The popularity of subscription models fixate on popular B2C businesses—Stitch Fix, Netflix, Apple Music and Disney+ for example. However, product-as-a-service and a pay-as-you-go model are permeating the B2B world as well. B2B companies are leveraging IoT, machine learning, and the reams of data at their disposal to devise innovative ways to add new, stable pricing models, add-on services, and utilize their products’ technical underpinnings.
In this realm, subscribers, not products, are becoming a main priority for many B2B businesses. The right systems to support a subscription model are fully integrated, scale, and manage a complex range of plans and terms. For example;
- Otis Elevator Company has been in business since 1852. They sell elevators, escalators, and moving walkways. With an average product lifespan of 25 years, you can’t find a more “on-off” product sale. However, Otis now sell a subscription service that includes analytics tools and leverage IoT to identify irregular sensor readings that link unusual door closing and opening times. Alerts get sent to appropriate parties. Services now make up the majority of their revenue!
- HID Global sells a variety of access control products—cards, smart card readers, networked access products, card printers, encoders, and the software to run them all. So when you start a new job and get issued a badge to gain access to your office, there’s a good chance that it’s an HID Global product. They’ve taken the technical underpinnings of these on-premise, certificate-based authentication solutions and now offer them as a cloud-based subscription service.
Subscription Management, ERP, and CX
In what Oracle calls the “Experience Economy”, a subscription-based model works with today’s demanding digital buyer in a close, recurring relationship that rewards both the customer and the business. But it’s also potentially daunting for the Finance team because subscription pricing can be complex, with several iterations and bills that can be hard to process quickly. Companies that handle payments on a recurring basis and deal with revenue recognition ASC606 and IFRS 15 compliance may have finance teams that feel like they’re playing with fire.
Supporting the complete, subscription-based customer lifecycle may require reworking internal systems and processes. ERP is for billing, renewal cycles, revenue recognition, and compliance. Customer Experience (CX) systems span marketing, sales, service and commerce systems, and play just as big of a role in the entire process as a subscription management solution.
ERP and Subscription Management
With subscription pricing, customers can add and remove products, upgrade, downgrade, renew service, cancel service, or start and end service mid-cycle. Brands must be nimble and offer flexible pricing, whether yearly prepayments, monthly or annual subscriptions. Quick and accurate billings are the norm to;
- Reduce churn and build longer-term relationships,
- Provide customers with options and a higher level of convenience, and
- Provide a level of predictability to assist with planning and forecasting.
With a variety of pricing models comes another layer of complexity in terms of compliance and reporting standards around ASC606 and IFRS 15. With subscription-based models, revenue has to be recognized when it’s earned. This can present quite a challenge. As subscriptions continuously roll in, each one has its own unique revenue recognition challenge requiring real-time adjustments. In sum, a recurring revenue model is fast-moving and can dynamically change.
For example, ERP is critical software, and is vital for a subscription pricing model. But, it has to support new functionality such as pricing tiers, product bundles and timed promotions in order to accurately recognize and report revenue and comply with accounting standards. The subscription side of a B2B business can’t depend upon spreadsheets and manual workarounds. When it comes to regulatory compliance, companies can’t afford slow processes and mistakes.
Oracle Revenue Management, part of Oracle Cloud ERP, addresses the regulatory requirements of ASC 606 and IFRS 15 by automating these processes. It comes with built-in reports for compliance and provides a full audit trail of the lifecycle of revenue recognition activities. It’s integrated with Oracle EBS, Oracle Cloud ERP, and other ERP systems, as well as Oracle CX and Oracle Subscription Management.
Subscription Management, CX, and the Customer Promise
Most companies have come to realize that subscription management can’t be an isolated process. It’s not enough to have the customer-facing feature. Full integration between back-end and front-end, customer-facing solutions provides the data needed to provide customers the right bundle of products for their particular needs, and handles renewal cycles. With complete integration, businesses can continually tap into customer sentiment to gauge their satisfaction and upsell them as their lifetime value grows.
With complete integration, and full functional support, businesses can;
- Manage a variety of hybrid product and service/subscription business models
- Support mixed order fulfillment for services and physical assets
- Maintain accurate billing and timely revenue recognition processes
- Effectively manage contract changes and the sharing of that new data to customer-facing applications.
- Provide visibility for an entirely new set of KPIs, such as churn and customer lifetime value
Want more information on the power of Cloud ERP and Subscription Management? Check out these blogs and articles.