catalog

Legacy product catalogs were designed to sell items. In recurring revenue, a single ‘item’ could be packaged and priced in many different ways, which can often lead to an unmanageable explo-sion of SKU numbers.

non-sale transactions

Recurring revenue models generate non-sale transactions like upgrades, downgrades, cancella-tions, and renewals that are often unsupported.

proration

When a customer changes service levels mid-cycle (upgrades, downgrades, etc.) adjustments must be made to period charges to account for the change.

revenue recognition

While not really a billing problem (most enterprises do ‘rev rec’ in ERP systems), billing can contribute to revenue recognition problems by not providing the necessary data to support the process.

It’s not just billing functionality that can come up short. There are other potential failure points. These are the ones that surface most often:

Failure Point #2—Provisioning and entitlements

When a customer enrolls in a service, they expect to be able to access that service immediately. Delivery systems need to be in sync near real-time with com-pleted orders and contracts. The interfaces neces-sary to make this happen are not available out-of-the-box with most traditional billing systems.

Failure Point #3—Data fragmentation

In a typical enterprise, data about customers and their transactions is spread across multiple plat-forms with no single system providing a complete and current view of the customer relationship. Companies often try to solve this with batch file transfer processes, but batch processes by their nature can’t keep up with the real-time nature of



a prime enabler for your recurring revenue business, addressing key failure points of traditional systems and supporting end-to-end monetization processes.

Billing sits in the center of your software ecosystem, with touch points to eCommerce, customer portals, CSR portals, CRM, fulfillment, financial systems, and even analytics. It’s the only system in your environ-ment with all of these connections, making it the most logical choice to manage the flow of data and activity across the enterprise.

Modern billing systems provide the functionality to support charging and invoicing for a wide variety of monetization options and much more. Tools like sophisticated work-flow engines and business-rule engines enable you to coordinate end-to-end mone-tization activities and even embed your own unique business rules and processes into the solution. Ad-vanced integration options provide tools for connect-ing systems to ensure data stays in sync across the enterprise.

most recurring revenue businesses. This fragment-ed view of customer and sales data often leads to a fragmented customer experience.

Failure Point #4—Revenue leakage

Revenue leakage, incorrect billing, or not bill-ing for services delivered can be a result of poor provisioning processes that provide unauthorized access to products, data fragmentation that causes usage events to go unreported or unprocessed, or pricing errors due to manual setup processes.

Failure Point #5—Integration

New ways of doing business often require hooking things together in ways that were never intend-ed. The end result can be complex systems and interfaces that perform even direct and simple tasks, like activating a new customer, in indirect and complex ways. Data fragmentation problems

About Your ERP SystemTraditional ERP systems were built to support manufacturing or shipping processes, where orders generated pick lists and order-based invoices. Like traditional billing systems, most ERP platforms were not designed for recurring charging and invoicing. Many vendors have bolted on modules that support time-based billing, but these add-ons were generally built to support specific-use cases like maintenance and service agreements and may not match up well with your new recurring revenue business needs. If you’re trying to bill from ERP and your vendor tells you,

“We have a work-around for that,” that’s a red flag. You need billing functionality that was designed specifically for the kinds of use cases you’re going to base your business on.

“The challenge is that companies need systems that can create product and service catalogs, manage the customer life cycle from marketing through sales, billing, and service, collect and calculate the cost of us-age charges, and provide either embedded accounting or links to existing accounting systems. Crucial to success is managing customer engagement throughout the lifecycle.”ii

Richard J. Snow | Ventana Research

and revenue leakage are often the result of poor or missing integration points between systems.

There are other potential failure points as well, including the ability to perform real-time charging and deliver invoices to mobile devices, but the five listed above are the most common and most difficult to address in existing platforms.

MODERN BILLING—THINKING BEYOND BILLING

A modern revenue management system becomes



The traditional view sees billing as an invoice assembly and presentation tool—a commodity product. The modern view sees billing as a service enabler operating at the center of your business. So, how exactly does a modern billing system en-able your business?

The Great Enabler

It starts with the billing product catalog. Products, bundles, packages, and price plans are maintained in the product catalog, which can be made avail-able to your eCommerce site, CRM, ERP, Sales Quote, and CSR solutions. Data can be shared with multiple systems and stored in multiple places, but it’s managed only in billing, providing a single source of truth for product data.

When customers visit your eCommerce site, they select from the list of services provided by your billing product catalog. When they enroll in ser-vice, the billing system becomes the repository of contract data (i.e. which product/services the customer can access). That data can be pushed

Think Revenue ManagementIt’s time to change the conversation about billing. We shouldn’t be talking about a set of commodity services. Instead, let’s talk about the set of tools that enable and manage an eight-, nine-, or ten-figure annual revenue stream. That’s a completely different conversa-tion, and it’s the conversation we need to have with the executive sponsors who need recurring revenue management solutions. It’s not about billing, it’s about revenue management, providing the tools and processes to support moneti-zation of recurring revenue services.

to fulfillment platforms to support customer provisioning, keeping entitlements in sync with purchases. Again, data can be shared with multi-ple systems and stored in multiple places, but it’s managed only in billing, providing a single source of truth for contract data.

When a customer upgrades, downgrades, or cancels service, billing can prorate charges, notify financial systems of changes, and notify fulfillment platforms of any changes in product entitlements. Most mod-ern billing systems support card and other payment types, so payments, refunds, etc. can be processed directly or coordinated with financial systems.

Usage data is aggregated on the billing platform, providing a source of data for display on customer service representative (CSR) and customer portals and for predictive analytics. Analytic tools can identify customer behaviors based on usage data and offer appropriate discounts, promotions, up-sell, cross-sell, and churn mitigation strategies to maximize customer lifetime value.

Rating logic assigns pricing to aggregated custom-er activity (usage models) and invoices are gener-ated and distributed to customers either directly or in coordination with other financial systems. If a customer fails to pay, dunning processes can con-nect with product delivery to automatically restrict access to services, all from your billing solution.

This is not an exhaustive list, but it’s indicative of the types of processes that can be managed across platforms. To efficiently perform these functions, a modern billing system has four key characteristics:

configurable (vs. codeable)

Modern billing systems are configurable, allowing business users to control settings, create inter-faces, schedule processes, build workflows, and manage products and pricing through configura-tion options without massive IT intervention or the need to write lots of custom code.



On Integration ToolsEvery software package comes with APIs and most come with pre-packaged data connectors that allow the software to share data with other systems. These tools are great as far as they go, but there’s one big down side: APIs and connectors are passive tools. They only speak when spoken to, they can’t proac-tively tell you when something has hap-pened. If your fulfillment platform needs to know that a new customer has been enrolled, you need something more than APIs. You need push notifications that will tell the rest of your systems when an event has occurred in billing and trigger necessary activities on other platforms. Push notifications are the key to automating processes like customer provisioning, and not all billing packages provide them.

flexible

Modern product catalogs provide the building blocks to allow you to create an unlimited num-ber of monetization options for your services. Updating the catalog should be a simple business function performed by business users, giving you the flexibility and speed to experiment with new products, packages, and price points.

agile

Successful recurring revenue companies have the ability to quickly introduce and test new products, bundles, promotions, and price plans. The ability to adapt quickly in response to changing markets, evolving customer preferences, and competitive pressure becomes a competitive advantage.

responsible

Modern billing systems provide tools to take charge of recurring revenue processes. From its central position connected to customer and CSR portals, CRM, ERP, and fulfillment systems, billing becomes a hub for your recurring revenue busi-ness, taking responsibility for coordinating activi-ties and keeping data in sync across your environ-ment.

Integration

You made a huge investment in the systems that run your business, systems like CRM, ERP, and fulfillment platforms. You need to leverage those investments in a recurring revenue management solution. That means integrating billing with exist-ing platforms to provide customers a connected, end-to-end experience. Modern billing solutions provide a variety of integration tools, including APIs, data connectors, push notifications, and event management.

References i Aria Makes Billing Simple for Recurring Revenue, Richard J. Snow, Ventana Research, 2013-12-18, http://www.ventanaresearch.com/blog/commentblog.aspx?id=4235

ii Customer Engagement in 2014: Agenda For Delivering Best Custom-er Experience, Richard J. Snow, Ventana Research, 2014-01-15, http://www.ventanaresearch.com/blog/commentblog.aspx?id=4242

CONCLUSION

Modern monetization models require a modern revenue management platform. Traditional billing systems were generally designed to support ‘one-and-done’ sales processes and fall short of the functionality required to support new models and manage customer relationships over time. Modern systems fill these gaps and provide tools to enable end-to-end revenue management processes.


The rapid growth of recurring revenue has created an extremely competitive marketplace for recurring revenue management solutions. Businesses can choose between SaaS, on-premises software pack-ages, or custom build to their individual needs.

The choice of solutions becomes a balancing act between cost, time-to-market, functionality, man-agement complexity, and risk that will vary from business to business based on priorities and current circumstances.

Given the availability of viable vendor options and the risks and costs inherent in custom building soft-ware, purchasing an on-premises or SaaS solution is usually the better alternative. Current market trends favor SaaS solutions as enterprises seek to take advantage of the cost and time-to-market benefits SaaS provides.


Identify different options available by business scenario

Explain why buying is almost always a better option than building

Describe the current billing software ven-dor landscape

6

Systems OptionsThere are options for filling the gaps between your existing system capabilities and the needs of a recurring revenue business. It is important to understand the benefits, risks, and costs associated with each choice before beginning the selection process.

“Companies should be exploring the special-ized knowledge, experience, and technology required to offer a world-class billing system that gives them strategic advantage over their competition.”

Mitch Rose | SVP, Billtrust


Chapter 6: Systems Options

HARD CHOICES

Systems strategy is driven by current business situ-ation, preference for current solutions/vendors, and a balance of factors such as cost, functionality, and time-to-market.

If you’re looking at a recurring revenue initiative, you have some hard choices in front of you. Those include how to augment or replace existing re-curring revenue management software, whether to build or buy the solutions you need, and if you decide to buy, then from whom.

In Chapter 5, I noted that traditional billing and ERP platforms generally come up short in sup-porting recurring revenue initiatives. Your current situation heavily influences the choices available for remediating those functional gaps.

There are four common billing scenarios that de-scribe the current situation for companies looking to add recurring revenue models:

→ Green Field Scenario: A new startup without any existing revenue systems

→ ERP Scenario: Billing for one-time sales from an ERP platform

→ On Premises Scenario: Billing from a commercial on-premises package

→ Home Grown Scenario: Billing from an in-house, custom-built platform

There are specific considerations for each scenario. What are the challenges and opportunities? What are the key concerns and decision drivers? One of these scenarios should fit your current situation or be close enough to provide some insight.

The Green Field Scenario

The Green Field scenario is common with new startups or for a stand-alone line of business within a larger enterprise (often one that may be a candidate for future spin-off or IPO).

The primary challenge is to get to market quickly, and speed is more important than functionality. That makes SaaS solutions the preferred end-to-end option, but take care not to constrain future growth with solutions that won’t grow with you.

Key challenges: Getting to market quickly

Key business needs: Cost containment; speed to market; agility; flexibility

Key considerations: Speed vs. functionality; day-1 capabilities; growth potential (scale and complexity)

Green Field Scenario —Bottom LineTime-to-market and cost constraints usu-ally make SaaS solutions the preferred alternative, with the likelihood that multiple solutions (i.e., CRM, Billing, etc.) will be linked together to provide an end-to-end solution. Look for clear and easy integration options between platforms. Ensure that chosen systems provide flex-ibility and scalability to support future growth.

The ERP Scenario

The ERP scenario is common in medium to large enterprises where companies have made a seven to nine-figure investment in an ERP platform and con-sider themselves a (insert vendor name) shop. These companies do everything from their ERP package, including generate invoices. There is resistance to looking outside ERP for solutions (usually from IT, sometimes Finance), but industry trends are mov-ing towards separating billing functionality from centralized ERP platforms and adding best-of-breed billing solutions to provide more flexible monetiza-tion options while enhancing business agility.



Unless the ERP system explicitly supports recurring revenue monetization and payment, there are two basic alternatives that add necessary functionality:

→ Adding a billing/rating/monetization platform to manage subscriptions, usage, rating, invoicing, and payments

→ Leveraging existing ERP invoice and payment/collection capabilities by shipping invoice-ready data from billing to ERP for invoice generation, distribution, payment processing, collection, etc.

Key challenges: Supporting new monetization models; time-to-market; internal culture; ERP change management/prioritization

Key business needs: Flexible monetization options; business agility; support for existing business processes

Key considerations: Scope of functional gaps; en-terprise priorities; level of business specialization/customization already embedded in ERP; cost of ownership

The On-Premise Scenario

Many enterprises have invested in stand-alone, on-premises billing packages. High-end, on-prem-ises solutions are expensive to deploy and carry a high cost of ownership. Configurations are also

“When it comes to the topic of best-of-breed versus an enterprise-wide solution from an ERP vendor… the pendulum has swung to a best-of-breed approach. While the single global instance approach of enterprise ERP systems fit the centralized management model of the late 1990’s, today’s global yet hyper local business environment is pushing companies to embrace best-of-breed [bill-ing] software solutions.”i

MGI Research Top 10 Trends in Billing Software Solutions

ERP Scenario —Bottom LineLeverage what makes sense from your existing ERP solutions and augment where needed to fill gaps, particularly in billing functionality. Integrating your existing ERP platform with a recurring revenue billing solution is usually a faster, lower cost, and lower risk alternative than trying to make an ERP platform do some-thing that it wasn’t designed to do.

highly complex, requiring special expertise. Func-tionality is rich and systems are often customized, which carries additional risk: custom changes may not be supported in future releases. Customization also makes it more difficult to move to alternative solutions.

High initial deployment costs often dictate that systems are configured to support existing go-live use cases only. Extending functionality to support new monetization options may be a costly prop-osition. Mid-tier and lower-tier solutions may not provide the level of flexibility required.

Key challenges: Managing complex customer rela-tionships; supporting new monetization models; time-to-market; change management/prioritiza-tion

Key business needs: Flexible monetization options; business agility; integration with sales and back-end systems

Key considerations: Level of investment in current solution; age of current solution; level of customi-zation; cost of changes vs. time-to-market



Key business needs: Flexible monetization options; agility; integration with sales and backend systems

Key considerations: Level of investment in current solution; age of current solution; capital expendi-ture vs. operational cost preferences; cost of chang-es vs. time-to-market; availability of SME resources

BUILD VS. BUY

For most organizations, balancing cost, time-to-mar-ket, and functionality leads to a decision to buy rather than build new billing solutions.

Once you determine the need to augment or replace current systems, the next question is build vs. buy. If you decide to buy, there is a second choice: on-prem-ises software or SaaS. Decision factors include cost, time-to-market, functionality, complexity of deploy-ment and operation, and the scope of existing gaps.

Home Grown Billing Systems

Many enterprise companies use legacy, home-grown billing systems. Custom builds were com-mon 10-15 years ago but are much less so today. Some companies chose to custom build because of highly specialized business models, but often the custom build was just a matter of preference at the time.

Custom solutions are built to exactly match spe-cific use cases and business models, but business models change over time and custom solutions tend to be less flexible than modern package and SaaS solutions. Adopting new monetization mod-els will likely require new custom code, tying up valuable IT resources. Change costs are prohibitive and can become a constraint on taking advantage of market opportunities.

Key challenges: Availability of SME resources; support of new monetization models; time-to- market; cost to change; managing complex customer relationships; customer experience

Home Grown —Bottom LineIf you’ve heavily invested in a custom solution, perhaps over many years, the temptation is to extend that invest-ment. At some point, your home grown solution will become a burden to your business and a constraint on growth. Subject-matter experts will leave, source code will become obsolete, program-ming resources will become increasingly difficult to find. If your solution already sufficiently supports recurring revenue models, you may choose to do nothing. If not, the recurring revenue initiative could be a good time to begin looking at future direction and to look for options to supplement or replace your legacy solution, rather than continue investing to support the rapid iterations your cus-tomers, markets, and competition may require.

On-Premise Solution —Bottom LineIf you’ve invested in a best-of-breed solution, the preferred option will be to re-invest to make necessary configura-tion changes to support your initiative. Exceptions may exist where reinvest-ment costs or time-to-market constraints become prohibitive. In those cases a SaaS solution may be a good alternative investment. If your current investment is in a mid-tier or low-end solution, or your current solution is approaching end-of-life, the better play may be to upgrade and replace with a superior SaaS or on-premises solution.



CostCost has two components: deployment (usually capitalized over 3-5 years) and operating cost. SaaS solutions provide lower costs due to shared resourc-es and economies of scale. Custom builds, by their nature, end up at the high end of the cost curve.

→ Published industry benchmarks on cost comparisons are hard to find. My personal experience has been that where SaaS and on-premises solutions are considered side-by-side, the on-premises solution will come in at a five year TCO three to four times higher than the SaaS solution. Custom-build costs vary widely depending on labor market, but are generally higher than on-premises solutions.

SAAS

ON-PREMISE

CUSTOM BUILD

SaaS provides the lowest initial costs and 3-5 year TCO.

→ One of the reasons SaaS solutions cost less is that deployment cycles are shorter. Again, from personal experience, expect SaaS initial time-to-launch to be one-third to one-half that of on-premises solutions. Custom build durations can extend even longer.

SaaS provides rapid time-to-market and the best option for a high-speed minimum viable product launch. On-premises and custom billing options often become the ‘long pole in the tent’ in your timeline.

Time-to-MarketInitial time-to-market is the measure of project duration from initiating deployment processes to product launch.

SAAS

ON-PREMISE

CUSTOM BUILD

→ If complex functionality is your decision driv-er, you’ll move towards on-premises or custom solutions. While high-end SaaS solutions are expanding functional capabilities, on-premis-es solutions from major providers are usually the best option where rich functionality is the decision driver over time-to-market and agility.

Custom-built or custom on-premises packages provide the greatest range of func-tionality. SaaS functionality varies widely from low-end subscription-only offerings to full-featured revenue management solutions.

FunctionalityCustom and on-premises solutions provide a dis-tinct advantage in functionality, especially where complex mediation and rating scenarios exist.

SAAS

ON-PREMISE

CUSTOM BUILD

Since SaaS solutions are actively managed by the vendor, they tend to be much less complex for your business to deploy and support.

ComplexityIT teams must support deployment and ongoing operation at significantly higher levels of complexi-ty for on-premises and custom solutions.SAAS

ON-PREMISE

CUSTOM BUILD

→ Chances are your decision will focus on cost and time-to-market vs. functionality. If deployment and operational complexity are a factor, a SaaS-managed service strategy moves much of the complexity from your IT team to your vendor.



In most cases, the build vs. buy and SaaS vs. on-premises decisions become a matter of balanc-ing cost and time-to-market against functionality. Like many software areas, the market is moving towards cloud and SaaS offerings as the preferred options.

Custom-build strategies are generally left to large organizations with highly specialized business cases and large existing investments in custom solutions.

“Two years ago, cloud-based systems were still viewed as exotic among mainstream organi-zations. Today, it is the preferred approach. Even in situations where companies select an on-premises solution today, they are still demanding many of the same benefits of a cloud-based solution. Specifically, users are looking for an intuitive UX (user experience), a modern UI (user interface), high agility, and rapid implementation with a SaaS pricing model. In billing, the question of ‘Should we consider a cloud solution?’ has shifted to

‘Let’s consider cloud-based solutions first.’” ii

MGI Research

On Custom BuildsUnless your name is Google and you have unlimited resources, custom solu-tions take too long and cost too much to build and maintain. There are too many viable options on the market to tie up valuable IT resources reinventing the wheel. Use your in-house resources to grow your business and pay a vendor for your back-office solutions.

CONCLUSION

The move to recurring revenue presents your busi-ness with a challenge: Traditional billing systems tend to lack the necessary functionality to support recurring revenue monetization options. That leaves you with choices to make. Do you augment or replace existing solutions? Do you custom build or buy the functionality you need? If the answer is buy, then on-premises or SaaS?

Recurring revenue has created a highly compet-itive global market for revenue management solutions. Vendors tend to focus on one or more vertical markets, providing functionality specifi-cally suited to those verticals. The current market trend is towards SaaS providers in order to satisfy cost and time-to-market requirements.

In choosing a solution, it’s not enough to solve today’s challenges. You need to future-proof your business with a solution that meets today’s needs and provides the agility to grow and transform as your business grows and transforms. We’ll look at the process of selecting a software vendor in the next chapter.

References i Top Ten Trends in Billing Software Solutions, MGI Research, 2013-10-15, http://www.mgiresearch.com/images/stories/free_downloads/mgiresearchtop10billingtrendsoct2013.pdf

ii Top Ten Trends in Billing Software Solutions, MGI Research, 2013-10-15, http://www.mgiresearch.com/images/stories/free_downloads/mgiresearchtop10billingtrendsoct2013.pdf


The traditional RFP-based procurement process is a 20th century approach to a 21st century prob-lem. A more modern approach is needed, involving extensive two-way interaction with vendors and creation of a proof-of-concept that offers concrete evidence that a vendor solution can meet your business challenges.

In today’s marketplace, shortened product life - cycles and heightened competition put a premium on agility and time-to-market as key factors in the vendor selection process.

Rapid growth in the use of recurring revenue mod-els is driving intense competition among billing solution vendors. Software vendors tend to focus on one or more vertical markets, with expertise and functionality specific to those markets.


Outline the current vendor landscape

Highlight the benefits of a proof-of-concept based selection process

Explain why agility is becoming the critical vendor-selection criteria

7

Selecting the Right Software VendorTraditional RFP-based procurement processes do not provide sufficient information to make informed vendor decisions for recurring revenue management systems. A proof-of-concept based process provides more data points and a more reliable outcome.

“The most successful implementations (defined as on-time, on-budget, and exceeding expec-tations) use scripted scenarios to evaluate vendors. The laundry-list of features, functions, and requirements that comprise an RFP fail to provide insights into how a vendor is to work with, and the true depth of the features/func-tions that matter most to your organization.”i

MGI Research Billing System Selections: Key Issues and Common Mistakes


Chapter 7: Selecting the Right Software Vendor

“The concept of managing accounts that buy products consistently every month and have to manage the business is a complex chal-lenge for many companies. There are many CRM and partner relationship management (PRM) tools for managing and attaining new business, but a new market has emerged where vendors have a concentrated focus on renewal or recurring revenue.”ii

Gartner

VENDOR LANDSCAPE

Recurring revenue has created a highly competitive global market for revenue management solutions, with a broad range of on-premises and SaaS solu-tions available.

Historically, on-premise solutions have targeted specific vertical markets. Billing providers in gener-al, and on-premise telco billing in particular, have looked to expand their markets in recent years by leveraging their recurring revenue capabilities outside their primary vertical markets. Some have also begun offering cloud-based managed service and hosted options for their on-premise solutions.

The concurrent growth of software-as-a-service (SaaS) and recurring revenue have spurred a new market of SaaS-based billing providers who spe-cialize in recurring revenue.

These new generation SaaS providers tend to be more nimble than their more established on-prem-ises counterparts, employing agile development techniques to push out new software releases on a monthly or quarterly basis (compared to the annual release cycles of established on-premise solutions).iii This allows ‘new generation’ providers to adapt much more quickly to rapidly evolving business needs.

Software solutions for recurring revenue sit on a continuum from a very simple ‘paint by num-bers’ approach to a fully configurable component approach. Several solutions fall somewhere in between these two extremes.

paint by numbers solutions

At the bottom end of the scale, entry-level systems provide a limited set of capabilities to support simple subscription billing and payments. These solutions are primarily SaaS-based and provide the bare minimum capabilities necessary to sup-port simple subscriptions. Integration options are limited and every implementation looks roughly the same.

configurable component solutions

At the top end of the scale, providers supply an almost unlimited set of capabilities that can be configured any number of ways. Integration op-tions are also unlimited and every implementation is customer specific. The level of flexibility can make deployment and ongoing operation highly complex. These are almost exclusively on-premises solutions, most of which were originally developed for the Telco industry.

Between the low-end subscription and high-end telco solutions is a growing middle ground, where vendors provide an increasing number of options to take advantage of the full range of recurring rev-enue monetization options while easily integrating with popular CRM and financial packages.

The market for software vendors is highly com-petitive and growing, with traditional incumbent solutions like Oracle, SAP, and Amdocs facing challenges from upstarts like Aria Systems, Metra-Tech (recently acquired by Ericsson), Monexa, and Zuora.

Vendors typically specialize in one or more vertical markets, with expertise and functionality specific to those verticals.



About System Integrators

If you choose to deploy an on-premises solution, you may want to augment your vendor’s profes-sional services capabilities with a systems integra-tor. There are several to choose from, with com-panies like Accenture and Infosys providing active practices in this area.

On the SaaS side, due to the limited size of most SaaS recurring revenue billing engagements, tradi-tional consulting firms have been late to the party in developing capabilities, ceding this space to boutique providers. Yet, with the explosion in mar-ket potential for SaaS billing solutions, several of the major firms are now actively building products.

SEARCH METHODOLOGY

The traditional RFP cycle represents a 20th century solution to a 21st century problem. Alternative selec-tion methods provide a more reliable alternative.

A partial list of recurring revenue solution vendors:

· Amdocs

· Aria Systems

· Avangate

· Chargify

· Cleverbridge

· Comverse

· CSGI

· Ericsson

· FastSpring

· FuseBill

· Huawei

· MetraTech

· Monexa

· NetSuite

· Oracle

· Orga Systems

· RedKnee

· RevChain

· SAP

· Transverse

· Vindicia

· Zuora

Building Blocks ApproachBe careful of ‘paint by numbers’ solu-tions that might limit your ability to grow and adapt to changing markets and consumer preferences. Your ideal solu-tion is one that provides you the build-ing blocks to create the monetization options you need, today and two years from now. Since you don’t really know what your market will look like two years from now, you need flexibility and agility to change quickly. You don’t want to be locked in to a one-size-fits-all approach. Look for a solution that provides ‘build-ing blocks’ that can be configured in a variety of different ways to grow and adapt as your business changes.

Large companies tend to produce large RFP’s for billing solutions. The vendor responses come back in sets of 3-ring binders, composed mostly of boilerplate verbiage designed to induce a cata-tonic state in the buyer. Too often, it works. The process is long, tedious, and in the end results in a best guess based on a paper process without any physical evidence that the solution will meet your business needs or perform at the level of the RFP response.



“A common refrain among organizations that experi-enced budget overruns and project failures is the ad-mission that they selected a vendor based on market-ing slogans, promises, and the appearance of picking the apparent market leader without conducting a market or supplier assessment. In hindsight, these organizations admit that slick sales and marketing blinded them from doing the hard work assessing mul-tiple suppliers, running a competitive procurement process, modeling their own processes, and ensuring the right product and cultural fit with their supplier.”iv

MGI Research

IT buyers like this process because if a project fails they can show documentation of due diligence, but there’s a problem with this approach. The abil-ity to produce reams of documentation on demand is not a key indicator of whether or not a vendor can solve your business problem, it’s a key indi-cator of whether or not the vendor can produce reams of documentation on demand.

Some companies bypass competitive bidding processes altogether and instead work exclusively with a single ‘market leader,’ the assumption being that because a vendor is perceived as a market leader they can provide a working solution for your business problem. But market leaders aren’t always leaders because of the quality of their solution or their fit to your specific business need. Sometimes they’re market leaders because they’re good at marketing. The ability to produce a flashy PowerPoint presentation is no more indicative of a vendor’s ability to meet your business needs than reams of RFP responses.

Understand What You’re Looking For

Start by modeling current business processes. Understand your expectations for future process-es. Identify key business and operational require-ments. Identify the use cases that will drive your business. There are multiple methodologies for this, from ‘swim-lane’ process mapping to user stories, all of which have benefits and shortcomings. The methodology is less important than the end result. Remember that recurring revenue business is rela-tionship based—focus on the customer relationship as you assess processes and requirements.

Set realistic goals. If you’re looking for the 100% solution, something that meets every one of your requirements and wish list items, it doesn’t exist. You didn’t find a 100% fit for the ERP or HRMS packages that serve your business successfully.

Unfortunately, there is no substitute for the hard work of a competitive procurement process. For-tunately, there is a better way. You want vendors to show you, not tell you, that their solution works for your business. The way to do that is through developing proof-of-concept demonstrations based on scripted scenarios that match your foun-dational use cases. In the process you’ll learn how the vendor works and how they’ll work within your business culture.

Customer Centric RequirementsI was recently involved in a requirements presentation where it became clear that one group, Finance Ops, was dominat-ing the proceedings. Key decisions were being made based on how they affected that group, ignoring the impacts on other stakeholders, and more important-ly, ignoring the customer consequences. There was no consensus across stake-holder groups, which is an ugly place to start a project, but there was a bigger issue. Recurring revenue is customer centric, not IT centric, or Finance centric, or Marketing centric. Groups with some-times competing interests must come together and form consensus on what is best for the customer. Anything less im-pairs the effectiveness of your solution.



Narrowing the FieldUse an RFI to drive preliminary vendor meetings. Focus on “how” and “why” questions. How will they meet require-ments? Why would they choose a specific option? How will they solve your specific business challenge? Remember that you’re not just choosing a piece of soft-ware, you’re choosing the people that you will be working with, which can be more important than the software itself. Ask how they’ve solved similar challeng-es for others. Get a feel for whether or not they really understand your business.

and match models? How do they manage customer changes and non-sales transactions like upgrades, downgrades, refunds, and cancellations? What about recurring payments, revenue allocation, and revenue recognition? Test the things you’re likely to do every day, and throw in a few exception condi-tions that are likely to occur (declined payments, account merges and splits, etc.).

Prototyping allows you to see the vendor and their solution at work and to get a feel for how they solve problems, how their culture meshes with yours, and how they view success. Use contacts with reference clients to validate your findings.

Pick a Partner—Not a Vendor

For your business, success is not measured by acquiring software, it’s measured by going live and successfully serving customers. You need a vendor with the same perspective. You’re looking for someone to partner with, someone who brings value to the table beyond their software. Through the proof-of-concept stage, give vendors an oppor-tunity to distinguish their capabilities.

You won’t find one for billing either. An 80–90% fit that can pass a proof-of-concept against a robust set of use cases is a reasonable target.

Understand the definition of ‘requirement’—some-thing that your business can’t do without—and differentiate requirements from things that are important but not essential. These essential requirements become the basic table stakes for identifying potentially qualified vendors and the basis for an RFI to potential vendors. There should be a limited number of essential requirements.

Narrowing the Field

An RFI (request for information) is a less-formal and usually less-detailed document than the tradi-tional RFP. It should provide the vendor enough in-formation about your business to understand your business model and the business problems you are trying to solve. An RFI is not a tool for selecting a vendor, it’s a tool for qualifying vendors for the selection process.

Don’t rely on written RFI responses. Meet with potential vendors face-to-face. Get to know the people who will work on your project and let them get to know you. Perform scripted interviews that will allow you to check off the boxes on your re-quirements. In addition to answering the important questions about security, compliance, integration methods, and functionality, have the vendor explain to you face-to-face how they will solve your specif-ic business problems. Use this process to narrow down to a short list of qualified potential partners.

Proof-of-Concept/Prototyping

The best way to see whether or not a vendor can actually solve your business challenges is to have them bring up a test system and actually solve some of your business challenges.

Create a set of 6-8 scripted use cases that represent common and critical business activity. How does the vendor handle client acquisition? What support do they provide for provisioning? How do they han-dle different monetization models? Can they mix



DECISION FACTORS

Companies review a variety of factors in systems selection, with time-to-market and agility becoming increasingly important in the decision process.

Look at a variety of decision factors. Factors should be weighted and prioritized based on company culture and preference. The most common deci-sion factors include:

fit-for-purpose/functionality

How well a given solution fits your functional needs. A 90% fit is a good fit. 80% could be a good fit, depending on the gaps. Below 80% increases risk.

cost of ownership

Total cost of ownership, blending implementation costs (capital expense) and operating costs over a three-to-five year period.

initial time-to-market

How quickly you can get to market with a viable solution.

agility

Flexibility to quickly execute change: to test and introduce new products, packaging and pricing, promotions, delivery and payment methods, etc.

risk

Covers implementation and operational risk, taking into account the risks, probability, potential impact, and mitigation opportunities.

integration

How well a solution fits into your existing environ-ment and allows you to leverage existing solutions and business processes.

vendor impression

Overall impression of how well the vendor under-stands your business and how comfortable you are that they can solve your business problems.

On-premises and SaaS solutions have specific pro-files when matched up against these decision factors.

A balanced scorecard approach—weighting deci-sion factors and scoring each vendor against each factor—can provide objective insight and docu-ment due diligence processes.

Security/ComplianceI’ve excluded factors like Security and Compliance from this list under the assumption that these are not relative factors but absolute requirements and that a vendor would not make your short list without checking all the boxes in this area. The time to deal with these areas is in pre-screening, not final selection.

Time to Market/Agility as Key Decision Drivers

Vendor selection often comes down to balancing cost, time-to-market, and agility (defined as the company’s ability to quickly adapt to market condi-tions and customer demands) against functionality. In a world of growing competition and shrinking product cycles, initial time-to-market and agility often become the key factors in system selection.

The ability to get to market quickly can make or break your recurring revenue initiative. Lean Six Sig-ma Product Development principles explain why.vi

Every product goes through a cycle of profitability, with profits increasing as the product ramps up, reaching a peak level, and then declining as the product slips into commodity status and unit price declines. This cycle is driven by your competition—not your product timeline. First movers have an advantage, which can be leveraged by getting to market sooner.



“During times of relative business cycle stabili-ty, organizations typically prioritize functional depth over agility. However, in moments of market dislocation and intense competition, a premium is placed on agility… Organizations are trading absolute functional depth for solu-tions that offer business agility.”v

MGI Research

On Premise Saas

FunctionalityMore Robust

Less Robust

Cost Higher Lower

Initial Time to Market

Longer Shorter

Agility Less Agile More Agile

Risk Variable Variable

Integration Variable Variable

Vendor Impression

Variable Variable

Comparing On-Premise and SaaS solutions against decision factors

profits

launch delay aup erosionunrecoverable

sales

time

shorter peak profitability window

When a product launch is delayed, the peak profitability window is reduced (see figure below). Sales are lost to competitors at the front end of the curve. Average unit price erodes faster and may never reach the intended peak. In both cases, revenue is lost and is unrecoverable. The first- mover advantage can be lost and the more com-petitive the market, the greater the impact of delay. Time-to-market becomes a key factor in obtaining maximum ROI on product investments.

Getting the Best Deal

The competitive process doesn’t end with the POC but extends into the negotiation phase. At the end of POC, have a first and second choice and enter into contract negotiations with both. Make sure the vendors know that they are still in a competitive process. Push for favorable contract terms and assume everything in the contract is negotiable. Do not let vendors dictate terms and conditions. Ensure that security and compliance based factors such as audit rights, vulnerability testing, disclosure of data breaches, and data location are clearly spelled out.

Maintaining a competitive process forces vendors to put their best offer on the table and gives you an out if your first choice can’t meet your financial and terms and conditions requirements.



CONCLUSION

You have a multi-million dollar decision in front of you that affects the success or failure of your recur-ring revenue initiative. Creating a working proof-of-concept with short-listed vendors provides a much clearer vision of whether or not a vendor understands your business models and challenges than traditional paper-based selection processes.

Once a solution has been selected, there are a host of considerations necessary to execute a successful recurring revenue deployment. We’ll look at these in some detail in the next chapter.

References i Billing System Selections: Key Issues and Common Mistakes, MGI Research, 2013-11-23

ii The Gartner CRM Vendor Guide 2013, Gartner Consulting, 2012-12-04

iii Top Ten Trends in Billing Software Solutions, MGI Research, 2013-10-15, http://www.mgiresearch.com/images/stories/free_downloads/mgiresearchtop10billingtrendsoct2013.pdf

iv Top Ten Trends in Billing Software Solutions, MGI Research, 2013-10-15, http://www.mgiresearch.com/images/stories/free_downloads/mgiresearchtop10billingtrendsoct2013.pdf

Everything is NegotiableDo not assume that because something is in a vendor’s standard terms and conditions that it is not negotiable. In a competitive negotiation, everything is negotiable. Pay particular attention to licensing metrics and metric thresholds that may trigger unexpected financial obligations. Closely review renewal conditions to ensure that there are no ‘gotchas’ at renewal time. Make sure you understand the basis for maintenance fees. Be tough but fair. Remember that you’re signing up for a partnership.

v Billing System Selections: Key Issues and Common Mistakes, MGI Research, 2013-11-23

vi See Lean Six Sigma Product Development research from Sin-ghal, Hendrics, Mascitelli among others for more information. This section is informed from a variety of research sources and personal experience.


The effect of a recurring revenue billing system deployment crosses system, functional, and orga-nizational boundaries. The billing project is criti-cal to your recurring revenue success and should receive priority treatment across all stakeholder organizations. The number of processes and organizations involved necessitates strong project governance, stakeholder management, and priori-tization practices.

Deployment options range from a ‘big bang’ approach with all functionality deployed at

launch, to an incremental, phased approach with a minimum viable solution deployed at initial launch, rapidly followed by add-on functionality to build a full-featured solution.

Billing projects have a particular set of character-istics with potential problems and roadblocks that must be managed proactively. Failure to address any of these issues will result in project delays and budget overruns which could be career limiting for those involved.


Identify organizations affected by a recurring revenue billing project

Define best practices for deploying a recurring revenue billing solution

Explain potential project pitfalls & roadblocks

8

Project SuccessDeploying a Recurring Revenue Management system is not just a technology upgrade, it is a business transformation that impacts the entire organization.

“If everyone is moving forward together, then success takes care of itself.”

Henry Ford


Chapter 8: Project Success

BUSINESS TRANSFORMATION

The shift to recurring revenue requires transforma-tion of existing business processes across multiple functional areas.

The first step towards success in deploying a recur-ring revenue billing solution is to understand that it is more than just a technology project. Recurring revenue changes your business focus from sales transactions and margins to a more customer-cen-tric approach. Managing new monetization models and the dynamics of customer relationships will touch your entire enterprise.

Billing sits at the center of your recurring revenue infrastructure, with touch points into eCommerce, customer self-service, CRM, fulfillment, financial systems, and a long list of business processes. Ex-isting processes will change, with changes ranging from minor adjustments to full re-engineering. New processes may be needed to support new business functions. Affected processes could include:

· Customer acquisition and on-boarding

· Customer data management

· Customer self-service

· Usage aggregation and processing

· Rating and charging

· Invoice creation

· Invoice distribution

· Channel management

· Payment processing

· Cash application

· Collections and dunning

· Revenue allocation

· Revenue recognition

· Financial reporting

· Forecasting

· Access control

Depending on your business functions and infra-structure, there could be more.

Managing all of the interactions associated with cus-tomer relationships crosses organizational bound-aries as well. The result will be felt across your busi-ness, requiring support from many organizations or business functions, which may include:

· Finance

· Finance Operations

· Billing Operations

· Information Technology (IT)

· IT Service Management

· Network Operations/Security

· Software Development

· Systems Administration

· Sales

· Sales Support

· Customer Success

· Customer Service

· Product Marketing

· Product Management

· Data Security

· Compliance/Internal Audit· Training

Again, this is not an all-inclusive list. The influence on your business will be dependent on your specif-ic situation and structure, but it’s critical to un-derstand who in your organization is touched and to what degree. The sooner you understand this, the better for your project. If you run an inclusive vendor selection process, as suggested in Chapter 7, you will get a good feel for which departments need to be involved.

PROJECT MANAGEMENT

Project management best practices provide a solid framework for a recurring revenue billing project, with nuances that are specific to billing.



The business-critical nature of billing projects amplifies the need for strong project governance (following PMI or Prince2 standards) and for de-tailed planning. This is not a text on project man-agement, but there are a few key billing-specific points that should be considered.

Stakeholders

As covered above, billing projects bring together a broad range of stakeholders, often with competing interests. There is no 100% solution that will keep all of your stakeholders happy all of the time. There isn’t enough time and money to do everything each will ask for. You will need a plan for dealing with conflict and prioritizing competing interests.

Prioritize Stakeholder Interests

You can’t make everyone happy all of the time. Decide up front who you need to make happy first. Document those priorities and stick to them.

About Project ManagersYour project manager (PM) will be negoti-ating priorities and agreements between stakeholder groups with competing inter-ests. To be successful, they must be inde-pendent, representing the best interests of the project, not of any single group.

The harsh reality is that not all stakeholders are created equal. There is a hierarchy of interests. Billing projects are usually owned by Finance with IT having veto authority on key decisions. Some-times those roles are reversed, with IT in the lead. Other groups have varying degrees of influence on decisions that affect their areas.

When stakeholders disagree, whose interests get priority? Who makes the final call? Define your decision processes at the start of your project, and include this in the project charter.

Governance Model

Project management best practices apply (exec-utive sponsor, steering committee, etc.). If your

organization has a Project Management Office (PMO), use them. If not, find an independent Proj-ect/Program Manager, either inside or outside your company, and empower that person to hold team members accountable across organizations.

The Team

Project resources will include a dedicated core team and additional resources that are available when needed. Core team members should have decision authority for their areas of expertise and the ability to prioritize work for others in their or-ganizations. The core team should include:

· Program manager

· Product marketing/management

· Finance operations

· Billing operations (if separate from Finance Ops)

· IT management

· Subject matter expert from IT or external (some-one with expertise in the function and deploy-ment of recurring revenue billing software)

Additionally project tasks will require resources from additional groups, including IT, Finance, Mar-keting, Pricing, Sales and Sales Support, Customer Service, and Training among others. Obtain re-source commitments early in the planning process.



Incremental SuccessYour chances for project success will increase if you take an incremental ap-proach. Rather than trying to do every-thing at once, you would be well served to identify your minimum viable solution and deploy it as a Phase 1 or pilot of your billing project. Phase your project to deliver your minimum solution at launch and then rapidly add features to build out full system capabilities. If you performed a robust proof-of-concept as part of your selection process, as recommended in Chapter 7, you’ve already started in this direction. This will get you to market faster and address many of the change management issues that consistently pop up on billing projects.

THE RECURRING REVENUE BILLING SOLUTION DEPLOYMENT

Billing is a strategic pillar to your recurring revenue success. There are multiple options for deployment and a set of best practices to ensure success, regard-less of the deployment option chosen.

A successful billing deployment is one that meets your needs at initial launch and provides a plat-form for future growth, giving you the flexibility to offer new products and services and the ability to pivot and meet changes in the marketplace. In es-sence, successful deployment of the right solution allows you to future-proof your business.

There are two basic strategies for billing deploy-ment: the ‘big bang’ approach and the incremen-tal approach. In the big bang approach, the full solution is developed and launched to serve all product lines and the full customer base. In the incremental approach, the solution is developed and launched in phases. This could include phas-ing functionality, product lines and/or customers.

The incremental approach has several advantages, including quicker initial time-to-market and lower risk for the initial launch. This doesn’t necessarily

Pardon the DisruptionBilling system projects are, by nature, disruptive. They touch many people and affect many business processes, requir-ing heavy support from internal resourc-es and pulling busy people away from their day-to-day activities for prolonged periods of time. You can’t prevent dis-ruption, but you can mitigate it. Plan for near worst-case scenarios and have miti-gation plans in place to deal with project delays, which the entire enterprise must cope with.

reduce the risk for the overall program, especially if future phases are based on “hope” (i.e., vendor PowerPoint presentations) and not on evidence, but it should reduce your initial time-to-market.

The Seven Deadly Sins of Billing Deployment

The formula for project success can be extremely complex with lots of moving parts. The formula for failure, on the other hand, can be relatively simple. Here are seven common errors that will cost you time and money and could bring your project to a screeching halt.

poor system selection

Chapters 6 & 7 covered the system selection process in detail. There is a tendency, especially among IT and business teams that lack experience with billing implementations, to underestimate the complexity of the business functions and system integrations that you’ll need to support. Typically, mid-way through the project, it becomes evident that there



Do Your Homework EarlyThe Denmark story back in the Introduc-tion began with a poorly executed vendor selection process. Many of our issues were a direct result of having a poorly vet-ted solution and could have been avoided by a more thorough up-front process.

Start Data Cleanup Early

You probably think your customer data is relatively clean, and you’ll keep thinking that right up until you run data integri-ty checks or perform your first practice data migration run. I’ve been on projects where over ¼ of the data needed to be changed because it was incorrect, wrong, duplicated, or dated. If data migration is a part of your plan, start data cleanup processes early in your project cycle.

are functional gaps, leading to costly work-arounds, project delays, and budget overruns.

Best Practices

→ Conduct a thorough pre-implementation re-quirements and process review

→ Perform a competitive and thorough selection process including POC

→ Design the POC to be the basis for production deployment

bad data

Most billing projects involve some form of data migration. Product catalogs, customer data, con-tract data, etc. need to be mapped from existing systems to the new billing platform and then migrated across platforms. This usually involves a detailed field-level mapping exercise followed by data extracts, data integrity checks, and data loads into the new system. Invariably, data exceptions are found during this process. Often the process bogs down trying to resolve exception conditions, becoming the ‘long pole in the tent’ on the project timeline.

The kinds of errors you might find include:

· Duplicate customer records (often with conflicting information)

· Customers with active contracts for inactive products

· Customers receiving service on expired contracts

· Active contracts for inactive customers

· Customers with multiple active contracts for the same products

· Duplicate products/multiple SKUs for the same product

Best Practices

→ Start data cleanup early

→ Allocate adequate resources to support exception resolution

→ Consider incremental deployment to minimize data impacts (i.e., go live for new customers at launch and migrate existing customers over a period of time or as contracts come up for renewal).

understaffing

Project managers tend to underestimate the num-ber of people required and the duration of critical tasks like system and acceptance testing. Business groups often make resources ‘conditionally avail-able’ without releasing them from their day-to-day work responsibilities. This leads to project resourc-es being forced to work nights and weekends to meet both their regular and project responsibil-ities. This in turn leads to mistakes, delays, and



The Right Way to CustomizeI recently ran a project where we needed to manipulate customer data in a way not supported by our software package. We created stand-alone code to do the work. The code was activated by a standard event notification, invoked standard APIs to access data, manipulated the data, and used standard APIs to update the data-base. As far as the software package was concerned, there was no customization. Custom processing occurred ‘outside- the-box’.

cutting corners on critical testing (leading to errors being found by your customers instead of your project team).

Best Practices

→ Allocate dedicated resources to perform critical tasks with no conflicting operational responsi-bilities

“At some point, even the smallest of projects require internal resources. Without properly scoping those requirements for tasks like data cleansing, testing, and administration, the potential for implementation complica-tions increases significantly.”i

MGI Research

→ Plan for near worst-case resource scenarios

→ Back-fill critical functions to support dedicated resources

→ ‘Bite the bullet’ early and postpone other less critical work

moving targets

It’s inevitable that in a project of this size and scope, requirements will be missed and new re-quirements will arise. Changes can add scope and delay project launch. The longer the project drags on, the more opportunity exists for new require-ments to arise. There is often intense pressure to add features to the initial launch rather than wait-ing for potential future releases.

New requirements typically create multiple prob-lems. Changing scope can delay project launch and add unplanned costs. Rushed changes may not be fully vetted, resulting in unintended conse-quences. These effects are amplified by the num-ber of stakeholders and affected business process-es in a billing project.

Best Practices

→ Employ strong change management processes

→ Deploy an SaaS solution to shorten the deploy-ment window and the wait time for new post-launch features

→ Take an incremental deployment approach, with supplemental post-launch releases agreed in the initial plan to support added requirements

customization

It’s inevitable that your chosen solution won’t be a 100% fit. You have two alternatives: change business processes to fit the software solution or customize the solution to fit your needs. You’ll probably end up doing both. Keep in mind that customization often effectively voids software war-ranties (i.e., software companies will generally not warranty that customization will work with future releases).

Packaged or SaaS software generally support some version of best practice processes, so you might ask yourself why the best practice doesn’t work for you and make adjustments accordingly. If you need to customize, look for ways to create ‘out-



Exception TestingBack in the 3270-terminal days, the first test of any software was to slam your hand on the keyboard and then hit the enter key. This was called exception testing. Today exceptions are more so-phisticated: data integrity errors, failed payments, rejected emails, failed data transfers, etc. Any exception conditions that you don’t test will ultimately be test-ed by your customers. Plan accordingly.

side-the-box’ customizations, taking advantage of standard APIs, event notifications, etc. to trigger custom code that exists outside of the application.

Best Practices

→ Adapt business processes to fit software packages where practical

→ Employ ‘outside-the-box’ customization techniques where needed

→ Minimize custom code

weak governance

Weak project governance can manifest in several ways:

· Scope creep causing delays and budget overruns

· Weak vendor management resulting in missed deliverable targets

· Indecision causing delays

· Inadequate communication

· Groups working at cross-purposes

· Management by hope (hiding bad news in the hope things will get better)

Each of these issues will add risk and cost time and money. If any of these occur regularly, it’s a sign of either weak project management or a lack of sup-port from the Steering Committee and Executive Sponsor—or maybe all of the above.

Best Practices

→ Empower the project manager to hold team members accountable

→ Enforce strict change-management procedures

→ Delegate decision authority to prevent bottlenecks

→ Demand a single point of contact with your vendor and establish planned communication

inadequate exception handling

Your primary focus in deployment and testing is to identify and exercise standard processing scenarios. This may lead you to overlook or under-emphasize common exception conditions. Under-staffed projects and those facing time-to-market constraints tend to cut corners in identifying and exercising exception conditions.

Part of testing any system or process is trying to break it. What happens when you try to push in-valid data, or pay with a credit card that is expired, or sign a customer up for product offerings that should be mutually exclusive, or sign a customer up twice for the same product with different pric-ing, or any of dozens of other exception scenarios that could occur? You need to find out before your customers do.

Potential Roadblocks

There are additional areas where you may run into roadblocks on a billing project. Work through these areas early in the project to avoid delays later on.



References i Billing System Selections: Key Issues and Common Mistakes, MGI Research, 2013-11-23

integration

You’ll potentially be integrating Billing, CRM, eCom-merce, Fulfillment, and ERP packages. Different business functions and systems may support differ-ent views and have different definitions of common terms like customer, product, and account.

For example, the Billing system may define the ac-count location as the address that receives the bill, the Receivables system might define the location as the physical location where legal notices would be served, and Fulfillment might define location as the location where goods and services are received. These could be three different addresses. You don’t want to manually set up the customer three times, so how will you account for that in your integration? Who will be the system of record?

Data may have different characteristics across platforms.

For example, CRM and Billing could define the account field as alpha-numeric while ERP defines it as numeric, and all three could have different lengths. What is your plan to manage this?

In defining integrations, be sure that all stakehold-ers agree on the definition and characteristics of all data elements. Failure in this area will generally show up late during system testing and will delay your launch.

network security and firewall management

If you’re working with a SaaS provider, the soft-ware will likely sit outside your firewall. Punching holes in the firewall to communicate with systems can be more complicated than it sounds. Get your IT/Network Security teams involved early to avoid bottlenecks during testing or at go-live.

data security

Your company policies may restrict the types of data that can be stored off site using a SaaS solu-tion. While this should be resolved in the vendor selection process, be sure to get appropriate ap-

provals for off-site data storage or access early in the project to avoid delays later on.

user roles

Vendor selection teams usually check to see that a solution provides role-based security. They don’t always check that the available roles are adequate. Get business users involved early to validate the available roles and look for solutions that provide some flexibility in this area. If this issue comes up late in the project, it could result in launch delays.

training

Training is often an afterthought on ‘technology’ projects. You’ll get better results if you involve your training team early, even if the plan is to bring in outside trainers. Business teams need to be trained prior to system and acceptance testing, which usually begins weeks or months prior to go-live, so a training plan needs to be in place early in the project, with materials developed in parallel to system deployment activities, not afterwards.

CONCLUSION

Billing projects by their nature are disruptive. They affect many business processes and functions, involving a long list of stakeholders. The disruption can be minimized and managed through careful adherence to project best practices and strong governance and stakeholder management.

A successful billing deployment is one that meets your initial needs and provides you a platform to grow your business. In the next chapter, we’ll talk about measuring the success of your recurring revenue initiative.


Recurring revenue is a different way of doing business, requiring a different set of metrics to measure business health and success. The focus extends from measuring individual sales trans-actions to measures of future recurring revenue streams and customer health over the lifetime of the customer relationship.

There are many different metrics, including custom-er health, retention, and customer lifetime value. These metrics monitor the strength of customer relationships, customer behavior and usage pat-terns, the value of recurring revenue streams and contracts, and the efficiency of sales and marketing efforts at generating recurring revenue streams.


Explain why new metrics are needed to monitor business performance

Review the importance of Customer Life-time Value and related metrics

Identify critical recurring revenue perfor-mance metrics

9

Measuring SuccessMeasurements of recurring revenue success focus on the effect of periodic sales and customer relationship activities on business performance.

“If you cannot measure it, you cannot improve it.”

Lord Kelvin


Chapter 9: Measuring Success

WHY YOU NEED DIFFERENT METRICS

The focus in recurring revenue shifts from sales transaction volume to customer retention and cus-tomer lifetime value as measures of success. New metrics are needed to monitor and manage these values.

In a traditional sales model, the focus is on gener-ating profitable, high-margin sales transactions. In recurring revenue, the focus shifts to acquiring and retaining customers, and growing the value of customer relationships over time. Overall business health and performance is measured not just by revenue and revenue growth, but also by your abil-ity to create predictable and profitable recurring revenue streams.

To be successful, recurring revenue businesses need metrics that allow them to understand the dynamics of customer relationships and the im-pact of their recurring revenue streams on current and future revenue. What those metrics are is a matter of some debate in the industry. Analysts and solution vendors offer widely varying opinions on the specific metric sets for managing recurring revenue performance and even on the meaning of individual metrics. There is, however, some con-sensus on at least four broad categories of perfor-mance that should be monitored:

→ Accounting for Recurring Revenue Sales

→ Strength/Health of Customer Relationships

→ Customer Behavior Patterns

→ Efficiency of Sales and Marketing Investments

Accounting for Recurring Revenue Sales

Overall business health and performance is mea-sured not just by revenue and revenue growth. Measures like Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Annual Contract Value (ACV), and Total Contract Value (TCV) mea-sure the value of recurring revenue customer com-mitments. Using MRR/ARR and churn rates, finance

leaders can generate highly accurate forecasts of future performance, one of the key benefits of recurring revenue models.

MRR/ARR and ACV/TCV are not reportable GAAP measurements, but they are of interest to investors in defining the value of future revenue streams. Revenue is still reported using GAAP standards and deferred revenue is recognized as it is earned, usually on a daily basis to provide accurate and balanced internal reporting.

Strength/Health of Customer Relationships

Customer Lifetime Value (CLV), growth, and churn rates are the key measures of how well you are managing customer relationships. Happy custom-ers stay longer and buy more. Measuring revenue growth and churn from existing customers gives in-sight into the value that customers receive and can be indicative of customer satisfaction and longev-ity. Customer health scores can provide a broader view of the overall customer relationship and can be a predictor of future behavior such as cross-sell/upsell or churn.

CLV and SuccessCustomer Lifetime Value becomes a key measure of success. Increased CLV is driven by high retention rates (low churn) and your ability to cross-sell and upsell to existing customers in future time periods. Aggregate CLV provides the average value of a customer relationship and the trend line is an indicator of your overall level of success in growing cus-tomer relationships and reducing churn.

Customer Behavior Patterns

With the right analytic tools, past and current behavior become powerful predictors of future behavior, allowing you to understand the correla-tion between customer usage and value so you can



adapt your selling strategies and tactics. Monitor-ing buying and usage patterns provides insight into current and future customer behavior, providing visibility into which offers are working by providing value to customers and which are not.

Efficiency of Sales and Marketing Investments

Measures such as Customer Acquisition Costs (CAC), CLV to CAC ratios (CACR), and growth efficiency (the measure of incremental recurring revenue growth to sales and marketing costs) can be used to measure the effectiveness of sales and marketing investments and the health of your business. This is especially critical in startups or new business lines where growth in long-term recurring revenue streams is prioritized ahead of short-term profitability.

TOP 10 RECURRING REVENUE METRICS

These critical metrics give visibility to the perfor-mance of your business in generating and main-taining recurring revenue streams and customer relationships.

The ten metrics recommended in this section pro-vide measures of recurring revenue sales, custom-er relationships, customer behavior, and sales and marketing efficiency. Many of the metrics take pe-riods into account (monthly, quarterly, annually). Use the period that makes sense for your business and use it consistently across metric categories.

“Since the SaaS movement started out with monthly pricing and monthly payments, many SaaS businesses conceptualized themselves as monthly and thus many of the early SaaS metrics were defined in monthly terms (e.g., monthly recurring revenue, or MRR). While for some businesses this undoubtedly remains true, for many others—particularly in the enterprise space—the real rhythm of the business is annual.”i

Dave Kellogg | CEO, Host Analytics

Since metrics like CLV, customer acquisition costs and ratios, and retention/churn rates can vary wide-ly across product line and business model (subscrip-tion, usage) you should segment your metrics by product, product line, business model, or other cri-teria to get a truer picture of product performance and to avoid generating ‘averages of averages.’

MRR/ARR

Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are measures of recurring revenue by period. There are several variations on these measures:

· ARR/MRR added from new sales

· ARR/MRR from renewals

· ARR/MRR added from upsell/cross-sell

· ARR/MRR lost from downgrades

· ARR/MRR lost from churn

· Net New ARR/MRR (ARR/MRR added—ARR/MRR lost)

MRR/ARR is the primary measure of a compa-ny’s performance in creating recurring revenue streams.

A variation of MRR is reporting on MRR cohort per-formance over time (defining cohorts by customer start month, quarter, or year).ii

Total Contract Value

Another measure of recurring revenue sales perfor-mance is Total Contract Value (TCV). TCV is the mea-sure of all the business signed to contract. This is an important measure when you sign customers to contracts longer than a year. Average Total Contract Value (ATCV) allows you to assess whether contract values are growing or shrinking over time. A second measure, Annual Contract Value (ACV) defines the amount contracted for a fiscal year period. In indus-tries like technology and software where multi-year contracts are common, TCV is often the preferred measure for investors in assessing the health, valua-tion, and future potential of a company.



Customer Retention/Churn Rates

These measures represent the percentage of cus-tomers retained from period to period (retention) and the percentage of customers lost from period to period (churn). Calculations are:

Customer Retention/Churn Rates are a prime indi-cator of customer satisfaction. Since it is six times more costly to engage a new customer than to retain an existing customer,iii churn and retention rates are critical measures of business health.

Customer Lifetime Value

Customer lifetime value (CLV) is the net present value (NPV) of cash flows realized over the life of a customer relationship. It’s a simple calculation that encapsulates key recurring revenue metrics (retention rate, monthly recurring revenue).

Churn Rate (%)

Customers Lost (period)

Total Customers (start of period)

Retention Rate (%)

Total Customers (start of period)

Total Customers (start of period)– Customers Lost (period) =

=

Revenue Expansion

(%)Total Revenue from

Existing Customers ($)

Revenue Expansion from Existing Customers ($)

– Revenue Lost from Churn ($) =· Initial margin includes revenue from activation

fees, equipment purchases, and any other one-time charges minus any costs associated with customer acquisition and activation.

· Equation assumes constant margins and reten-tion rates

There are more complex versions of this formula that take into account variable margins and retention rates, but these are beyond the scope of this review.

CLV is commonly viewed as an indicator of customer retention and satisfaction, but it can also be viewed as a growth indicator. The longer a customer stays a customer, the more value they derive from your service and the more likely they are to upgrade and purchase additional service, increasing the monthly margin. Maximizing CLV is a growth strategy for your business.v

“…as average customer lifetime increases for a company, so too will the potential for upgrade and add-on sales in the growing customer base. Maximizing customer life-time is not a revenue-retention strategy. It is a revenue-growth strategy. More important-ly, maximizing customer lifetime is a strate-gy for sustainable revenue growth, but it’s a strategy that requires a deep understanding of how customers use your products and services.” vi

Matt Shanahan | Scout Analytics

Revenue Expansion Rate from Existing Customers

Revenue Expansion Rate is a direct indicator of recurring revenue growth (or contraction) from existing customers. It is calculated as:

A positive number indicates revenue from existing customers is growing. A negative number indicates that revenue churn is exceeding revenue growth.

iv

CLV = Initial Margin ($) +

Monthly Margin ×

[ 1 + Discount Rate (%) – Retention Rate (%) ]

Retention Rate(%)



The Revenue Expansion percentage should show a growing trend line as the business matures.vii

“As companies mature, growth begins to blend new customer acquisition with exist-ing customer upgrade and add-on sales—and for the best-performing companies, an increasing percentage of growth comes from existing customers, year over year.”viii

Matt Shanahan | Scout Analytics

Customer Acquisition Cost (CAC)

Customer Acquisition Cost is a measure of the efficiency of your sales and marketing efforts. CAC can be viewed two ways, either as the average cost of acquiring a new customer:

CAC(period N) =

Sales & Marketing (period Nn-1)

New ARR (period N)

CACMarketing & Sales Costs

Number of customers acquired =

CACMarketing & Sales Costs

Number of customers acquired =

CACRCustomer Lifetime Value ($)

Customer Acquisition Cost ($) =

Break even # of

Months

Acquisition Costs ($)

Monthly Margin ($) =

or, as the average cost to acquire a dollar of incre-mental annual recurring revenueix

· Period can be month, quarter, etc. and should correspond to sales cycle

· Assumes that Sales and Marketing Costs from previous period drive New ARR in the current period

The SaaS Industry median for CAC using this meth-odology is $0.92 , meaning that SaaS companies on average expend $0.92 in Sales and Marketing expense for each incremental $1.00 of ARR. This

highlights the importance of customer retention.

Choose the method for calculating CAC that makes the most sense to you. Among other things, CAC can be used to identify the level of investment needed to replace revenue lost to churn or the investment needed to drive a desired growth rate.

Customer Acquisition Cost Ratio (CACR)

You might also gain insight into the value and effi-ciency of sales and marketing efforts by looking at Customer Acquisition Cost Ratio (CACR), the ratio of Customer Lifetime Value to Customer Acquisi-tion cost.

To calculate CACR, first calculate Customer Acqui-sition Cost using this formula:

Then calculate CACR:

If you use CACR as a metric, you’ll want to look for an ascending value over time.

Breakeven point (Months to break-even)

The industry average time to break even on a sub-scription customer is 3.1 years.xi A simple formula to determine the approximate number of months to break even:

→ Assumes constant margins

→ Monthly Margin = Monthly Revenue – Monthly Costs (all costs including COGS, R&D, etc.)

Some analysts would view this formula as overly simplistic, but it will provide an approximation of



break-even periods. A long break-even period high-lights the high cost of churn in recurring revenue businesses.

Usage/Activity

Understanding how customers use your product can be predictive of future behavior. Metrics to capture can include usage of products or product features. Over time, patterns of customer usage activity that are predictive of cross-sell/upsell op-portunities and potential churn risk can be identi-fied. Once identified, these patterns can be used to trigger sales activity. Activity patterns that provide value can vary widely across industries. A few spe-cific patterns that may be insightful include:

· Increased usage and usage spikes

· Decreased usage

· Usage that approaches threshold levels

· Usage of specific features

· Lack of usage of product features (e.g., customers

not using features that differentiate your offering

could be considered a higher churn risk)

Customer Health Scores

There is a growing science around the concept of Customer Health Scores and the insights they can provide into future customer behavior. Health scores can help you determine the value of a cus-tomer to your company and focus your efforts on the most profitable opportunities and relationships.

Customer Health Scores provide a holistic measure of the current state of a customer relationship. Health scores can take into account data about contracts, pricing, discounts, promotions, pay-ments, usage, customer interactions, support, direct customer feedback, and other data points. Along with being an indicator of a customer’s po-tential for growth or churn, a health score can also give insight into whether a customer receives full value from their purchase of your service.

Additional Metrics

Some additional metrics that might provide value include cancellation reason analytics, free trial and promotion conversion rates, cross-sell and upsell conversion rates, payment processing efficiency (rejection rates, resolution rates, etc.), customer service analytics, and other measures of specific customer behavior.

CONCLUSION

The move from a transaction based to a custom-er-relationship based sales model brings with it the need for new metrics to measure success. The industry has not yet reached consensus on specific measurements, but there is general agreement that businesses should monitor the health and val-ue of customer relationships, customer behavior patterns, and the value of revenue streams gener-ated by recurring revenue.

It’s important that, early in your transition to recur-ring revenue, you identify appropriate measure-ments of the success of your business strategy and then implement the necessary analytics capabili-ties to obtain those measurements as part of your recurring revenue initiative.

“All data that comprises a health score should be analyzed to ensure that custom-ers are using their investments optimally. Results of the analysis can be used to help customers get more value from their prod-uct, or help drive the right conversations at renewal time.” xii

Forrester Research



References i The Customer Acquisition Cost (CAC) Ratio: Another Subtle SaaS Metric, Dave Kell, Kellblog, 2013-12-01, http://kellblog.com/2013/12/01/the-customer-acquisition-cost-cac-ratio-anoth-er-subtle-saas-metric/ogg

ii MRR Definition: SaaS Metrics, What is MRR and how is it used in SaaS and Subscription Businesses?, SaaS Optics, www.saasoptics.com/SaaS-opedia/saas-opedia/MRR/MRR.html

iii Transitioning To a Subscription-based Business Model: A Checklist for Success, Jon Gettinger and Ashley Stirrup, Recurring Revenue Alliance, 2014-03-10, http://www.slideshare.net/servicesource/transi-tioning-to-a-subscription-business-model?utm_campaign=&utm_me-dium=email&utm_source=Eloqua

iv Customer Lifetime Value, Wikipedia, http://en.wikipedia.org/wiki/Customer_lifetime_value

v The Truth Behind Recurring Revenue Growth in Subscription Econ-omy, Matt Shanahan, Scout Analytics, http://research.scoutanalytics.com/revenue-optimization/the-truth-behind-revenue-growth-in-sub-scription-economy/

vi The Truth Behind Recurring Revenue Growth in Subscription Econ-omy, Matt Shanahan, Scout Analytics, http://research.scoutanalytics.com/revenue-optimization/the-truth-behind-revenue-growth-in-sub-scription-economy/

vii See Why Churn Is So Critical to Success in SaaS, Dave Skok, for En-trepreneurs, 2012-05-07, http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/for an in-depth analysis of the concept of Negative Churn and its impact on potential growth rates for your business

viii The Truth Behind Recurring Revenue Growth in Subscription Econ-omy, Matt Shanahan, Scout Analytics, http://research.scoutanalytics.com/revenue-optimization/the-truth-behind-revenue-growth-in-sub-scription-economy/

ix The Customer Acquisition Cost (CAC) Ratio: Another Subtle SaaS Metric, Dave Kell, Kellblog, 2013-12-01, http://kellblog.com/2013/12/01/the-customer-acquisition-cost-cac-ratio-anoth-er-subtle-saas-metric/ogg

x 2013 Pacific Crest SaaS Survey, David Skok, for Entrepreneurs, 2013-09-04, http://www.forentrepreneurs.com/2013-saas-survey/

xi Transitioning To a Subscription-based Business Model: A Checklist for Success, Jon Gettinger and Ashley Stirrup, Recurring Revenue Alliance, 2014-03-10, http://www.slideshare.net/servicesource/transi-tioning-to-a-subscription-business-model?utm_campaign=&utm_me-dium=email&utm_source=Eloqua

xii Measuring Customer Health to Drive the Right Conversations, For-rester Consulting, 2014, http://access.gainsight.com/csm-forrester-3/


Up to this point, we’ve covered the opportunity available through recurring revenue, the ways that recurring revenue shifts your business from a trans-actional focus to a customer relationship focus, the basic capabilities necessary to support


Suggest steps for getting started on your recurring revenue project

Recall key points from previous chapters that will help you get started

10

Getting StartedGetting started on a recurring revenue project requires a clear vision of business objectives and a dedicated team committed to reaching those objectives.

“The secret of getting ahead is getting started.”

Mark Twain

a recurring revenue business, methods for assessing and deploying software to support the monetization of your services, and how to measure success. That leaves us with one remaining question: Where do you start?


Chapter 10: Getting Started

THE FIRST STEP

Success in recurring revenue begins with under-standing your business goals.

Earlier in this guide, I asked some questions about strategy and now it’s time to come back to one of those questions:

What is your strategy to grow your business?

Are you trying to rapidly grow your revenue or customer base? Are you trying to increase profit-ability or market share? Are you trying to grow your share of wallet from existing customers? Are you an upstart in your market, trying to disrupt your competition? Are you trying to defend existing turf from competitors? Are you trying to create a whole new market?

We’ve covered how businesses have used recurring revenue models to meet all of these goals and more:

· The New York Times adopted subscription op-tions to grow revenue and customer base and are now expanding their offerings to increase wallet share

· Microsoft made Office available in the cloud to increase profitability

· Salesforce and Netflix disrupted established industries with new consumption and monetiza-tion models

· Apple is defending its leading position in music distribution with its Beats subscription streaming music service

· Philips opened up new market segments by creating a consumption-based model for medical imaging devices

· Adobe more than doubled its value in a little over two years by moving to the cloud

Now it’s your turn. It all begins with knowing where you’re trying to go. What will success look like? How will you measure it? Increased market share? Revenue growth?

“All things are created twice: first mentally, then physically. The key to creativity is to begin with the end in mind, with a vision and a blueprint of the desired result.” i

Steven Covey

Recurring revenue provides multiple paths to success. Pandora and Hootsuite chose freemium models to grow their customer bases and are now building revenue by upselling to those customers. Netflix changed their industry with the simplest possible subscription model. Companies like Netsuite and Workday have disrupted business software markets selling SaaS-based solutions us-ing multiple variations on subscription and usage models. Zipcar created a whole new market for ‘car sharing’ using a subscription/usage hybrid moneti-zation model.

What new products will you create? What existing products will you repackage as recurring reve-nue services? What will your competitors do with recurring revenue? Your monetization model can be as simple or as complex as you want it to be, depending on your business goals and market conditions. Recurring revenue monetization mod-els offer a variety of options. Pick and choose the ones you need to create anything from a simple subscription model to a complex, usage-based mediation solution.

Once you determine your strategy, the next ques-tion is how will you implement that strategy in your business? The Q&A section in Chapter 4, “What You Should Think About Before You Start,” should help you start those discussions.

NEXT STEPS

With a business strategy defined, the next steps include assembling a stakeholder team and assessing your readiness to support a recurring revenue solution.



Like most other cross-functional projects, once business strategy and direction are defined, there are some basic steps involved in getting started with a recurring revenue project:

1. Identify key stakeholders

2. Create a plan

3. Assess business and systems readiness

4. Articulate your requirements

5. Engage with systems vendors

This list is based on two assumptions: that in assessing your readiness you’ll find gaps in your systems capabilities between where you are and where you need to be; and that you’ll choose to buy rather than build a solution to fill those gaps. On most projects, the first three steps will happen concurrently.

Identify Key Stakeholders

Your project will cross organizational boundaries and affect many stakeholders (you can refer back to Chapter 8 for more details). By way of review, the list of affected areas can include:

· Finance

· Finance Operations

· Billing Operations

· Information Technology (IT)

· IT Service Management

· Network Operations/Security

· Software Development

· Systems Administration

· Sales

· Sales Support

· Customer Success

· Customer Service

· Product Marketing

· Product Management

· Data Security

· Compliance/Internal Auditing

· Training

“No one can whistle a symphony. It takes a whole orchestra.” ii

H.E. Luccock

In the earliest stages of the project, you work to identify the key players in these groups, to understand how their areas are affected, to edu-cate about the value and opportunity the project brings, identify any potential roadblocks, and build consensus about how to proceed.

Educating Your TeamYou’ll need to educate your team on the basics of recurring revenue, and how this way of doing business differs from current practice. Make sure the team is up to speed on concepts like customer lifetime value and the importance of building and maintaining strong custom-er relationships.

Your project needs a team member with specific subject matter expertise and experience around implementing billing solutions. If you don’t have one, this would be a good time to consider looking outside your organization for help.

Create a Plan

This is a basic project management task, but one that is often left until well after the project is under way. A recurring revenue deployment is not just a software project. There are potential proj-ect threads for data cleanup, data management, various business process re-engineering tasks, IT



infrastructure, software, security and compliance reviews, training, and a host of other tasks. It’s crit-ical to identify all of these potential project threads early and ensure that someone in the business owns each thread.

“Men often oppose a thing merely because they have had no agency in planning it or because it may have been planned by those whom they dislike.”

Alexander Hamilton

It’s critical to get your stakeholders involved, get them to share in the planning, and get them to own their piece of the plan.

PlanningMike Tyson once famously said, “Every-one has a plan until they get punched in the face.” It’s good to have a plan. You can’t run a project this size without one. It’s better if that plan includes an assess-ment of risk and addresses contingen-cies so that you have some idea what to do when you ‘get punched in the face.’

Planning includes establishing a budget and time-line that you will manage for the duration of the project. It should also include contingencies for dealing with delays in data migration, systems in-tegration, and the issues that arise during various testing phases. Try to address the most likely ‘what if’ scenarios in your planning process so you are not surprised by them if they occur.

Assess Business Readiness

As you pull your team together, do a candid assess-ment of where you stand with the basic business capabilities required for recurring revenue suc-

cess. How would you rate your business’ ability to respond to and engage customers on their terms? Can you deliver what they want, when they want it, the ways they want it? Back in Chapter 4, I identi-fied seven areas of business capability:

1. Ability to engage customers

2. Service delivery

3. Scalability of business processes and systems

4. Customer service

5. Invoices and payment

6. Channel management

7. Predictive analytics

What are your capabilities in these areas? The suggestions in Chapter 4 and the questions at the end of that chapter should provide a good starting point for assessing your current situation and iden-tifying gaps. How do you fare against your compe-tition? How do you fare against recurring revenue leaders in other industries? How close are you to being able to provide your customers what they want, when they want it, the ways they want it?

Assess Systems Readiness

It should be clear by now that traditional billing systems generally fall short of meeting the needs of monetizing recurring revenue models. Earlier in this guide I listed some of the key failure points of traditional systems versus what’s available from a modern billing system (for details you can refer back to Chapter 5).

You can begin an assessment of your current rating, billing, and payment capabilities with a few simple questions:

· Do you have a single source of truth for customer and contract data and are changes to that data available near real-time across application plat-forms?



· Do you have a single source of truth for product catalog data (products, bundles, pricing, etc.) and is data from that source available across application platforms?

· Can you automatically provision services for new customers at sign-up, without manual interven-tion, allowing customers to immediately begin receiving service when the customer relationship begins?

· Can you automatically generate recurring charges on a monthly, quarterly, or annual basis?

· Can you support usage-based flat-rate and tiered pricing models?

· Can recurring and usage models be co-mingled within a single offering (such as a data subscrip-tion plus overage plan)?

· Is your solution PCI compliant (and EU Safe Har-bor compliant if you do business in Europe)?

· Can business users make changes to the product catalog to test new products, packaging, pricing, promotions, etc. without getting IT involved?

· Can changes to products, plans, and prices be made without service interruptions?

· Does your time-to-market for new products, packages, and pricing meet the needs of product marketing and sales?

· Can you personalize customer communications based on customer behavior?

· Can you support all desired customer interac-tions (service activation, payment, customer self-service, etc.)?

· Do customer service reps have real-time visibili-ty into a customer’s history to properly address inbound support issues?

If the answer to any of these questions is “no,” you need to do a deeper dive into capabilities and gaps and seriously consider upgrading or replacing your billing software. Chapter 6 provides more guidance in this area.

Get to Know the VendorsAccept the free lunches and seminars (but maybe not the sports tickets). Do take the time to get to know your vendors outside of a conference room. You’ll be working with these people for months (actually years, if you think about the post-“go-live” relationship), and the people are just as important a part of the product as the soft-ware. Learn about a vendor’s culture and how they will be to work with. It’s another data point for your decision process.

Articulate Your Requirements

This is a team activity, requiring consensus. There are many ways to accomplish this, most of which involve locking key stakeholders in a room and not letting anyone out until there is agreement. The key thing to remember is that requirements are the bare minimum set of things you believe you cannot do without. There will be additional items that you want, and these should be spelled out as well, but differentiated from absolute requirements for a minimum viable product.

Engage With Systems Vendors

I’ve discussed the vendor selection process in de-tail, and suggested an alternative to the traditional RFP approach (refer to Chapter 7 for more details). Your first step is to engage with vendors. There is a list of 20 vendors included in Chapter 7 that could serve as a starting point. Do some research and engage with several vendors. Remember that your goal in screening vendors is to get to a short list that can perform a proof-of-concept. Your initial meetings and screening, RFI, etc. are not designed to make a selection, they are designed to get you your short list.



CONCLUSION

A recurring revenue deployment is a business transformation project, requiring objectives and vision that are shared across the enterprise. The keys to success are a mixture of project manage-ment best practices and a critical understanding of

Through my own experience on several recurring revenue billing projects over the years, along with comparing notes with peers and reviewing case studies, I’ve learned (sometimes painfully) five key lessons that apply to billing projects:

projects must be business driven: strategy comes first.

Technology is a tool to enable and empower business strategy. Sometimes in IT we get ahead of things, but for your project to be successful, the business must drive the bus. Figure out what you want your business to look like and then empow-er your IT team to take you there. Take the time to learn and discuss what technology can do to change your business too.

business strategy must be client centric.

It’s the 21st century. If your customers are not at the center of your strategy, you’ll end up lagging behind your competition. In recurring revenue, every change, every decision, should be inspected through the lens of how it will improve the custom-er experience and help boost customer lifetime value.

create process standards across your enterprise and enforce them.

One of the most successful projects I’ve seen was conducted at a major global bank. They estab-lished a global set of business processes and rolled those processes out to 60+ business units on five continents. The only deviations allowed were compliance based. They saved millions in software deployment and process re-engineering costs.

leverage out-of-the-box (or out-of-the-cloud) technol-ogy.

Customization adds risk, both now and in the fu-ture. Minimizing custom code will reduce cost and time-to-market and help future-proof your invest-ment. Where customization is unavoidable, create custom extensions ‘outside-the-box,’ code that resides outside the core software product.

measure success

IT usually focuses on measuring service level objectives, but the true measure of success is per-formance against the KPIs that indicate how well you’ve executed your business strategy. Recurring revenue has its own set of metrics, some of which will be new to you. Identify success measures early in your project to ensure your team has time to build them into your solution.

Getting these five things right will not guarantee success, but it will greatly improve your chances.

LIFE LESSONS FROM THE FRONTLINES

References i 15 Project Management Quotes to Live By (Infographic), Wrike, Ash-ley Coleman, 2014-07-14, https://www.wrike.com/blog/07/14/2014/project-management-quotes

ii PM Quotes, Project Management Point of View, Greg Cimmarrusti, http://gcimmarrusti.wordpress.com/pm-quotes/

the changes required to support recurring revenue best practices.

The opportunity is there waiting for you. The secret to getting ahead is getting started.


Epilogue: Future-Proof your BusinessLittle did I know on that cold and drizzly morning in Copenhagen five-and -a-half years ago what the future would hold. If you had told me then whatthe outcome of that project would be and how it would affect my future,I wouldn’t have believed you. The same could be true for you and yourbusiness.

My initial outline for this project called for a final chapter entitled “What the Future Holds.” There’s only one problem: no one really knows what that is.

We can, however, make some educated guesses:

→ More and more established businesses will add recurring revenueservices to their portfolios, providing customers with more options,creating more competition, and forcing you to get more creative in howyou package and deliver services to differentiate yourself from yourcompetitors

→ Competition in the billing software market will remain fierce making ita buyer’s market for the next few years, with some of the more estab-lished software players (the guys with red and blue logos) entering theSaaS billing market through acquisitions

→ The Internet of Things will morph from something everyone is talkingabout to something everyone is doing (Gartner predicts 26-billion con-nected devices by 2020; others predict even more) transforming manyindustries in ways that we can’t even imagine

And that’s the point. Over the next several years, many industries, possibly including yours, are going to change in ways that we can’t even imagine. Who knows what the ‘next big thing’ might be?

To be successful you need to put yourself in a position where it doesn’t matter, where you’re able to adjust and adapt to changes in the way that goods and services are packaged, sold, and consumed.

In short, you need to future-proof your business.

How do you do that?

If you’re reading this guide, you’re already looking at recurring revenue and you’re potentially in the market for a recurring revenue billing solu-tion. You have lots of choices. I listed twenty vendors in Chapter 7 and there are at least that many more that I didn’t include.


FOR THE ENTERPRISE

The thing is, some of those choices can lock you in to a particular way of doing business, which limits your options. That’s not a good thing when the only certainty in today’s business climate is change.

Here’s one last piece of advice: As you plan to implement your recurring revenue model, make sure that the processes and systems you have in place allow you the flexibility to move, change, and scale as your business grows and markets evolve.

Today you may be looking at offering basic subscription options to your customers. What happens 12 months from now when your competitor goes to market with an aggressive promotional strategy and hybrid pricing options and begins to siphon off your market share? Will you be able to respond, or will you be constrained by a one-size-fits-all solution?

What happens when the ability to add remote sensors to your product al-lows you to monitor the performance of your product in real-time, or gives your customers the ability to operate your product remotely? Will you be able to monetize the added value you provide to your customer, or will you be constrained?

Going forward you’ll need to become more creative in how you package and deliver services to differentiate yourself from your competitors and you’ll need flexibility. That flexibility comes from a billing solution that provides you the tools and building blocks to create new offerings and new pricing options, without limitation, whenever you need them.

You have a great opportunity in front of you. The winners will completely take advantage of all that recurring revenue models have to offer, increas-ing customer retention and satisfaction while driving growth and ultimate-ly customer lifetime value. The others may never know what hit them, or more appropriately, what they missed.

Best of luck to you as you go forward on your recurring revenue journey. If you need help, you know where to find me.

Bob Harden Harden Group LLC

hardengroup.net

Epilogue


FOR THE ENTERPRISE

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Aria Systems’ cloud-based monetization platform is the consensus analyst choice, top ranked by leading research firms. Innovative enterprises like Adobe, Philips, and Zipcar depend on Aria to accelerate time to market and increase flexibility, enabling them to maximize customer value and grow recurring revenue through subscription and usage-based o�erings.

For more information, visit www.ariasystems.com.

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