Companies across all industries are navigating fundamental changes to their business models. There is perhaps no better example of this than in the high-tech and software sector, which continues to transform from traditional on-premises product licenses to a cloud-based subscription service model.
This shift is beneficial for both customers and vendors. For enterprise customers, a subscription model allows for faster response to changing conditions and needs, reduces internal support requirements and lowers up front capital investment. For high-tech and software companies, it creates a more stable revenue stream and, if managed well, with low churn rates, unlocks revenue growth from existing customers — as opposed to relying primarily on new customer acquisition. Research by Pacific Crest Securities found that it is nine times cheaper for software-as-a-service (SaaS) providers to retain existing customers and four times cheaper to upsell existing customers than to acquire new customers.
Not surprisingly, various studies predict subscriptions will continue to dominate the enterprise software market within a couple of years. For example, International Data Corporation predicts that 53% of all software revenue will come from a subscription model by 2022. Similarly, Gartner projects CIOs will gravitate toward spending on subscription products and cloud services to lower up front costs, with infrastructure-as-a-service (IaaS) growing 27.6% to $64.3 billion in 2021.
A Subscription Approach Changes How We View the Customer Lifecycle
While the industry has been moving in this direction for several years now, many software companies are still mastering the model, particularly their ability to extend and grow existing customer relationships.
Traditionally, enterprise software providers put their effort into the early and later stages of a relationship — selling and closing a deal, getting the new software up and running, and then revisiting the relationship when it was time to think about renewal. Growth came from adding new customers.
This approach doesn't cut it in a subscription model. Customers now pay for a service rather than a product, so providers must consistently demonstrate that their service is providing value. Further, the subscription model is built on the premise of a long-term relationship, where a customer becomes more profitable as the relationship progresses. Whereas providers used to collect more than half of a customer’s lifetime revenue in the first year of the relationship, in a subscription model, year-one revenue is significantly lower — but the lifetime value of the relationship is greater.
This means that what happens after the initial sale can have a significant impact on growth and economic success of the relationship. In particular, software companies need to make sure customers adopt, use and realize value from their investment — what we call customer success. In turn, customer success will increase the chances of renewal and even expansion — what we call subscription success.
Subscription success requires engaging customers and ecosystem partners throughout the marketing, sales and service lifecycle. Of course, doing so at scale and with a personal touch is challenging and costly in any environment. Success, therefore, will depend on employing digital innovations to boost experience and engagement at key touchpoints. Following are three essential steps for doing so.
Related Article: The Dirty Secret of the SaaS World: Customer Churn
1. View and Manage the Customer Journey From End-to-End
Reinventing engagement starts with understanding what the customer experiences, wants and needs at various points of the lifecycle. Journey mapping is an effective way to identify all of the critical touchpoints that influence not only the customer’s perceptions of the service, but also the ultimate value derived from it. Journey mapping should aim to identify specific moments of truth in the quest to deliver customer success.
The journey mapping exercise should consider not only the customer experience but also that of internal sales and service personnel, as well as ecosystem partners involved in implementing the solution.
Many software companies — even those that have moved into the subscription world — still operate in functional silos, with separate marketing, sales, consulting and support teams. People in a particular silo have very little visibility to what happens once the relationship moves on to another function. This means few people, if any, have a comprehensive view of the whole relationship. To get the best results from journey mapping, bring representatives of the various functional teams out of their silos and into a (virtual, if necessary) room to map out the journey and moments of truth together. This will lead to greater understanding of, and empathy for, the customer’s journey and one’s own role in delivering both customer and subscription success.
Related Article: Are All Your Different KPIs at Odds With Your Customer Experience?
2. Contextualize Customer Engagement
If done right, journey mapping will guide an organization to the right actions it needs to take to deliver on customers’ goals and expectations during moments of truth. The output will give people proper context around why and how to engage the customer.
Examples employing digital innovation to increase engagement at key touchpoints:
- Automating the pricing/quoting process to enable the customer to shop and make decisions faster, make company sales reps more responsive and better informed with insight for upselling.
- For example, a fintech company implemented a new process for pricing and quoting using Salesforce CPQ technology which allowed its finance team to save 15 hours of work per month, free up their sales team for more valuable work, increase revenue through cross-selling and upselling, and provide a consistent client experience.
- Leverage domain expertise and service capabilities to help customer achieve business success rather than simply teaching how to use the product.
- For example, a $1 billion, high-growth SaaS provider with 100,000 accounts globally was able to improve customer success through a combination of operations assessment, benchmarking, and a revised customer segment model — resulting in a 5% to 7% increase in product usage and a $20 million increase in revenue from existing customers.
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3. Leverage Data to Influence Customer and Subscription Success
As the customer journey becomes more digitized, it produces more useful data to understand and manage the journey and deliver customer success. Customer performance indicators (CPIs) that reflect needs and behaviors can help define specific tactical responses and drive faster results. CPIs should tie back to performance indicators for retention, growth, and innovation. However, one of the biggest challenges for a software company, particularly those servicing enterprise customers, is managing, and leveraging, all the data they have access to.
Three areas where companies should focus their data efforts:
- Knowing the customer: What have they bought? Where are they in their journey?
- Knowing how customers use the software: Does the software align to customer expectations?
- Knowing where customers need guidance: How can you use data to proactively guide customers?
Because the emphasis is on building long-term relationships, software companies also need to use data to measure customer retention cost (CRC) and customer expansion (upselling/cross-selling) cost (CEC) — along with the traditional customer acquisition cost (CAC).
Related Article: Is Your Company Data-Driven or Data-Informed?
Sometimes Small Wins Drive Larger Goals
Digital innovation is key to reinventing customer engagement at scale across the subscription lifecycle. But this doesn’t mean it always requires an overhaul at every touchpoint or a digital transformation. That can be overwhelming and, for some, actually slows progress — even for a sector that is all about technology.
In some cases, software companies should focus on finding and delivering quick wins that make new contributions to customer and subscription success. Before long, the combined effect of those actions will begin to have a tangible impact on larger relationship goals.