The current demand for subscription models includes car companies, healthcare providers, manufacturers, software companies, and more – and the demand is growing. This switch to subscription sales is both a blessing and burden for sales teams, and changes the ways sales teams work with customers and with the rest of the company.
Organizations need to understand how these changes will affect the sales team and the business so they can prepare for growth and the increasing operational complexity accompanying that growth. Here are seven of the major changes likely to impact the sales team in a subscription model.
Flexible selling options – coupled with a low level of customer commitment upfront and a low cost of entry – make selling core products or services easier with a subscription model. But long-term potential is only as good as the company’s ability to serve, deliver, and account for the revenues.
This requires rethinking and reinventing everything from packaging, pricing, and portfolio to digital platforms and front- and back-office systems and adapting them to subscription sales. The transformation process is complex, and companies often go about it the wrong way – leading to customer churn or requiring workarounds that take enormous staff time.
In subscription sales, customer expectations have changed how businesses retain customers and grow revenues.
Subscription-based contracts are fluid. Customers expect to be able to make on-the-fly upgrades, add-ons, and swaps via multiple channels – including Web and mobile apps. They demand variety and flexibility, as well as the ability to stop, start, or change service at any time.
A company moving to a subscription model must be prepared for all the systems used to sell and deliver products in order to meet this demand.
The right price for a product is still the absolute maximum a customer is willing to pay. In a recurring revenue model, the consequences of underpriced goods and services are even more pronounced, as lost revenue compounds over time.
A good pricing strategy – coupled with a solid packaging strategy (meaning what customers are buying, when they receive it, and how they pay for it) for subscription sales – turns core products and services into customized offerings that evolve and expand to match customer needs and preferences. Shifting to pricing on a more atomic level creates greater flexibility, a larger target market for new customer acquisition, and more opportunities for digital upsells and cross-sells. The ability to mix and match products/services into unique packages is key to deepening the customer relationship and maximizing revenue.
For example, consider the launch of a content streaming service from a sports network. The company has adopted a simplistic pricing model of unlimited access for a fixed monthly price of $7.00. This “all-you-can-stream” model works for an initial launch and quick customer acquisition, but does not maximize sales over time.
There are several ways to improve on this plan, including:
The subscription business paradox is that initiatives driving recurring revenue growth can become the very things that diminish business performance as operational complexity grows. To capture upsells, cross-sells, one-time purchases, renewals, and even downgrades or pauses in service, the right technology, processes, and people must be in place to support it.
For example, the organization may find it needs a customer success function to help combat churn. For sales teams this is important: A mere 1% increase in retention can have a significant positive impact.
Unlike in static sales, customers engage with multiple “back office” systems and internal functions in a subscription model, including contracts, fulfillment, provisioning, billing, service delivery, and payment.
Today, successfully selling to and fulfilling customer requests requires multiple systems, including CRM (customer relationship management), CPQ (configure, price, and quote), CLM (contract lifecycle management), ERP (enterprise resource management), billing, and payments. The very health of the customer relationship now depends on the performance of people and systems in functions across the company – and the way the front- and back-office functions collaborate has a direct impact on sales growth.
For sales teams, transforming these systems means now having enough data to allow them to create personalized marketing content and flexible, customized offers. This means the flexibility and appeal of product offers and the ease in which customers can make changes affects your top and bottom line.
Sales cannot solve this problem alone – and neither can finance. Transforming the entire client experience to one suited for subscription sales requires agreement and cooperation between teams that may have barely interacted in the past.
The sales team is central to how businesses will understand and execute this massive change to effectively transform revenue models. But the transformation will succeed only if the plan is solid first and is executed across the business.
As you can see, converting to or adding in subscription model sales – while proven to grow revenues – comes with issues that need to be resolved. The sales team will need to be at the forefront of company-wide changes in order to make the transition in a productive way.
Jim Martindale is CEO of Navint.