Today, digital technology provides customers unprecedented access to information, and this has shaped their demands and expectations. There’s no doubt about it - the customer is in charge. Customers want - and have access to - an incredible amount of options when they are considering a purchase. Companies that once held a monopoly on their market are now faced with multiple competitors, each vying for the attention of the same customer. This places a great onus on companies to distinguish themselves from competitors, pursue customer loyalty through connectivity, and find ways to continue connecting with new and existing customers.
In light of these challenges, many companies are exploring a move to recurring revenue models, or RRMs. The question, of course, is how. The reality is that implementing these kinds of changes can sometimes cost companies enormous amounts of money. Organizations looking to minimize risks during product development need to evaluate the real risk of changing their revenue model. They will need to acquire the specific skills necessary to create these changes across all departments, including sales and marketing, core technologies, customer service, and all financial departments including invoicing and billing. Bringing in fresh and experienced new talent or professional advisors can help companies make the transition less costly and more efficient.
The last thing any company wants is to create “one-hit wonder” products. Building successful RRMs requires careful, intentional planning that goes far beyond one product, and creative strategy that ensures your audience will stick around for a while.
With markets becoming increasingly competitive, many companies are turning to subscription and usage-based revenue models with flexible payment options in order to retain existing customers and attract new customers who are still weighing their options. When Adobe, for example, changed its purchasing model for software products like Photoshop to a subscription model, revenues soared. In 2016, the company reported an astonishing 80% of its total revenue coming from subscriptions.
Other wildly popular subscription-based services include Netflix, Amazon Prime, and Uber. However, subscription models are beginning to show up in other industries, too. Surf Air, for example, is an airline subscription service that gives members “all-you-can-fly” access with the payment of a monthly fee starting at just under $2000 USD. These kinds of seismic changes reflect the increasing move toward subscription-based services, even in industries where it could at first be very difficult for companies to see how their payment model could be diversified. As one CEO has said, “it’s not about the physical product, it’s about what the customer is trying to do. And that inversion of thinking is at the root of everything.”
EXPLORE ALTERNATIVE BILLING STRUCTURES
Often used by sales and marketing products or services like HubSpot, tiered billing is another way businesses can repackage their pricing structure to appeal to a wider audience. Each tier or level of the pricing plan is designed to meet the specific needs of different buyer personas. What the customer gets on each tier caps at a certain point, and once they hit this cap they can easily upgrade to the next tier to gain access to more services. A tiered billing method is one recurring revenue model that can help businesses or organizations appeal to a wider range of users, and can also provide important insights as to what customers really want and need.
Other billing options that can help businesses transform a product or service into recurring revenue are to charge customers on either the base of usage, or the number of users. Usage-based billing means that customers only pay for what they use. There are a variety of ways this could be implemented; one example would be Amazon’s cloud computing service which allows web developers to only pay for the cloud capacity they need while working on projects. User-based billing, on the other hand, gives companies the option to accommodate teams with multiple users by charging the teams a per-person monthly or annual fee for using the product. This is a great option for larger businesses, while also providing companies more predictable revenue streams.
LEVERAGE AUTOMATED SERVICES
Using software tools to automate services and reduce human capital is possibly a less obvious but nonetheless important component to building a successful RRM. IT automation allows companies to more easily manage their customers, deliveries, and billing. Software can be programmed to complete tasks based on “if-then” scenarios, which greatly speeds up multiple processes and allows teams to focus on big picture strategy.
BUILD A PRODUCT ROADMAP
Successful products begin and end with the customer. In order to create a long-lasting relationship with your target audience, you need to understand who you want to reach and what they want from you. What are their unique pain points? What will make them not only buy your product, but stick around for the long run and become advocates?
An effective product roadmap will answer these questions by incorporating feedback from all key stakeholders. This includes everyone from c-suite executives to your sales and marketing team to your customers. Getting both top-down and bottom-up feedback is important to ensure all stakeholders are aligned with the same goals and priorities. It should be easy for each stakeholder to connect the dots between their daily work and the larger goals at hand. Furthermore, understanding your target customer through research, focus groups, social listening, and other strategies will help shape both a short and long-term vision of what they want now and what they will want further down the purchasing journey.
BUILD SEQUENTIAL PIPELINES
Possibly the most successful strategy for ensuring recurring revenue is to build pipelines of products that invite the customer to make repeated purchases over a period of time. Apple accomplishes this by routinely releasing new models of iPhones, leveraging new features like a better camera or larger screen to motivate existing customers to upgrade to the newer model and enjoy all of its benefits. It is as easy as the click of a button to make these upgrades. Furthermore, Apple even offers a discount on new iPhones when you trade in your older model in exchange for a gift card that reflects its value. Considering how effectively Apple communicates this value-add to their customers, perhaps it’s not surprising that they are the largest company in the world in terms of market value.
Successfully transitioning a product to a recurring revenue model requires careful thought and a look-ahead perspective on what changes will provide the most flexibility and ROI moving forward. Nevertheless, chosen well, the right tools and models can support consistent revenue growth. By building a forward-looking product roadmap and establishing sequential product pipelines to keep customers coming back for more, companies can build onward and upward in the digital marketplace.