2. If you pay utility
bills, then
you’ve seen the
usage model,
where charges
are based
directly on
the amount of
service used.
It takes more than billing
There are three basic monetization
models in recurring revenue:
subscription, usage, and
subscription plus usage. The
subscription model is the simplest,
with the customer receiving a
set service for a set price – think
newspapers or magazines or video
streaming. If you pay utility bills,
then you’ve seen the usage model,
where charges are based directly
on the amount of service used. If
you have a mobile device, you’re
probably also familiar with the
subscription plus usage model,
where you pay a flat rate for a
specified amount of service, and
then pay usage-based fees for
usage over the limit.
The basic models are relatively
simple although, to meet the
demands of the marketplace, they
can be implemented in a variety
of ways that can become very
2
Recurring Revenue Success:
Five Common
Pitfalls to Avoid
Companies as diverse as Adobe, Toyota, ESPN and United
Airlines have added recurring revenue offerings to their
businesses. Offering products and services on a recurring
basis is disrupting markets and creating new opportunities
for businesses of all sizes across all industries.
Recurring revenue business models go far beyond just
subscriptions (tiered, pre-paid, on-demand, pay-as-you-go,
freemium, etc.), and can be applied to just about anything.
But while opportunities abound, there are also challenges.
As you look at the possibility of deploying a recurring
revenue model, there are five common pitfalls along the
way that you’ll want to avoid.
$
3. complex. Customers are looking for
personalized services; what they
want, when they want it, the way
they want it. Almost invariably,
when companies begin looking at
recurring revenue, they discover
that their billing systems aren’t
designed to support these models
in all their complexity.
To understand why this is true, you
need to understand the difference
between recurring revenue and
your current way of doing business.
The traditional model works
something like this:
• Your customer orders a product
• You deliver the product and an
invoice
• Your customer pays
We call the process Order-to-Cash,
and we consider it complete when
the order is fulfilled and payment
is received. Systems are designed
to support closing the sale and
collecting the cash. But recurring
revenue takes that Order-to-Cash
cycle we’re all so familiar with
and stands it on its ear. You’re not
billing a sale that occurs at a single
point in time; you’re monetizing a
relationship that now extends over
a period of time (hopefully a long
period of time). The relationship
with the customer takes on a
new dimension – it’s ongoing and
dynamic, defined by a set of events
and touch points that can occur
at any time over the life of the
relationship.
That creates three problems for
billing: First, most billing packages
just aren’t equipped for the variety
of monetization models and
methods required. Second, with
periodic billing, you now have a
need to pro rate or re-bill when a
customer upgrades, downgrades or
cancels during a billing cycle, which
most legacy systems won’t support.
Third, most billing systems are
transaction-centric, focused on
capturing the data required to
process a sales transaction and
produce an invoice, and not on
managing the day-to-day events
and activities that make up a
customer relationship. Which leads
to our second common pitfall.
Piecing together the puzzle
The customer relationship is
defined by a series of events
– enrollment, charges, usage,
invoices, payments, upgrades,
customer service calls, service
interruptions, refunds, credits,
premiums, etc., that occur over the
life of the account. These events
occur across multiple systems
and platforms. If you’re lucky,
all of these systems are already
automated and talk to one another.
More likely, you have a combination
of automated and manual
processes, partially integrated,
with a spreadsheet or two in the
background holding it all together.
What you often end up with over
time is a fragmented view of your
customer, with data spread across
systems. Think about it: today, at a
minimum, you probably have data
about your customer residing on
your CRM, billing, fulfillment and
receivables systems and may be
accessible to the customer by a
web portal. However, do you:
3
The relationship
with the
customer
takes on a new
dimension –
it’s ongoing
and dynamic,
defined by a set
of events.
4. • Have processes in place to keep
that data in sync, in real-time,
across all those platforms?
• Where do you go for a single 360o
view of the customer?
• Where does your customer go?
• When your customer talks to a
customer service rep, are both
looking at the same view of the
data?
In this environment, getting a
full view of your customer can
be like trying to put together a
jigsaw puzzle without the picture
on the box. That’s not good in a
competitive environment where
customers have lots of options and
little patience. And it contributes to
our third pitfall.
Carpe diem
The Roman poet Horace first
penned the words Carpe Diem
about 2,000 years ago. Seize
the day. Make the most of every
opportunity. But how do you
identify those opportunities?
Customer preferences change,
as a response to our changing
culture or new technology or
both. As customer preferences
change, markets change (just
ask Blockbuster). But if you don’t
really know your customer, their
needs, preferences and behaviors,
then how will you identify when
their preferences change? Will you
recognize opportunity? Without a
clear 360o
view of your customer,
this becomes much more difficult.
And when you identify
opportunities, are your systems
agile enough to respond? Can
you rapidly deploy new products
and price plans? Do your systems
offer enough flexibility to take
advantage of current trends
and opportunities? In a world of
growing competitive pressure and
shrinking product cycles, can you
achieve the time to market needed
to keep ahead of your competition?
When it’s time to respond to
opportunity, will you seize the
day, or will your systems just seize
up? Which brings us to our next
potential pitfall.
Plugging the holes
Many of us heard the story growing
up of the little Dutch boy who
saved his town by putting his finger
in the hole of a leaking dam until
help could arrive. If the boy had
not plugged the hole, the pressure
of the rising water would have
gradually made the hole larger,
eventually undermining the entire
dam and flooding the whole
region. The story is fiction, but it’s
illustrative of something that can
happen in your business as you
move to a recurring revenue model.
Recurring revenue is a volume-
based business model. You’re
looking to add customers – lots of
customers. Your business systems
and processes need to work
together and they need to scale.
Where today you may be able to get
away with manual intervention or
spreadsheets to support business
processes that don’t work well
together, those solutions will
become unmanageable as you grow
your customer base. That harmless
little stream of water poking
through the dam rapidly becomes
an unmanageable torrent that can
4
Recurring
revenue is a
volume-based
business model.
You’re looking to
add customers –
lots of customers.
5. We all know
from personal
experience that
relationships
require lots of
hard work and
commitment.
eventually wash out your business.
Often, the first hole that becomes
evident is in client provisioning,
where businesses don’t have
processes in place to support
real-time provisioning for new
clients. Your customer wants
what they want, and they usually
want it now. The next hole that
springs up is usually revenue
leakage, with customers receiving
product or service that they’re
not paying for. This can result
from faulty provisioning, or from
gaps in communication between
fulfillment systems and billing.
If your existing systems don’t
communicate well with one
another, you won’t be able to scale
to support your growing recurring
revenue business. Which brings us
to our final pitfall.
What’s under the hood?
It’s not just your software or
business processes that need
to scale. Recurring revenue
businesses tend to be high
availability, always-on businesses.
Remember, the customer wants
what they want, when they want
it. Depending on your business,
those provisioning and billing and
payment processes probably need
to be available 24x7. Plus, you
need the horsepower to support
a growing customer base and to
handle peak processing hours.
A lot of companies in traditional
business models don’t have the
infrastructure in place to support
high availability. Capabilities
like hot backups, hot failover
and disaster recovery become
much more critical when your
customer expects you to be
providing uninterrupted service
24x7. The ability for applications
and hardware to scale to support
customer volumes and availability
requirements while providing a
secure environment will become
challenges as your business grows.
Don’t panic!
So, how do you avoid falling into
these traps?
You’ve made heavy investments
in the systems and processes
that are driving your business
today. They’re working for you,
and it’s important to make the
most of those investments going
forward. While you should be
able to keep most of what you
already have, you will need to
supplement your existing systems
and processes with a recurring
revenue management solution that
provides the functional capabilities
you need along with the ability to
integrate with and manage your
current environment. This way, all
of your systems can work together
towards a common goal.
Relationship Commerce
We all know from personal
experience that relationships
require lots of hard work and
commitment. Life can be messy
and relationships are complex.
If those things are true in our
personal lives, why wouldn’t they
also be true in the relationships
we develop with our customers?
Successful recurring revenue
businesses have migrated from a
transactional focus to a customer
5
6. relationship focus. They work hard
at getting the entire relationship
right.
It’s not about individual processes.
A process like billing is just the
tip of the iceberg, one of the
many touch points you have with
your customer. It’s important to
get billing right, but it’s equally
important to look beyond billing
and find a recurring revenue
management solution that allows
you to manage all aspects of the
customer relationship and all of the
events that occur, allowing you to
optimize the lifetime value of each
relationship. Your primary goal in
selecting a solution is to find one
that gets the relationships right.
Unified Customer View
The natural result of focusing on
the relationship should be a clearer
view of your customer – their
current status, their preferences,
and their recent behavior. If your
systems are working together,
sharing data when it needs to be
shared, notifying one another
of events and interactions, and
coordinating events across
platforms in real time, then it’s
easier to provide that single 360o
customer view that is necessary
for success.
Your customer is looking for a
personalized experience, one that
is specific to their individual needs
and situations. The right recurring
revenue management solution will
be an enabler, providing the right
information in the right way at the
right time, wherever it’s needed.
Adaptive Selling
We live in a world where nothing is
permanent except change. It’s easy
to see change in the marketplace,
when new competitors enter the
market or existing competitors
bring out new products or pricing
strategies. You’ll need a recurring
revenue management solution
that provides the agility to respond
quickly to these changes, and
won’t hinder your go-to-market
strategy. But the right solution
will provide you with something
more, a competitive advantage that
will make you stand out to your
customers.
Adaptive Selling is the ability
to recognize and respond to
opportunities in your customers’
data. It requires the right analytic
capabilities, and the ability to
respond to the results. For example,
is your customer approaching a
usage threshold that will cause
them to absorb overage fees?
Your system should recognize this
and send out a warning message,
along with a plan upgrade offer
before overage fees kick in. There
are any number of opportunities
to provide better service, improve
relationships, increase retention
and drive new revenue when
you have a unified view of your
customer and the ability to
automatically respond to
customer data.
Process Orchestration
So, how do you keep all of these
processes operating in sync and
ensure that data gets to where
it needs to be? Think about the
Your customer
is looking for
a personalized
experience, one
that is specific to
their individual
needs and
situations.
6
7. conductor of an orchestra. His role
is to provide direction, ensuring
that each instrument is playing
the right notes at the right volume
at the right time. He provides the
cues, and the orchestra responds
by playing together in harmony.
It’s the same with your systems – if
they’re going to work together in
harmony, someone needs to lead.
Here’s how it can work: Your
recurring revenue management
system monitors events across
your environment. When it
senses an event, like a customer
activation, it sends messages
where they need to go, perhaps
notifying your CRM platform of
the new customer or an update
to an existing prospect, triggering
the payment processor to process
a payment, or directing the
fulfillment system to provision the
appropriate products for the plan
the customer has selected. Each
of these notifications includes the
data needed for each system to
perform its role.
To get the most from your
recurring revenue initiative, you’ll
need a revenue management
system that can be configured to
meet your unique requirements
for capturing, organizing and
responding to customer events
across multiple platforms in real-
time. You’ll need the ability to
keep data in sync across multiple
systems. You’ll need the ability to
trigger automated messaging and
workflows so that customer needs
are met instantly. Not all solutions
on the market can provide this, so
take a close look when selecting a
vendor.
Always On Availability
Recurring revenue businesses
usually run on a 24x7 model with
customer touch points always
available. To support an ‘always
on’ recurring revenue business
model, you’ll need an ‘always
on’ infrastructure. You’ll need
enterprise grade capabilities
with carrier grade hardware and
software across the full stack
with robust failover and disaster
recovery capabilities. To get the
most for your investment, you’ll
want to consider the flexibility,
scalability and consumption-based
pricing offered by SaaS-based
systems. If you’re not sure about
multi-tenant cloud solutions, look
for a vendor that can also provide
other deployment options, like
private cloud or on-site.
You’ll be storing sensitive
information about your customers,
so you’ll probably want to look
for bank-grade security. Look for
certifications like PCI/DSS Level 1,
SSAE 16 SOC1 Type II and EU Safe
Harbor Compliance. You’ll need to
make sure that your infrastructure
is robust enough and secure
enough to support today’s needs
and future growth.
In review
There are at least five common
potential pitfalls in deploying
a recurring revenue initiative.
The right recurring revenue
management solution will serve as
a commerce hub for your recurring
revenue business, providing the
solution for each of these potential
pitfalls.
7
You’ll need the
ability to keep
data in sync
across multiple
systems.
8. 8
Aria Systems, Inc.
575 Market Street, Floor 10
San Francisco, CA 94105
Phone: 415.852.7250
Fax: 415.852.7251
Sales -Toll Free: 1.877.755.2370
sales@ariasystems.com
info@ariasystems.com
About Aria Systems
Aria Systems powers recurring revenue for the enterprise enabling market expansion, improving customer relationships, and providing more revenue
predictability. Aria is used by brand name companies such as Pitney Bowes, AAA NCNU, Experian, Red Hat, Ingersoll Rand, EMC, VMware, and HootSuite to
evolve their recurring revenue businesses while delivering outstanding customer experiences.
Pitfall
Inability to provide adequate
basic services like billing
Fragmented view of the customer
Lack of agility to react to and
monetize opportunities
Incomplete processes and
revenue leakage
Lack of scale, security, robustness
Solution
Relationship Commerce
Unified Customer View
Adaptive Selling
Process Orchestration
Enterprise Class Infrastructure;
Bank-Grade Security
Success in recurring revenue is about optimizing the
lifetime value of each customer relationship. The right
recurring revenue management solution makes that
possible, providing capabilities that allow you to give
your customer what they want, the way they want it,
when they want it, while executing flawlessly on every
customer interaction.
