The Monetization Playbook for Subscription Launch
For today’s businesses, the question isn’t whether or not you have to start offering subscriptions…it’s how. Just look to software as an example: as Gartner has noted, by 2020, more than 80% of software vendors will change their business model from traditional license and maintenance to subscription and flexible consumption.
But this isn’t just a software story. This shift is happening across industries. According to the Subscription Economy Index, subscription businesses are growing revenues about 5 times faster than S&P 500 company revenues and U.S. retail sales.
While transformation is inevitable, the path to transformation is not. There are many different strategies to get you to a subscription model — with no one-size-fits-all approach — but the pressure is on to do it right. According to research from the Forbes Global 2000, 84% fail at digital transformation; only about 1 in 8 successfully managed the process.
Any successful monetization framework has to take into consideration your particular portfolio as well as the concepts of business transformation and technology transformation. Furthermore, you have to put more emphasis than ever on the customer experience because today’s demanding consumers have expectations that need to be met (unless you want to lose your customers to your competition!).
In our work with hundreds of companies that have successfully launched subscription offerings, we’ve consistently seen patterns of behavior that result in success. This led us to the realization that there’s not really a playbook that shows businesses how to deploy multi-pronged strategies to monetize a subscription launch — or at least we’ve never seen one.
Here we detail the 5 core monetization strategies for launching new subscription offerings:
1. LAUNCH NEW FLEXIBLE CONSUMPTION OFFERINGS AND RUN A HYBRID BUSINESS MODEL
Businesses today are increasingly under pressure to monetize their offerings, through products, services, and subscriptions. A hybrid business model is a combination of both fixed models and usage-based ones. It involves continuing to employ traditional pricing strategies while at the same time tapping into a flexible consumption model.
The idea behind this hybrid model strategy is to start small and then evolve: companies launch new recurring revenue model offerings while maintaining core offerings as fixed models. These new offerings are then managed as separate business units from core legacy products (to avoid disruption to the existing business lines) but enable opportunities for upsell and cross sell between hybrid lines of business.
“Not every company can jump feet first into flexible consumption—commercial intensity does not equate to product readiness.” - Deloitte Flashpoint Edition 17 on Flexible Consumption Operating Models
- Tap into new revenue streams
- Experiment with subscription models with mitigated risk/disruption to the organization
- Cross sell and upsell existing customers with new monetization models
- Legacy product revenue streams are protected — which means that companies can avoid taking a massive dip in their revenues while making the shift to subscriptions
- Less volatility to cash flow
- Evolving go-to-market provides a great competitive advantage
- Greater customer satisfaction as consumers have increased control over their subscriber experience and greater perceived value of your offerings (i.e. they are getting and paying for exactly what they want)
- Launching a new offering has its own complexities in terms of people, processes, and technology
- Potential lack of total organizational buy-in to this “side project”
- Initial investment can be heavier with lower typical ROI due to small volume
- Greater complexity is built into your business management processes, e.g. billing, invoicing, and collections
- More challenging to create a seamless experience for your subscribers, especially with traditional systems that are built to support one-time sales, not recurring revenue
Zuora helped NCR, a 125-year-old company that made its start selling cash registers to saloons in the Wild West, launch a new tablet-based Point-of-Sale solution to help it compete with the likes of Square.
NCR Silver wasn’t the company’s first experience with a recurring revenue model. In fact, in recent years, recurring revenue had grown to represent nearly 55 percent of NCR’s business. What was different about NCR Silver is that recurring revenue was the business: it was all cloud-based, with no hardware installs or perpetual licenses involved
The NCR Silver launch team had only a couple of months to build the business and make the product available to consumers — and they did it, hitting their launch date with a flexible subscription management solution that helps them manage the complex billing involved with a subscription model and get accurate reporting on new subscription metrics like MRR.
This approach is a great way to launch a new subscription product without disrupting existing operations. Businesses can keep the one subscription product line separate and/or slowly evolve and transition their customer base to subscription models.This hybrid model is a win win in that it provides stability while building a subscription foundation on which a company can expand.
DOWNLOAD THE FULL MONETIZATION PLAYBOOK FOR SUBSCRIPTION LAUNCH FOR ALL 5 STRATEGIES