When you look at some of the largest enterprises, you’ll see digital disruption as a trend impacting almost every industry and market globally. In terms of the software industry, we’ve gone from buying software in a box to software as a service. While many software companies are native SaaS businesses, a large number of enterprises that have been around for decades—from Adobe to PTC and Symantec—are just recently starting to make the transition from products to services.
This shift to subscriptions leads to more predictable revenue streams through long-term buyer relationships. But making the shift can be a real challenge.
Over the years, we’ve worked with over 1000 customers, ranging from large Fortune 500 enterprises to SaaS companies to leading consumer brands. In this time, we’ve learned that the leaders who successfully transform their businesses have four things in common:
Let’s take a closer look at the inherent problems that hold traditional software companies back from successfully making the shift, and how to master the four keys to software enterprise transformation.
Problem: You lack one place to handle pricing strategies so every change needs months of re-coding.
Business owner: Go-to-market
It’s very difficult for software enterprises to launch new products and revenue streams. Most traditional software companies sell with SKUs that have been hard-coded to different processes across various systems. You may have 10,000 SKUs, each pointing to a different product. Every product is sold as a one-time thing so each SKU is a one-time sale with a hard-coded bill.
To change your price for any one product means re-coding or re-engineering across multiple systems—which can take months for IT or engineering to accomplish. With SKU proliferation, this becomes exponentially more difficult to manage.
Pricing flexibility is essential for a subscription business. You need the ability to easily design new pricing and promo strategies in any currency using any combination of pricing models (one-time, recurring, consumption) and then have these new plans surfaced on your acquisition channels.
Problem: You lack one place to manage the customer experience so teams are burdened by customer events
Business owner: Operations
Subscribers want to make changes to their subscriptions. That’s part of the deal of being a subscriber. They want to be able to add new subscriptions, add users, upgrade editions, and more.
But every customer event requires a corresponding series of back-office event. For example:
It’s difficult to design an ideal customer experience when IT and other back-office teams can’t support the downstream impact of different customer events. Within our customer base, we see an average of four mid-term changes to a subscription every year. With 1000 subscribers, this would mean 4000 changes that your finance and operations teams would have to manually handle.
It can’t become a big IT project to custom-build functionality every time a customer wants to simply make a change to their subscription.
You need a system to capture every change to a subscription, track these subscription changes, and capture the downstream impact of each change over time. In other words, you need the ability to manage the entire subscription lifecycle.
Problem: You lack one place that calculates customer-centric metrics to help you run the business.
Business owner: Finance
You know that your GAAP metrics live in your general ledger—from COG to gross profit, operating expenses, net income and more. But subscription businesses need to look at a different set of customer-centric metrics for visibility into the health of their business and to help drive decisions. Where do your subscription metrics like MRR, churn, ARPA (average revenue per account), and net retention live?
Some software companies are able to manually calculate these metrics on their own by extracting data from a number of systems. However, it’s painful and difficult to keep up with the changing data, not to mention the time sink of creating complex formulas and the risk of error from data sourced from multiple disparate systems.
You need a system that can calculate and surface subscription metrics in real-time for any transaction, so that you can spend more time analyzing the data—and making it actionable—and less time just compiling the data.
Problem: The complexity of your multiple order-to-cash systems is costly and slowing you down
Business owner: IT
Order-to-cash in a transactional business is architectured as a linear process, where you have a CRM in the front-office and an ERP in the back-office, and a string of order-to-cash solutions in-between. But this old way of order-to-cash just doesn’t work anymore in the world of dynamic subscriptions.
Traditional software companies often have incredibly complex ecosystems. For example, let’s take a look at one of the large Fortune 500 enterprises that we work with and the complexity brought by their disparate systems:
Their real-world architecture looks more like this (and this is just a zoomed-in snapshot of one piece of their architecture!):
The result? Inefficiency, fragmentation, and incredibly high costs.
A better way is to consolidate, reduce costs, and drive efficiency by orchestrating order-to-cash all together in a single dynamic hub that’s built to manage recurring customers and exponentially more customer events. What you need is an order-to-cash platform hub that revolves around your subscribers.
This hub then becomes the center of your entire order-to-cash ecosystem, sitting between your CRM and EPR solutions. From here, you can connect front-office acquisition applications such as your webstore or CPQ, add supporting vendors like payment gateways and tax, plug-in provisioning systems, and more.
Industry-leading cyber security software company, Symantec, provides a great example of a company that successfully transitioned to a subscription model.
A few years ago, they found themselves experiencing heavy competition in the security space from smaller, more nimble SaaS startups. It became apparent that, in order to compete, they needed to transform into a security-as-a-service provider. As a 30+ year old company, they had accumulated a complex IT ecosystem with multiple ERPs, quote-to-cash systems, and literally thousands of SKUs for every product they sold. A staggering 90% of their order-to-cash process was performed manually.
All of this legacy infrastructure was having a negative impact on their ability to innovate and deliver new products to market, as well as on the customer, employee, and partner experience. They decided to consolidate their complex IT ecosystem onto one platform in order to become the security-as-a-service they wanted to be.
So in 2015, they became a Zuora customer to help power their transformation. Since that time, Symantec has seen their digital transformation efforts pay off in the form of significant growth and efficiencies. They went from 5 ERPs to 1 platform, reduced the time from order creation to provisioning from 21 days to just 5 minutes, and made a huge leap from -2% to 29% growth YoY.
According to Symantec CIO Sheila Jordan, “We made a strategic bet on Zuora as part of our global subscription platform to run our digital order-to-cash system for our cloud product and services because it offers a unique frictionless experience for our customers and partners … choosing Zuora has helped us eliminate SKUs, simplify our pricing, and allow our customers and partners to consume our products and services the way that makes the most sense for them.”
You know that the rewards of a subscription business model can be great for a software enterprise. According to Forrester, The ROI of Digital Business Transformation, “77% of firms that reported themselves as being in a mature phase of digital transformation reported an increase of at least 10% in their year-over-year revenue growth rate.”
While on the flip side, we can see that the risks of not embracing transformation is high: According to an estimate in a study from the John M. Olin School of Business at Washington University, “in 10 years, 40% of today’s Fortune 500 companies will no longer exist.”
Let these four keys serve as a guide for your digital transformation as you move from the theoretical into the actual, because the question isn’t whether you need to reinvent your business, but how?