From home video to enterprise software, global business is shifting to subscription models in a growing number of categories. According to research from IDC, 57 percent of the top 100 global software vendors will collect subscription revenue this year, and over 80 percent of new software firms will be service-based. Those who ignore the opportunities created by recurring revenue models may quickly find themselves in an "adapt or die" situation. NetSuite, as the industry’s leading cloud ERP vendor, is in a unique position to share insights on what it takes to successfully grow a recurring revenue business.
The critical success factor for a subscription-based company is to build, retain and grow the recurring revenue stream. Because the subscription model spreads revenue out over a long customer relationship, hence customer satisfaction at every touch point is critical. Companies that are unable to step back and take a 360-degree view of their clients may be leaving money on the table because information from marketing channels is inaccessible to sales and service personnel, and vice versa.
Recurring revenue also forces many companies to take a hard look at customer profitability and lifetime value. It’s not unusual for it to take one to two years, for a subscription customer to get into the black. Comprehensive solutions built for subscription-based businesses can accurately account for the costs and revenues at the individual customer level, and provide every department with the insight and tools to ensure that the customer remains in the fold.
And not all subscription models are created equal. Flat rate, flat rate-plus-usage, and full usage-based plans each require a slightly different approach to launch and optimize. Many companies will supplement subscription revenue with one-time fees for installation, configuration or termination. These income streams need to be recognized separately from ongoing subscription revenue, which introduces even more complexity for the finance organization.
The challenges are even more pronounced for businesses that attempt to migrate from a one-time revenue model to a recurring revenue model. Too often, the quick-fix approach is to add point solutions to manage individual pieces of the subscription lifecycle and attempt to integrate them with existing CRM and ERP systems. Unfortunately, the nuances of subscription billing on both the front-end and back-end of the business can turn this into a costly nightmare, without solving any of the underlying business issues.
More than anything, subscription-based companies need their processes, and the systems that support them, to be extremely flexible. If your business cannot easily offer free trials, or support multiple pricing plans or quickly change usage components of existing pricing plans, more nimble competitors will find ways to trump you. Once your business is subscription based, these changes happen more frequently than you might imagine and the last thing you want to be spending resources on is adjunct, manual processes because you don't have flexibility built in to your systems.
Fortunately, enterprise solutions built for today's software companies can answer the call. Want to know more about best practices for optimizing your recurring-revenue business? Check out this replay of a recent NetSuite webinar with guest experts from IDC and Eloqua.
-Kimberly Odom - Director of Vertical Marketing, Software