According to the Subscription Economy Index, 70% of a subscription company’s revenue comes from existing customers. As a SaaS business, your goal is to keep your customers for life and drive Customer Lifetime Value. But how do you do that?
In a subscription-based model, customer events throughout the year are ongoing and unpredictable. On average we see four mid-term changes per year for every subscription. Zoom, actually processes 5 changes to a subscription per month!
To illustrate this point, let’s imagine a complicated – but common – customer scenario: In the beginning of the year, your customer wants to start a new subscription, which means that, on the pricing plan from Bronze Edition to Silver Edition, and use a Monthly Plan for additional users starting that month. For finance and engineering, this means changing the pricing plan, adding a second monthly plan, prorating for the remainder of the month, sending a new invoice, redistributing the recognized revenue, and calculating the impact on revenue numbers. This raises multiple issues and questions:
• Does IT have to customize this? Do you do things manually with spreadsheets?
• Did the customer invoice get updated accurately?
• How was revenue recognition impacted?
• What is the impact on MRR and other business metrics?
This is a simple example of the types of requests that customers make in a subscription-based model. In fact, for some SaaS companies, up to 80% of their orders every day are changes to existing subscriptions. In other words, the majority of what they do is just manage change.
But these requests place undue burden on your finance and engineering teams: Finance needs to reconcile all of the spreadsheets. Engineering needs some kind of a hack. Every one of these actions has an impact on billing and invoices, revenue recognition, and reporting. And they all create downstream manual work for your finance teams. In order to be operationally efficient and have the flexibility to innovate and iterate – with products, marketing, pricing, and promotions – all in one central location, you need one system that can handle unpredictable customer events and take the burden off of finance and engineering.
For example, according to Box CFO and Co-Founder Dylan Smith, prior to putting into a place a subscription management platform, they “had Quickbooks as our ‘ERP system’ and were using spreadsheets to manage all of our billings and subscriptions.” Because of this, they were “running into challenges, with a lot of manual work.” Today, Box’s entire order-to-revenue process is centralized. As a result, their finance team is able to easily support any subscription change.