This is part one 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.
We’re all familiar with the traditional one-and-done Quote-to-Cash (Q2C) cycle – you acquire a customer, payment is received, and the transaction is done. This model has been in place, with slight alterations, since the day the first caveman swapped a fish and some berries for a handful of shiny rocks. But if you think this is a winning formula for the future of your business, get your resume in order – you might need it sooner than you think. We’re living in a different world now.
The New Normal
We live in a period of disruption. New mega trends – cloud, mobile, big data – have changed the way consumers purchase and consume products and services, with customers demanding anytime, anywhere access to services. In turn, businesses are responding by changing the way they package and sell, moving from product-based models to service-based models.
Business is going digital and moving to the cloud. It’s a global shift that changes how processes and entire industries work. New business models are emerging and upstart companies are breaking lots of glass challenging the traditional ways of doing business in established industries (think Uber). The Internet of Things (IoT) will only accelerate this shift, with billions of new digital devices connecting each year.
It’s a hypercompetitive environment, where advantage can be quickly gained and just as quickly lost. Cloud computing provides a highly cost-effective platform for enabling services; eliminating barriers to entry for smaller players and guaranteeing more competitors in every market.
In this environment, customer centric businesses are winning. With 2-billion people carrying high-powered computers (smartphones) around in their pockets and increasingly omnipresent Wi-Fi, customers are always connected. Those connected customers are looking for instant gratification in addition to a more personal and continuously improving experience. Companies are looking to lock customers in with unique value propositions.
Welcome to the “new normal”. Enterprises that want to be successful must embrace this new reality.
Quote-to-Cash Is a Dead End
In this “new normal”, the successful economic models are recurring services, in which the attention shifts away from products and toward the single constant over time – the customer account. In these models, your goal is not just to close a sale and collect payment; it’s to retain customers and to maximize customer lifetime value.
This is not what traditional quote-to-cash processes and legacy billing and receivables systems are designed to do. These systems are outdated and focus only on managing and completing one-time transactions rather than developing and nurturing customer relationships. To successfully navigate the “new normal”, you need to forget about the old one-and-done sales models. The greatest growth potential going forward will be in recurring services and long-term customer relationships.
If you approach recurring revenue as a series of one-time Q2C transactions stacked end-to-end, like some enterprises do, you’ll fail. Miserably. Forget the old Q2C mindset. Start thinking about monetization.
Monetization is the process of converting business assets into recurring revenue. It begins with knowing each customer intimately, at a macro, micro, and segment level. It requires managing each and every interaction with the customer as a potential revenue moment – an opportunity to earn (or lose) revenue. Knowing your customer gives you the ability to personalize offers and services, resulting in greater customer satisfaction. Satisfaction leads to retention and brand loyalty, which help to maximize the lifetime value of each customer relationship.
Recurring revenue is relational, not transactional – it’s about monetizing relationships, not executing transactions. However, the majority of existing billing systems don’t or can’t handle this type of relationship. Recurring revenue models – subscription, usage-based, freemiums, and hybrids – are inherently customer centric, allowing the customers to vote with their wallets and requiring you to know and continuously satisfy your customer.
A good monetization strategy and platform puts the ability to manage customer relationships front and center with the tools to manage offers, accounts, and revenue operations. It helps you master markets by enabling innovation and giving you the ability to roll out new services and offers faster than your competitors. And it provides the finance and billing tools – invoicing, payment, dunning, revenue recognition, etc. – to manage revenue operations. If your current system doesn’t support your efforts to increase customer lifetime value, your future, though short-lived, will be bumpy.
Forget one-and-done transactions. The “new normal” requires a new way of thinking – a fundamental change in the way you do business by putting the customer relationship first at every revenue opportunity. Those that monetize will thrive. Those that don’t won’t survive.
Getting monetization right starts with your billing platform. In our next installment, we’ll talk about the warning signs that your existing billing process is letting you down.