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How to move to a subscription revenue model
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How to Move to a Subscription Revenue Model

Adopt a subscription management strategy for your company and give customers the products, services, and experiences they want — the way they want them.

The subscription economy is growing. By 2020, all new software companies will offer subscription-based business models — so will 80% of legacy software vendors.

They’re responding to a huge trend. Over the past five years, the subscription ecommerce market has grown by more than 100% every year. Fifteen percent of online shoppers have signed up for one or more subscriptions.

As a result, 86% of CFOs are now searching for new sales and finance systems to support recurring revenue models. To fully adopt these systems, companies must undergo an internal transformation. To compete in this new subscription landscape, organizations must rethink customer engagement strategies.

Here’s how to adopt subscription management for your company and start giving customers the products, services, and experiences they want — the way they want them.

The old ways aren’t the best ways anymore

Twenty-three percent of C-suites and boards have long-term plans to add subscription models. But for many organizations, this will be a big challenge. Traditional backend systems weren’t built to support recurring revenue streams.

Many companies have siloed processes, which make it difficult to manage subscriptions. With a lack of dynamic contracts, there’s no ability to manage the customer lifecycle. As a result, these companies often miss renewal and upsell opportunities.

Without a single view of customers across channels, companies can’t see purchasing data. With disconnected front and back offices, invoices may not reconcile to contracts. There may also be little support from leadership for new business models, like subscriptions.

All this results in an inability for companies to deliver clear and accurate results — which can potentially result in difficult renewal cycles and negative customer experiences. That’s why 68% of CFOs are looking for new ways to support recurring revenue models.

The keys to successful subscription management

Successful subscription management is far more than just enabling recurring revenue. Companies must rethink product strategy to incorporate subscription capabilities and the end-to-end business functions needed for handling subscriptions.

Some questions to consider:

  • Does your product structure lend itself to a subscription model?
  • How will you manage your product catalog and SKU rationalization?
  • How will you determine pricing tiers?
  • How will you deliver product subscriptions?
  • How will you provision products for delivery and manage licenses?

Between marketing, sales, CPQ, billing, customer success, and customer service, subscriptions need to be managed throughout every end-to-end business function and throughout every customer lifecycle.

Your marketing team needs to understand how subscriptions fundamentally change customer journeys. To manage subscription renewals, your sales team will need a full and complete view of your customers and their data.

With CPQ, you’ll need to drive subscriptions through guided selling and manage contracts. With billing, you’ll, of course, need the ability to bill for your subscriptions. You should be able to track “customer health” to ensure their success. It’s also key to enable self-service experiences that let customers make changes on their own.

To ensure subscription management success, companies need to account for every business function. When moving to a subscription model, it’s crucial for each function to have strategic goals — and access to the tools they need to achieve those goals.

To understand the impact of transformation, it’s essential to perform business capability-led analysis. Here are the key business capabilities for supporting a subscription model:

Table of capabilities to support a subscription model

How to make the move happen

Subscription models need recurring customer relationships. To build these relationships, there are many strategic factors to consider. Front-line employee productivity, risk management, and automation all impact customer experience.

Companies want to grow their subscription businesses and connect with customers. To do this, they need to create great experiences and innovate new solutions. This means leveraging many channels: web, social, mobile, email, and chatbots, for example.

It also means using many systems of engagement. As we’ve said, marketing, sales, CPQ, billing, and service all play a role in subscription success!

It’s important to remember subscriptions also need large systems of record. You’ll need order management as well as shipping and payment management. Plus, inventory management and product lifecycle management. There are also tax calculations and an enterprise data warehouse to consider.

Moving to a subscription revenue model isn’t easy — but doing so will make your company more competitive in business today. To begin, you need a strategic roadmap.

Phases of subscription maturity

Make changes to certain functions now, and focus on others later. Start with your CRM, and adjust how you manage accounts, leads, opportunities, campaigns, quotes, and more. Then, when you’re ready, start launching subscriptions — make sure you have the contract and billing infrastructure to support them. Once subscription services are up and running, then focus on how to use subscriptions to impact overall customer journeys and drive more business.

If you make the right changes, your subscription program will mature in no time. When that happens, your company will become a competitive force in the subscription landscape — offering the products and services customers need in the subscription-based ways they want to receive them.

Want to learn more about recurring revenue? Check out our series of e-books from CFO.com, Challenges in Adapting to Recurring-Revenue Business Models.

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