This is the final installment of a six-part series explaining why billing, as commonly practiced, is broken, why a more comprehensive monetization strategy is necessary to 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 listed the warning signs that your existing billing system is broken. Part Three: Requirements for Successful Monetization covered the system requirements for successful monetization. Part Four: Selecting a Billing Solution Vendor provided criteria for selecting a billing solution vendor to support monetization. Part Five: Transforming Your Billing System, focused on deploying a billing system to support monetization. In part six, we hone in on post go-live strategies and measuring success.
Great job! You’ve set a launch date for your new recurring revenue service and ensured the right monetization solution is in place. But that doesn’t mean you’re ready to go live with your pilot. The job isn’t finished yet – in fact, this is just the starting line.
Success is iterative and deployment is incremental. It’s common, and recommended, to start small with a basic offering and minimum viable monetization platform then build out as you go. This is often the fastest and lowest risk way to get to market. Afterwards, make adjustments along the way, add more services and features, repackage, measure performance, and then repeat the process. Keep the things that work and eliminate the things that don’t, all the while keeping in mind that effective monetization – managing the recurring revenue relationship between you and your customer – goes far beyond the initial welcome email and invoice.
As you move forward, here are five suggestions to help you maximize your recurring revenue success.
Maximize Retention, Minimize Churn
In a recurring revenue model, 100% of your profit comes from existing customers. Rather than recovering acquisition costs at the initial point of sale (like in the one-and-done model), acquisition costs are recovered over the life of the relationship. Typical break-even points for recovering acquisition costs are anywhere from 6-36 months, depending on industry. When a customer churns before reaching the break-even point, the business loses money on that relationship.
Customers churn for two basic reasons: poor customer experience or poor product value (i.e. not receiving personal value equal to money spent). Customer experience issues vary but commonly include: inconvenience, difficulty of use, lack of connectivity, poor customer service, or billing and payment issues.
It’s best to fight churn before it happens. You can start by delivering personalized, always-available services that align with customer preferences and exceed expectations. Closely monitor service usage to recognize and learn patterns (like non- or declining use) that could indicate potential churn. Expand win-back campaigns (including promotional pricing, discounts, or free value-add services) to customers meeting potential churn criteria. Wherever possible, don’t wait until a customer is gone to try to win them back.
Pursue Cross-Sell and Upsell Opportunities
Reducing customer churn is not just a revenue-retention strategy; it’s a revenue-growth strategy. Upward of 35% of growth in the most successful IT as-a-service businesses and industries (SaaS, IaaS, PaaS) come from existing customers, with similar numbers across other industries. Every day brings new opportunities to engage your customer and cross- or upsell. The longer you maintain the relationship, the more opportunities you’ll have.
Your cross- and upsell success can also have a positive impact on retention and churn. As customers become more tightly tethered to your brand, through receiving and deriving more value from services, they build brand loyalty and are likely to grow the relationship more. Continuous engagement leads to a positive relationship and more opportunities to cross- or upsell. Bottom line, to grow your business you should always pursue opportunities to engage customers and move them to higher levels of service.
Provide a Personalized Customer Experience
Customers look for services with a customized fit – personalized to provide a unique experience that meets their individual preferences. A few years ago, this might have applied primarily to B2C services, but today the expectation of personalized service is growing in the B2B world as well. Customers also expect instant gratification, continuous improvement, and new experiences. If you can’t provide this, they’ll find someone who can.
Seek to provide a unique customer experience and value proposition – one that they can’t find elsewhere. For example, Netflix learns your personal preferences and pushes content specifically chosen to match those preferences. Amazon Web Services provides a dizzying array of setup options that allow your business to choose the server with the exact capacity and configuration needed.
Watch the Numbers
Recurring revenue brings a new set of metrics that should be tracked across specific customer segments to give insight into what’s working and what’s not.
- Customer Lifetime Value (CLV) – the net present value of cash flows realized over the life of a customer relationship. CLV will generally increase as monthly recurring revenue and retention rates rise.
- Monthly/Annual Recurring Revenue (MRR/ARR) – the predictable monthly/annual recurring revenue stream
- Retention Rate – the percentage of customers staying from period to period
- Churn Rate – the percentage of customer leaving each period
Additional revenue metrics like total dollar value under contract and efficiency metrics like acquisition costs and breakeven point can also help you monitor the health of your business.
Markets change. Customer preferences change. Customers are always looking for a new and better experience. Wildly successful packaging and pricing today might receive mediocre reception tomorrow. As a result, successful recurring revenue businesses constantly tweak packaging and pricing to stay relevant and competitive.
Success becomes iterative. Go to market with a new service, manage the customer experience, and build lasting relationships. Continuously monitor performance then adjust packaging and pricing accordingly as you experiment with new service offerings. Continue and repeat the things that work, eliminate the things that don’t. As customer preferences and markets change, you must change with them. Successful recurring revenue businesses understand this and are putting these practices into place in every conceivable industry. It takes dedication and diligence, but the rewards will be worth the effort.