Transform to a Profitable Subscription Business Model
I recently had the opportunity to present in a webinar with John Ragsdale, VP Research and Social for the Technology Services Industry Association (TSIA). TSIA helps tech companies optimize their service business through best practice research and data insights. A brand promise that is very much aligned with our mission here at ServiceSource, as we have partnered with industry-leading companies in their evolution to subscription models for nearly two decades. John shared some insightful data points on subscription go-to-market models. I invite you to watch the on demand webinar if you missed the live presentation.
As the head of strategy for ServiceSource, I have spent a lot of time digging into research from TSIA and analyst firms. It’s clear that customer demands are changing and evolving faster than ever, putting more pressure on companies to transform their models, or risk being irrelevant and left behind. In a recent survey from The Economist, 8 out of 10 companies are seeing major changes in how customers want to buy their products or services. The survey also reported that half of companies are in the midst of making major changes to how they price and deliver and 84% are integrating subscription-type models into their businesses. We see this with our clients around the world. Traditional ways of doing business are no longer enough to drive growth.
Disruption is impacting the entire organization—from product offerings, pricing models, go-to-market strategies, team structures, and customer engagement models. Revenue growth and profitability no longer hinge on just selling a good product or service. Rather, the new paradigm requires the ability to sell predictable and desired outcomes that enable your customers to succeed within your subscription business model.
WELCOME TO THE OUTCOME ECONOMY
The good news is that many companies are focusing on outcomes and delivering customer success in a big way, but...
…we are still fairly early in the evolution. Organizations are beginning to understand the importance of recurring revenue streams, yet the vast majority continue to struggle to cross the chasm to profitable subscription business models.
As the chart shows, of the top 50 global software as a service/SaaS companies, for the vast majority, subscription revenue accounts for less than 10% and the median is actually 3%. As they try to expand this percentage, they face increased costs trying to support legacy business models while simultaneously investing for the new era. At the same time, revenue shifts dramatically, from old models where 80% was recognized up front, to new models where 80% is recognized over the life of the customer. In this environment, onboarding, adoption and usage analytics, upsell/cross-sell, and retention become even more critical. The outcome economy requires a holistic approach to customer engagement.
TRANSFORM TO PROFITABILITY – FASTER!
Companies that can navigate the transition to a subscription business model successfully will not only survive, but thrive. During the webinar, John shared TSIA’s “Fish Model”:
By following these five tips, you will accelerate your transformation time to faster revenue growth and a lower cost to serve.
- Focus on Outcomes: Understand at a deep level what your customers are trying to achieve. They don’t want hardware, software, or subscriptions in-and-of-themselves. Understand the outcome that ultimately matters to them, and then align the organization at every customer key moment of truth to measure, manage, and deliver on those outcomes.
- Organize around CX: Customers want you to engage with them, but they want the engagement to be effortless. Remove the pain of silo’d departments, personalize the experience, and be proactive and prescriptive in your interactions, and you will ultimately have more intimate and insightful customer relationships.
- Staff for Customer Success: Shift the mindset from transactions to relationships. It’s not about having people who know all the ins-and-outs of your product or service. It’s not about hiring quota-killing sales people or renewals reps. It IS about having people on your team who are experts at figuring out the “results your customer wants to see” and helping them achieve the outcomes they need to be successful. And then equipping these customer success professionals with the appropriate resources, tools, and technologies to help customers succeed, while optimizing the cost to serve.
- Differentiate with Data and Content: Your customers assume that you know them and understand their expectations inside and out. They do not appreciate that there are often many systems of record with disparate data and information. It’s critical to focus investments on centralizing, galvanizing and operationalizing your data. You need the ability to deliver the right information, to the right person, at exactly the right time. This is only possible if you have the ability to track customer behavior and trigger actions when the customer is off track from a successful journey. Also, many customers want the ability to self-educate. You need to invest in educational and training content that will help them accelerate outcomes with your products and services.
- Learn from the Best: Don’t reinvent the wheel. It’s expensive and consumes time that could be utilized to drive growth. It’s important to remember that you can’t be great at everything. Keep your focus on your core competency and learn from other organizations, who are at various stages of transformation. TSIA has some great data, insights and analysis. ServiceSource has best practices, playbooks, and capabilities from helping companies in this space for 17 years, and various other organizations have key learnings that could be applied to your business. profitable subscription business models.
With these best practices in place, you will be well on your way to mastering the Revenue Waterfall and creating a profitable subscription business models. To learn watch Transform to a Profitable Subscription Business.
Authored by Chad Lyne – Senior Vice President of Strategy and Corporate Development for ServiceSource.
Chad has more than 15 years of experience in strategic planning, corporate development and mergers & acquisitions across a variety of technology-enabled industries, and has spent the past several years leading customer experience digital transformation initiatives. Outside of ServiceSource, you can find Chad rooting for the Notre Dame Fighting Irish, snowboarding in the Rockies, or adventuring abroad with his wife and three young kids.