In the wake of the pandemic, many businesses are moving towards deploying subscription business models – in fact, 70% of organizations have done so, or plan to do so.
And we see that this trend is definitively not restricted to B2C model, as the lines between B2B and B2C continue blurring.
A subscription business model is a recurring revenue model that allows companies to generate steady income via regularly recurring charges. Customers are usually charged on a monthly or yearly basis for a product or service.
For a few years now, cutting-edge manufacturers have been opening new channels of distribution like e-commerce sites, or marketplaces, reaching out directly to the end-customer, and by-passing their traditional value chain.
Benefits of these subscription business models:
Besides the technical challenge of going Direct-To-Consumer, jeopardizing existing relationships with their ecosystem of wholesalers and retailers selling their products and parts is a concern for manufacturers.
Currently, we see a new trend where manufacturers want to enrich the traditional relationship with their resellers by providing added-value services.
We see typically a 3-step approach for these manufacturers to embrace this change:
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One recent customer is a typical B2B business: A German manufacturer providing machines and supplies to window and door makers.
They wanted to provide a Software-As-A-Service application, helping the producers of windows and doors to design these items in a much more tailored and easier way.
The window makers could enroll with an app via an e-commerce site, enabling them to self-manage their subscriptions.
The actual invoicing for this new SaaS is done using the existing billing and invoicing back-end system. They plan to go with Device-As-A-Service model for their next step.
Another company we helped on their transformation develops, manufactures, and markets products for the construction, building maintenance, and manufacturing industries – all professional end-users.
Their first use case is cloud-based software enabling the design of anchorage projects.
One of their main asks was to have the flexibility to add and remove software licenses in a self-service scenario using the web shop. The idea was that the customer could see the impact to the bill even before confirming the change on the subscription contract.
Device-As-A-Service is a good example of subscriptions and usage-based offerings that focus on the function of a product as the service, not on the product itself.
Illuminating the way to a brighter and greener future:
Light-as-a-service: A world leader in connected LED-solutions wanted to create value, combining the use of IoT sensors on the bulbs with a creative usage-based model, translating light usage into costs, per building, floor, and room.
The benefit for their B2B customers is to make the right decisions in their daily profession for a smarter and cheaper maintenance.
The social benefit is to contribute to a greener planet by saving energy.
Medtech is another active area in creating these new subscription business models.
We’re helping a leading manufacturer of life science instrumentation and software addressing pharma, biotech, diagnostic, and chemical companies.
With the advent of new tax regulations that no longer incentivize companies to amortize their capital investment, customers were looking for a new way of using these expensive instruments through an affordable business model: The subscription model has been the answer, along with the tracking of entitlements with start/end dates, capabilities, add-on options, etc..
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The final step is wrapping contract-based services like maintenance and warranties together with the XaaS model, providing a complete bundle solution to the customer.
Let’s take the example of a customer that manufactures laser printers and imaging products:
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In order to successfully execute a move to the world of subscriptions, you need to understand several important aspects:
I warn you against going down this path: Doing a heavy lifting of your existing order-to-cash process will inevitably lead to a number of challenges.
As your business grows, the inability to scale while transactions start to explode represents a showstopper.
Maintenance costs will increase as new requirements are developed, and errors might occur throughout the business process, generating revenue leakage.
While the market requires a quick time-to-market to try, test, launch, and adjust new offers, the necessary change requests might significantly slow the execution, giving more windows of opportunities to the competition.
Finally, maintaining a happy ecosystem of partners might also be a challenge if you continue to pay incentives, commissions, and revenue share using spreadsheets’ type of reporting.
There are direct benefits for your company and its bottom-line, as well as benefits for your customers, which will increase retention.
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