While it may not be easy to transition from a license-based model to a recurring revenue model, the benefits are clear. And, more importantly, it isn’t really an option for most software developers and resellers. If you own or manage a software company and want to remain competitive in a subscription economy, it is imperative.
For that matter, it isn’t just software companies that are facing a fundamental change to the way revenue is captured and recognized. From software and computing power to healthcare, specialty manufacturing and retail products like razors, we’re seeing a constant stream of new subscription-based offerings. Most B2B professional services companies have added subscription options to the list, and many have moved to it entirely. SBS Group has helped a wide range of Dynamics AX customers in the software sales and the reselling sector as well as other B2B firms like online survey companies and industrial equipment service providers.
Even the music industry has been entirely reinvented in the wake of the subscription frenzy.
Digital Experiences Are What the Fans Want
A report published by the Recording Industry Association of America (RIAA) said music streaming revenues for the first half of 2016 reached $1.6 billion—a year-on-year increase of 57%. According to the 2016 Mid-Year RIAA Shipment and Revenue Statistics report, revenues from subscription streaming services more than made up for a continued decline in physical product, with streaming accounting for 47% of all music industry revenue for the year to date.
Paid subscriptions to services such as Spotify, Apple Music and Google Play Music have cumulatively doubled in the last year, RIAA said.
Around 18.3 million people have signed up for a subscription-based plan from music streaming services—a year-on-year increase of 101%. Subscriptions were responsible for 30% of all music industry revenues in the first six months of the year, with revenues from a permanent digital download falling by 17%, the report said.
See “How Paid Subscriptions Are Saving the Music Labels”, an article written by David Bolton in September 2016.
Love that title: “Digital Experiences Are What the Fans Want”. I couldn’t have said it better. In our case, the “Fans” may be consumers or businesses looking to acquire access to software in a way that they’re most comfortable with. And if software companies want to stay in business, they need to adapt their business model in a way that gives the fans what they want.
Of course, this isn’t entirely about giving the fans what they want. While accessibility, cost and ease-of-use are some of the more commonly cited reasons for the subscription approach, there are many other benefits like:
- Increasing the likelihood of a successful IPO or Acquisition
- Lowering barriers to customer engagement (lower up-front costs)
- Allowing customers to scale more easily
- Adopting a more agile development and update cycle
- Maximizing customer lifetime value (CLV) and brand loyalty
- Driving a predictable, recurring revenue stream
Of all these things, it is the seller’s path to a predictable, recurring revenue stream which may be the most enticing reason to move forward under a subscription model. The transition from traditional license and maintenance models to cloud subscription and consumption usage is not easy and requires adjustments to future revenue expectations, recreating sales compensation plans and more.
Either way, it is a trend that has been changing the face of revenue management for the last decade and will continue to do so. Adapting systems, processes, and policies to help your organization thrive in a subscription world is often a challenge for most established technology companies.
I can’t help you figure out how to replace revenue that used to come up front. You’re on your own there (with the rest of us). I can provide an option for optimizing the way you collect and recognizing your new recurring revenue stream.
Adapting ERP to Subscription / Recurring Revenues for Software Firms
Dynamics AX is one of the most attractive enterprise ERP solutions that lends itself to a recurring revenue model, but not everything a software developer, publisher or reseller requires is provided in the solution right out of the box. No worries, because we have already tackled this one for you. SBS Group has created AXIO for Professional Services, an enhanced version of Dynamics AX that caters to the needs of enterprise professional services firms.
To my knowledge, AXIO is the only partner solution capable of managing the entire business process and handling the complexities of the latest revenue recognition standards and subscription billing on AX7.
Some 3rd party providers have created add-ons to AX 2012 but have yet to update or rewrite their solutions to work in the pure cloud environment of AX7. To my knowledge, SBS Group is still leading the charge here with a fully functional solution that not only caters to project-oriented technology company using AX 7, but provides the ability to meet IFRS15 and ASC 606 accounting standards requirements for revenue recognition.
I have another post on IFRS 15 and ASC 606 if you would like to learn more on this topic.
Tools in AXIO Professional Services for AX7 and Dynamics 365 can streamline you revenue management process
AXIO Professional Services for AX7 and Dynamics 365 not only handles the complexities of the license to subscription pricing evolution that software sellers will experience. Our Revenue Management Module effectively manages a contract lifecycle within AX. This module tracks a contract from the time of negotiation to acceptance, works-in-process, and then retirement.
It helps them to address key issues like:
After contracts have been accepted and signed by the customer, it is imperative that your ERP system is capable of helping your team accurately manage revenue throughout the life of the relationships. AXIO can automate one-time billing or recurring periodic billing by month, quarter or annually. Advanced payments, payments in arrears or even partial payments are easily managed.
Our renewals management features not only help to manage contract renewals after a contract term has ended, but helps to drive customer renewals as they near expiration. Contract managers or sales team members can utilize consolidated dashboard views of the customer to view relevant history and ensure optimal renewal rates.
- Easily update pricing and terms
- Adjust effective dates for new agreements
- Prorate payments as changes occur and even adjust the billing process
- Notify sales and consulting team members with pricing changes to ensure optimal communication
In the software world, change is constant. Customers often need to adjust multiple times thought the contract for reasons like adding users, modules or increasing user counts due to seasons or growth. AXIO allows your team to change the terms of contracts mid-way (change the value and or contract periods) without missing a beat.
Billing, Billing Frequency, and Modify Billing Frequency
This module provides automated billing features with various types of billing frequencies and billing options like monthly quarterly, half-yearly, yearly and non-linear (custom billing dates). It also provides the ability to change billing frequency mid-way of the contract period.
AXIO enables an automated revenue management process for both fixed price and variable price contracts that allows your firm to adapt as revenue recognition standards evolve. No more unreliable spreadsheets or manual calculations.
Because AXIO Professional Services for Dynamics AX is built on the Microsoft platform, the opportunity to integrate with customer relationship management solutions like Microsoft Dynamics CRM is relatively simple. Kick off workflow processes that provide alerts to sales and consulting team members or nurture customers as contract changes approach. Consistent, timely and communication around contracts keeps customers informed and drives a positive customer experience.
Used in conjunction with Microsoft Dynamics Core Financial capabilities, the Revenue Management module streamlines the contract management process and gives your financial staff the tools they need to ensure that contract terms and conditions are enforced.
You really must see it to appreciate it.
Please reach out to me directly or to anyone on the SBS Group team if your firm is struggling with revenue management. It isn’t easy to change your business model, but your ERP solution shouldn’t make things more difficult.
VP Enterprise Solutions and Services, SBS Group
Robbie Morrison has spent nearly 20 years helping customers build and deploy elegant technology and business solutions. From start-ups to enterprise-class organizations worldwide, his knowledge of the Microsoft Dynamics ecosystem helps SBS Group customers maximize benefits from the ERP investments.
Today, Robbie serves SBS Group customers in his role as Vice President, Enterprise Group where he provides thought leadership and manages the enterprise delivery team. Robbie received his MBA from the University of Georgia, Terry College of Business.