The Human-Centered Approach to Recurring Revenue Management

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In the dynamic landscape of business, the shift towards recurring revenue models is not just a trend—it's a fundamental transformation. The focus has moved from one-time purchases to building lasting relationships with customers, emphasizing trust, and delivering ongoing value while ensuring stability. This paradigm shift in recurring revenue management is not solely about efficiency; it's about becoming human-centric, acknowledging that people, not just technology, are at the heart of this evolution.

The Evolving Landscape

It’s a fact! Organizations across various industries are shifting away from traditional one-time purchases and embracing, subscriptions and usage-based billing models. While subscription business has grown 4.6x faster than the S&P 500 over the past decade, the subscription economy is set to grow to $1.5 Trillion by 2025 (source UBS). Here’s why:

1. Predictable Revenue: Subscriptions provide a steady income stream, allowing companies to forecast revenue more accurately. Whether it’s software-as-a-service (SaaS), digital-only subscriptions (like streaming services), or membership-based products (think wine or beauty clubs), subscriptions offer stability. For more examples, you can refer to my prior blog post, 2023 Toast to Subscriptions!
2. Customer-Centric Approach: Subscriptions focus on long-term customer relationships. The goal isn’t just to make a sale; it’s about retaining clients over time, considering the right Customer Lifetime Value.
3. Flexibility: Usage-based billing adapts to individual needs. Customers pay based on actual usage, whether its data consumed from AC sensors, coffee machines, miles driven, or cloud storage used. It’s fair, transparent, and customer-friendly, provided the metric used is well-defined.

Unlocking New Recurring Revenue Potentials in Your ERP Transformation

Rather than viewing the required overhaul of your quote-to-cash (Q2C) process from purely a technology perspective, you need to view it as a "people" challenge. It is essential to dismantle barriers between departments to facilitate an agile Q2C implementation, allowing swift adaptations in response to market shifts and customer input. How?

Take a Human-Centric Approach: Understand the end-to-end journey of different stakeholders in the Q2C process. While complex due to the varied roles across the organization, this approach is essential for success. Capture their pain points, preferences, and expectations.

• Marketing, Pricing, and Product Managers: Launching new, differentiated offerings can be challenging due to limitations in pricing options. This leads to an inability to provide customer-tailored options, resulting in long lead times for changes and updates. In my past role as a product marketer for a major telecom company, it required 3 months and €300,000 to create a new usage-based offering!
• Operations: As Marketing creates new pricing plans, it generates additional SKUs, making SKU and product catalog management complex for Operations. This complexity can also lead to fulfillment errors.
• Sales: The subscription model introduces complexity, time, and costs into the sales quote process. This might create a disconnect between opportunity, orders, and delivery leading to a difference between financial and actual forecasts.
• Customer Success: Without detailed billing statements, the Customer Success team may encounter high rates of billing disputes, which could arise from billing errors.
• Finance: Adding subscriptions to the current Q2C process may involve manual tasks, leading to problems like revenue loss, longer time to close the books, and potential mistakes in recognizing revenue. Studies suggest that revenue loss can range between 1% to 5% of yearly revenue, while in industries with complex pricing, like Telecom and High Tech, this number may be as high as 10%.  
• IT: IT spends significant time addressing change requests from business owners. Additionally, as the business grows, existing systems may struggle to scale effectively.

Successful transformation hinges on executive alignment, particularly with robust leadership from the CFO. The CFO will need to closely monitor an entirely new set of core metrics, including monthly recurring revenue (MRR), annual recurring revenue (ARR), annual contract value (ACV), churn rate, net retention rate, and days sales outstanding (DSO).

Despite the top-down approach, input from diverse stakeholders such as sales representatives, accountants, finance, IT, and product marketing is vital for cultivating a culture of ongoing enhancement.   

Add efficient human-centered subscription billing capabilities to a lean core ERP

• Subscription Offerings and Transparent Pricing: Start by creating subscription offerings using a mix of models, such as tiered/volume pricing, block pricing, and percentage-based pricing. Whether transitioning from a nascent subscription business to adopting bundled subscriptions or embracing a digital-first strategy, the adaptability of your pricing engine is integral for successful execution.  The triumph of the New York Times subscription journey exemplifies this approach. According to CEO M. A. Kopit Levien, the initial objective was to double digital revenue by 2020 and secure 10 million subscriptions by 2025. Remarkably, both goals were surpassed ahead of schedule, a testament to robust execution. Explore several of these possible pricing models in my prior  blog post, The Permacrisis: An Opportune Challenge to Rethink Your B2C Business Model. This should include promo codes and discounts management. Transparency is crucial—avoid hidden fees.
• Accurate Sales Quotes and Subscription Flexibility: Enable your sales teams to create precise sales quotes for complex products. Managing contract changes is essential. Make it easy for customers to upgrade or downgrade their subscriptions (renewals, extensions, pause/resume requests) without manual intervention.
• Subscription Capture and Provisioning: Once the customer signs the quote, initiate within the system the capture and provisioning of the subscription. This process should orchestrate the fulfilment of associated products and services as well.
• Usage Tracking and Unified Billing: Throughout the consumption of the service, monitor and evaluate usage data, delivering transparent usage reports to end customers. This clarity is instrumental in minimizing customer claims. By leveraging mediation technology to streamline data processing and facilitate real-time calculations, it not only ensures accurate billing based on actual usage but also enhances the overall customer experience. This precision fosters greater customer satisfaction and trust in the billing process.
• Flexible Payment Processing and Automation: Offer flexible billing cycles (monthly, quarterly, annually). Propose a converged invoice that includes product, service, and subscription fees. As transaction volumes grow, prioritize automation for collection and dispute management to streamline processes and minimize revenue leakage.

SAP’s Strategy: A Lean Core Approach with Specialized Functions

Companies must have the agility to swiftly adopt new monetization capabilities when transitioning to subscription and usage-based pricing models. Being tied to the limitations of their ERP system can hinder innovation and differentiation.

 Manage your subscription business as an intermediate process that connects Sales and Finance

1. Lean Core Focus: The heart of SAP’s ERP solution is dedicated to what ERP does best: running standardized business processes at scale with consistency, stability, and scalability. This core serves as the foundation, allowing seamless connections to extended functionalities that differentiate the business. (for more: Cloud ERP and the Clean Core Strategy: Navigating Business Change with Agility)
2. Monetization Component: To elevate value and provide differentiation, SAP offers a streamlined and user-centric monetization module running on top of the foundational cloud ERP. This module is dedicated to overseeing recurring revenues and delivers a comprehensive quote-to-cash solution. By utilizing a microservice architecture and harnessing cloud-based capabilities, this strategy enhances flexibility significantly.
3. Personalization and Integration: Employing API-based integration provides the flexibility for tailoring solutions to suit your business needs.

Seamlessly integrate with your ecommerce, CRM and customer service portals, offering flexibility and empowerment to your end-customers.

Connect with marketing automation tools to personalize messages based on customer behavior and preferences to send tailored welcome messages, renewal reminders, entitlement limits, or usage updates.

Consider the IT provider, abl solutions GmbH, as a great example of this strategy. Their objective was to minimize costs and workload by streamlining the entire digital process, enabling them to maintain customized packages comprising physical components, software, project management, and services within a single order. Through the standardization of their IT landscape and the establishment of a robust digital core based on SAP S/4HANA Cloud Public Edition with integrated systems such as SAP Subscription Billing, they have achieved a 50% faster invoicing process and a 66% reduction in the time required to close month-end books. At the same time, from initial order to invoicing, employees can get a complete overview of the key figures in just one click, from last quarter's sales to the profitability.  

So, keep in mind that a streamlined and people-focused Q2C process goes beyond mere efficiency; it's about cultivating enduring relationships with employees and clients with trust and additional value.  

Aligning processes with the needs of both employees and customers establishes a mutually beneficial situation for your organization and the individuals you serve.