How an effective, flexible recurring revenue strategy can help businesses build long-term, healthy growth
By Steve Terry, EVP, Advisory Services at Navint
The effects of the COVID-19 pandemic have been universal but not uniform. As many businesses struggle in this volatile landscape, there are some sectors, such as premium medical services, homebased fitness, online and app-based food delivery, teleconferencing and distance learning, that are experiencing a significant surge in new business. Many of the companies thriving during this time have implemented a recurring revenue or subscription based model that ensures customers continue to purchase their products or services each month without the need to take new action.
For these companies, the most obvious challenge is how to meet surging demand—ensuring their digital infrastructure can serve a growing legion of clients, and safely and efficiently deliver their products and services. Perhaps less clear are the back-end considerations linked to sales, billing and delivery, as well as the interplay among them. The ability to unite these functions within a recurring revenue model can be the difference between enabling healthy, long-term growth and merely experiencing a short-term revenue boost that holds little in the way of profit.
The five stages of recurring revenue growth
Businesses that shift to a recurring revenue model often follow a similar pattern. At first, a recurring revenue strategy is a blessing: revenue grows, income is more predictable, and the business can better plan and forecast for the future. This straightforward initial stage allows many businesses to support the model using existing processes, people, and technology and experiences obvious, albeit modest, growth.
But what happens in the next stages? Unfortunately, as the recurring revenue offering grows, so does the associated complexity. Businesses must support complicated billing calculations during the quoting process and enable contract alterations such as upgrades, add-ons and swaps. Existing processes and tools across Sales and Finance which often rely on manual intervention cannot support the volume of activity, and create a ripple effect across service, delivery and the customer experience. The model then becomes inefficient and costly, negatively impacting the revenue opportunity and eating away at profits. What previously worked to drive business forward is now a hindrance.
We call this the concept the Recurring Revenue Maturity Curve. As noted in the diagram below, we work with clients to optimize their recurring revenue model. Our Continuous Customer approach, represented in yellow, enables the business to grow through the creation of a six-step cycle: package, engage, serve, monetize, optimize and repeat. It is in using this approach that businesses can generate steady and healthy growth and avoid the pitfalls that often come with the recurring revenue model.
Accelerating the recurring revenue growth cycle
In a typical, more predictable business environment it may take years for companies to reach the inflection point within the maturity curve. However, COVID-19 has accelerated the business lifecycle for many organizations. Businesses experiencing strong growth in the present face the very real risk of eroding profits through disjointed processes, tools and technologies across the front and back office, or legacy systems that cannot accommodate these new needs.
Perhaps even more concerning is the volatility of the market. In the coming months, many businesses may need to stop and start, surging and retracting as dictated by government regulations, supply chain issues or new outbreaks. Organizations must focus on building flexibility and resiliency within their recurring revenue architecture that will allow them to respond to these issues effectively while minimizing disruption.
Four key considerations for capturing the recurring revenue potential
Companies adopting a recurring revenue model for the first time or experiencing a surge within the business should consider two separate and distinct issues:
- How to avoid the pitfalls that will lead to performance erosion and economic decline
- How to optimize the business to maximize the recurring revenue opportunity
The answer for both comes down to enabling steady, long-term growth through a cohesive lead-torevenue strategy. While the approach will be unique for each business, there are four considerations every company should address as they design a lead-to-revenue architecture that can support the current level of disruption and volatility:
1. Define organizational priorities
- How does the recurring revenue model fit within the overall organizational strategy?
- To what extent will you need to adjust to focus on high-growth opportunities provided by recurring revenue?
2. Identify core Technology capabilities
- What existing tools and technologies does the organization have to support a recurring revenue model?
- What new investments are needed to sell, serve and deliver against surges in demand?
3. Mobilize for implementation
- How does the business redesign business processes and change the workstream for employees to optimize recurring revenue operations?
- What special considerations need to be made for businesses in high-growth mode?
4. Unify the Lead-to-Revenue process
- How does the organization unite people, processes and technologies to enable a cohesive and effective lead-to-revenue strategy?
- How do you ensure that the recurring revenue model remains flexible and effective into the future, especially given current landscape volatility?
Navint Partners: Creating a dynamic, unified, consumercentric recurring revenue strategy
For a recurring revenue model to be truly effective, the process and technology silos between Sales, Operations and Finance must be broken. Navint helps clients modernize their lead-to-revenue operations across the front and back office to enable new levels of growth and efficiency for the business and create a better, stronger experience for the customer.
Our capabilities are designed to enable three key attributes critical to the recurring revenue model:
Dynamic: Unlike a traditional sale, which is a one-time transaction, recurring revenue is based on an ongoing, evolving relationship. At the same time, the recurring revenue architecture must be flexible enough to support the customer no matter where he or she falls on the continuum, from a premium subscriber with constantly changing add-on services or upgrades, to a more traditional purchaser.
Unifying: The recurring revenue model requires organizations to work seamlessly across Sales, Operations and Finance. While many companies use two or more tools, systems or vendors to perform these services, a subscription model requires a single, cohesive system. The overarching recurring revenue solution should serve as an orchestrator, defining a process that helps the front and back office work in unison.
Consumer-centric: From the customer’s perspective, a recurring revenue model is fluid. The subscription can be changed or canceled at any time. This means that the company must be constantly working to add value to the customer. To that end, existing sales and billing processes must be designed to simplify the customer experience and reduce friction for the end user.
Creating a future-proof lead-to-revenue strategy and solution
As high-growth organizations address their market opportunities, they must recognize the symbiotic relationship between the front and back office. Selling, serving, delivering and managing are all related and interconnected within the customer journey. Companies that understand this and take the critical step to develop a cohesive and effective lead-to-revenue strategy, will be best positioned to operate a successful and profitable recurring revenue business—in the COVID-19 age and beyond.
To learn how our organization deploys lead-to-revenue solutions that connect strategy, processes and technologies across the front and back office and unite CRM, CPQ, CLM, Billing and ERP, contact Steve Terry, EVP, Advisory Services at email@example.com.