I recently had the opportunity to present in a webinar with John Ragsdale, VP Research and Social for the Technology Services Industry Association (TSIA). TSIA helps tech companies optimize their service business through best practice research and data insights. A brand promise that is very much aligned with our mission here at ServiceSource, as we have partnered with industry-leading companies in their evolution to subscription models for nearly two decades. John shared some insightful data points on subscription go-to-market models. I invite you to watch the on demand webinar if you missed the live presentation.
As the head of strategy for ServiceSource, I have spent a lot of time digging into research from TSIA and analyst firms. It’s clear that customer demands are changing and evolving faster than ever, putting more pressure on companies to transform their models, or risk being irrelevant and left behind. In a recent survey from The Economist, 8 out of 10 companies are seeing major changes in how customers want to buy their products or services. The survey also reported that half of companies are in the midst of making major changes to how they price and deliver and 84% are integrating subscription-type models into their businesses. We see this with our clients around the world. Traditional ways of doing business are no longer enough to drive growth.
Disruption is impacting the entire organization—from product offerings, pricing models, go-to-market strategies, team structures, and customer engagement models. Revenue growth and profitability no longer hinge on just selling a good product or service. Rather, the new paradigm requires the ability to sell predictable and desired outcomes that enable your customers to succeed within your subscription business model.
WELCOME TO THE OUTCOME ECONOMY
The good news is that many companies are focusing on outcomes and delivering customer success in a big way, but…
…we are still fairly early in the evolution. Organizations are beginning to understand the importance of recurring revenue streams, yet the vast majority continue to struggle to cross the chasm to profitable subscription business models.
As the chart shows, of the top 50 global software as a service/SaaS companies, for the vast majority, subscription revenue accounts for less than 10% and the median is actually 3%. As they try to expand this percentage, they face increased costs trying to support legacy business models while simultaneously investing for the new era. At the same time, revenue shifts dramatically, from old models where 80% was recognized up front, to new models where 80% is recognized over the life of the customer. In this environment, onboarding, adoption and usage analytics, upsell/cross-sell, and retention become even more critical. The outcome economy requires a holistic approach to customer engagement.
TRANSFORM TO PROFITABILITY – FASTER!
Companies that can navigate the transition to a subscription business model successfully will not only survive, but thrive. During the webinar, John shared TSIA’s “Fish Model”:
By following these five tips, you will accelerate your transformation time to faster revenue growth and a lower cost to serve.
With these best practices in place, you will be well on your way to mastering the Revenue Waterfall and creating a profitable subscription business models. To learn watch Transform to a Profitable Subscription Business.