When my son was young, he loved a series of books called Where’s Waldo? You remember those, right? Waldo was a cartoon character dressed in blue jeans, brown shoes, a red and white striped shirt, and a red and white beanie with a round pair of glasses and a slightly goofy grin. Illustrator Martin Handford drew Waldo in a variety of scenes visiting locations all over the world. The trick was that each of those pictures had anywhere from dozens to hundreds of characters in them and only one of them was Waldo.
I think my favorite was a picture of Waldo in Paris. There were hundreds of people in the scene and every one of them was wearing red and white stripes. It was amazingly difficult to pick Waldo out of that crowd, with several false positives, before finally finding the right combination of hat, shirt, pants, shoes, glasses, and goofy grin. Kind of like working with the data you may be using to run your business – if it’s a recurring revenue business, it may be hard to spot the money that you are leaving on the table.
We’re witnessing the early stages of a disruptive trend in global business; the migration from products to services. If you don’t think it’s disruptive, ask Blockbuster and Netflix. If you don’t think it’s a trend that will continue to grow, ask the Wall Street analysts who are putting a premium on recurring revenue streams when valuing companies. So now everyone (and by everyone, I mean your competitors) is looking at how to generate recurring revenue streams.
Generally, the first thing that companies find is that their existing billing system is inadequate to the task of supporting a subscription or pay-as-you-go usage based delivery model. Whether it be a traditional ERP package, an off-the-shelf billing package, or a homegrown billing solution, most legacy systems weren’t designed to handle the complexity of products, pricing, and customer interactions that occur in a recurring revenue world.
The second thing that companies find is that just addressing billing is not enough, by a long shot.
Capitalizing on recurring revenue opportunities is not just about getting the right pricing or getting an invoice out the door. It’s about managing a relationship with a customer over time. It’s a whole new mindset. There are two reasons for this (probably more, but for now we’ll focus on two).
The first is customer valuation and profitability. In traditional sales, the value of a customer is based on the value of the items they buy. In recurring revenue, the value of the relationship is also directly dependent on the length of the relationship. If you sell a $20 subscription for 10 months, the value is $200. If you can retain the customer for 20 months, the value is $400. Since customer acquisition costs are usually higher than retention costs, customer profitability increases over time.
Second, there is a growing body of research showing that the most successful recurring revenue companies see a significant portion of their growth coming from upselling existing customers. In the SaaS industry, the fastest growing companies are seeing 30% or more of their annual revenue growth coming from upsell. Your industry may vary, but since it’s less expensive to upsell existing customers than to acquire new ones, upsells drive higher profit margins as well.
Best practices in recurring revenue management are still evolving, but what’s abundantly clear is that success is based on how well you manage relationships with your customers over time. Those relationships are composed of a series of events: A customer purchases your service. They log on to their account and use your service. They experience service interruptions. They order upgrades. They call customer service. They ask for credits. They refer friends. In fact, you probably have databases and logs that record all of these events, but pulling them all together to get a full picture of the ongoing relationship with your customer is a bit like finding Waldo in that Paris photo.
This is where the right recurring revenue management solution can help. It’s not just about billing any more; it’s about managing recurring revenue. And managing recurring revenue is about managing a series of customer events and interactions over time, and orchestrating the correct response to each of those events. It’s about creating workflows that support activities like provisioning new customers, generating recurring charges, offering rebates or credits, automating upsell opportunities, and responding to potential churn scenarios before the customer leaves. It’s about ensuring that the customer everyday has reasons to stay, and not reasons to leave.
Successful recurring revenue businesses are proactively managing their customer relationships, responding to a wide variety of customer events in ways that make their customers want to stay. The right recurring revenue management solution will help you “find Waldo,” faster than any of your competitors can, with each and every new turn of the page.
When considering a recurring revenue business, many companies first look to their billing system. They often discover that billing can’t truly support a successful recurring revenue business. To find out the reasons why and what you can do about it, consider downloading the Beyond Billing with Effective Recurring Revenue Management e-Paper and make an educated decision on the future of your recurring revenue offering.