Note: This is part three of a six-part series explaining why billing, as commonly practiced, is broken, why a more comprehensive monetization strategy is necessary for future success, and how to prosperously make the transition from billing to monetization. Part One: Those That Monetize Will Thrive focused on today’s changing market economy and the necessity of a comprehensive monetization strategy for success. Part Two: Five Signs Your Billing System is Broken focused on the warning signs that your existing billing system is broken. In part three, we focus on the requirements for successful monetization.
A couple years ago, I was leading a project for a global company to deploy a new monetization solution in support of a new recurring revenue product line. During a meeting with the division president, he asked a simple, but revealing, question – “It’s only billing. Why does it cost so much?” Then it hit me – he fundamentally didn’t understand what we were trying to accomplish with a monetization model, which meant many other division leaders didn’t, or wouldn’t, either.
His basic assumption was that billing was a simple commodity that could easily and quickly be replaced. But recurring revenue monetization is more than just assembling and presenting invoices – it’s a great deal more. To be successful you have to think about billing differently. Here are some considerations that you can apply to your own business.
Monetization Is a Process
Monetizing recurring revenue requires a shift in focus from managing sales transactions that have defined start and end points to managing customer experiences that extend indefinitely over time. Monetization is a continuous business process that begins with customer engagement prior to account activation and ends when an account is closed. Every customer interaction in between has an impact on your ability to maximize the customer lifetime value (CLV) of a relationship and must be managed accordingly.
“Billing is no longer a commodity service – instead it is a differentiator for managing customer relationships and monetizing 21st century products and services.” – Brendan O’Brien, Co-founder, Aria Systems
The monetization process spans many systems, including: eCommerce platforms, customer and CSR portals, CRM, sales quote tools, financials, and traditional revenue systems like billing and receivables. Billing sits at the center of this ecosystem, with touch points to eCommerce, customer and CSR portals, CRM, fulfillment, financial systems, and even analytics. These touch points to the customer, along with contract and usage data, allow your billing system to become the focal point for managing business activities like provisioning, customer care, cross-sell/upsell and promotions.
In this scenario, your billing system sits at the center of your monetization process and becomes a value generator for your business, not just a commodity or a cost line on your P&L.
The Modern ‘Billing System’ – Requirements for Successful Monetization
The modern billing system – the one you need to support monetization – has a unique set of capabilities, different from what traditional billing systems can provide.
Recurring revenue is customer centric, not transaction centric. Monetization models are time-based, not order-based. Charges are generated and payments are received on a recurring periodic basis, not as a one-time transaction. Payment methods shift from checks and electronic transfers to automated card-based processes. Credit cards expire and credit payments are rejected, requiring new dunning management 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. They change address or contact information, which can impact invoicing, payment processing, and service delivery. Customers consume services and want a current view of their usage data.
All of these elements must be managed in real-time or near real-time to meet customer expectations, with processes and data often crossing system boundaries. A quick litmus test is to see how your current solution stacks up in these five key areas.
Extensible product catalog
In a recurring revenue model, a single ‘item’ can be packaged and priced in several ways. The product catalog should support this without creating an unmanageable explosion of SKU numbers. Effective solutions allow business users to manage the product catalog and create new offerings without IT intervention.
Monetization and pricing flexibility
Support for subscription and usage-based models, along with a variety of flexible pricing options, is a must. Pricing options include: complex tiered and volume pricing, discounts, minimums, free trials, promotions, and the ability to mix and match any/all of these in creative ways. The best solutions also allow you to embed your own monetization business rules within the billing process, without writing custom code.
Proration and non-sale transactions
Recurring revenue models generate non-sale transactions like upgrades, downgrades, cancellations, and renewals. When a customer changes service levels mid-cycle, your solution should give you the option to seamlessly make prorated adjustments to period charges to account for the change.
To process card-based payments, billing and the infrastructure around it must meet PCI-level security requirements. To protect your customers, their data should be encrypted in transit and at rest. The best billing system vendors work overtime to prevent fraud and security threats.
Solutions with tools like data-rich messaging, robust APIs, and flexible reporting capabilities enable you to link billing with processes like provisioning and customer care. This allows you to provide the right services, at the right times, at the right cost to maximize customer satisfaction and loyalty.
Depending on your circumstances, additional requirements could include multi-language and multi-currency support for global business, certified compliance with data privacy regulations, and specific integrations with widely-used software packages like Salesforce or Netsuite.
Traditionally billing has been viewed as an invoice assembly and presentation tool—a commodity product. The modern view sees billing as a service enabler and revenue generator operating at the center of your business, with a new set of capabilities to drive your monetization strategy. Your success in monetizing recurring revenue requires you to adopt this second view, coupled with a solution that empowers you to realize and fulfill this vision.
Finding a billing solution that supports your monetization strategy can be a daunting task. We’ll talk about this process in our next installment.