Tips for Building Predictable Revenue Via Recurring Revenue Models
According to Gartner, 35 percent of Global 2000 companies will generate incremental revenue through subscription-based services and revenue models by 2015. Additionally, MGI Research indicates that 76 percent of cloud infrastructure companies and 83 percent of software-as-a-service businesses will choose a cloud billing system rather than rely on on-premise legacy systems.
I joined Aria Systems because I believed the companies using recurring revenue initiatives were ahead of the curve — the vanguards of what's actually a massive global shift in business practices. The reasons are obvious: predictable growth predicated on a well-defined customer relationship and the ability to reach new customers and markets.
Enabling this shift are the twin forces of cloud and mobile technologies, which are driving the cost of computing and storage dramatically downward while simultaneously and equally as dramatically increasing the ability to reach and stay connected to customers. Businesses from Amazon.com to Toyota are demonstrating how to gain an advantage over competitors by offering new ways for customers to consume their products and services, in turn increasing demand and revenues.
So, how do you become part of the vanguard that's leading the charge? Keep in mind each business is different with its own unique set of circumstances and requirements. No two recurring revenue implementations will look exactly the same, but each must follow similar steps. At high levels, each business will need to follow a basic path to become a successful recurring revenue innovator. Here's a checklist on how best to proceed:
- Map current offerings to your customers. If you add recurring revenue to your system, will your customers follow?
- Scan the landscape to find competitors and ask yourself, "How much competition do they provide?"
- Identify your company's unique value proposition. What makes it different from the competition and what can you do to exploit it to your advantage?
- Define packaging and pricing. What are you selling and what does it cost? What do you need to change in terms of both to increase adoption and/or profits?
- Inventory your company's capabilities and find the gaps before you begin. Figure out what you need in terms of responsiveness, inventory and delivery to shift into gear as a recurring revenue innovator.
- Identify the technology you'll need to make the shift. Do you need to add recurring revenue management to your current legacy system and manage it in-house? Or can you bring in experts who know how to get you up and running in a timely manner?
- How fast do you need to get to market? In an environment where product cycles are ever shrinking and the competition is ever increasing, time is of the essence. Make the shift to being an innovator as quickly as possible — i.e., before your competitors do.
- What kind of testing, measurement and iteration are required for success? Once your recurring revenue model is live, it's best to test different products, services and pricing — in different geographic areas — to fine-tune your new recurring revenue sales machine so that it works at peak efficiency. You'll need to adjust your packaging and plan rates to match your customer preferences. The best companies come up with new packages and pricing as conditions change and as customer tastes shift.
Once you run through the checklist and follow these steps, you should be off to a good start. Build upon this knowledge as you add recurring revenue models, monetizing your existing and new products for new customers and new revenue streams. In short order, you'll be among the fast-growing group of innovators who have been increasing their sales and profits, while gaining ground on their competition in the process.