It’s a brave new world of nascent recurring revenue models. As many have pointed out in the last 24 months, an ever-growing list of companies (including several household names) are making partial or wholesale migrations from traditional one-off sales models (aka Quote–to-Cash) to some form of a recurring model, be they pure subscription-based, pure usage/consumption-based or an interesting hybrid of the two. As the inventors of cloud-based billing and the leader in recurring revenue management, it’s no surprise that Aria is thrilled to be in the position to shepherd these companies into this new age.
But all periods of great change are accompanied by some measure of disequilibrium and uncertainty. And this one is no different. From my perspective, the single largest “disconnect” that exists, ergo the most significant challenge Aria must be able to solve, is helping those organizations new to recurring revenue to understand this simply stated but disconcerting fact: Most of what you’ve learned about what works with quote-to-cash sales isn’t going to help you with recurring revenue.
Now, don’t get me wrong: I don’t think efforts at solving the quote-to-cash challenges are worthless or without merit. My concern is that those who have spent years working toward these solutions, more often than not, make the assumption that the central problem of recurring revenue management is essentially a matter of repeating a good quote-to-cash solution; that if you can figure out how to successfully monetize in a world of one-off sales transactions, then doing so with recurring revenue is merely about “scheduling” future transactions.
This is a purely transactional view of the recurring revenue. While it is not inherently wrong, it is inherently insufficient. Why? Because it fails to address, in any way, the true fundamental difference between a quote-to-cash sale and a recurring sales model. That all-important difference, the core thing that you must understand so that it informs every decision you make as you proceed, is that a one-time sales model is about customer acquisition followed by re-acquisition. With recurring revenue, “re-acquisition” is replaced by “retention.” While quote-to-cash is certainly relevant in helping re-acquisition, it doesn’t do“jack” for retention.
If quote-to-cash doesn’t help you with your efforts to retain newly subscribed customers in your recurring revenue business, what does? The obvious answer is to keep customer satisfaction levels high and prevent churn among those customers that you value highly. While there are many elements to keeping a customer happy that Aria can’t help you with (e.g. guaranteeing that the products you offer are desirable to the market), there are certainly tools and strategies we can offer to prevent the single largest and most avoidable threat to high customer satisfaction. I’m talking about “fragmentation,” a big buzzword in the halls of Aria, which we loosely define as a set of incomplete views of the recurring revenue customer resulting from less-than-optimal integrations among systems.
Here is an example showing the not-so-obvious benefits of avoiding fragmentation which happened to me after a recent 30-minute phone call from the US to India. Shortly after the call ended, I received a text from my mobile provider alerting me that I had just racked up $135 in overage charges that would appear on my next bill. Here we see my mobile provider employing good practices due to tight systems integrations that enabled the “push” of critical information to me – information giving me a window of time to act in my own best interest so that I could avoid a shocking bill days or weeks later. I logged onto my provider’s customer portal, saw that ugly $135 charge sitting there, and gave their customer service line a call to see what could be done. A helpful rep offered to retroactively subscribe me to a $15 add-on service that would cover the cost of that call and to apply a credit to my account for the $135. Despite “getting it right” per the above, the story goes south from here.
A couple of hours later, I checked the customer portal site and saw that my bill had actually gone *UP* since I’d last looked, up by the $15 covering that add-on service that they’d just sold me. The $135 credit they’d told me they’d posted to my account was nowhere to be found. I checked again the following day, then the next and then the next, before finally deciding to give them another call.
What I ultimately learned is that nothing went wrong with the way the rep handled my account. The issue was with one of several systems at play. Disparate systems were responsible for different components of my account and, lacking adequate integration, they essentially guaranteed the “fragmented” experience I’d undergone.
The rep’s “view” of my account was sourced from a different data location than the portal that I could see. One system was used for applying the add-on purchase of $15 to my account, another for the application of the $135 credit and a third for the initial calculation and recognition of the $135 call that started the whole thing. Each of these systems not only sourced their respective “views” of me from different places and ultimately exchanged data with one another via integrations that were radically different. In one case, there was a near instantaneous “push” of an individual transaction; in another, a high-frequency scheduled “pull” of bulk data and, in the third, a weekly batch reconciliation. We now have an ideal customer fragmentation case study.
At Aria, we see solving issues like the example above as our primary charter, because the potential consequences of getting the fragmentation challenge wrong range from the “not great” (my mobile provider had to absorb the high cost of an unnecessary additional call from me to their customer care center) to the “not acceptable” (Brendan gets sick of this crap and switches to another provider).
I realize that all I’ve written here today amounts to nothing more than a warning. Fear not, in Part 2 of this blog, I promise to address the actual solution to fragmentation. Stay tuned.
– Brendan O’Brien