One question that faces finance professionals all over the world is how to increase the effectiveness and profitability of their enterprise when using a recurring revenue model. With the wide range of new technologies emerging that can help with this task, how can professionals leverage these new tools effectively to manage recurring revenue?
Professional finance resource provider Proformative has released a webinar titled, “Recurring Revenue Management: Billing to Retention Best Practices,” geared toward answering many of the recurring revenue-related questions that many people have all over the globe.
The webinar is centered on a highly data-driven talk by Kim Odom, the Director of Vertical Marketing at NetSuite. NetSuite is an industry-leading cloud business software provider that offers solutions for business accounting, ERP, and other areas of business. Odom is well-suited to the task of helping tackle one of the most important elements of managing finances within an enterprise.
The webinar addresses the differences in approach of SaaS companies versus subscription-based businesses, whether current systems for managing contracts and invoices are effective for your business, and whether the systems you have in place will be able to support your company’s growth in the long term.
Recurring Revenue Model
Recurring revenue is the segment of an enterprise’s earnings that can be reasonably counted on to continue at a steady rate going into the future. Basically, it’s the stable revenue that won’t suddenly dry up given at least semi-normal circumstances. For example, a cable company that boasts millions of subscribers who pay monthly bills can count on much of that revenue remaining steady for the foreseeable future. That’s recurring revenue.
A recurring revenue model (RRM) is adopted by companies who want to maximize the amount of stable revenue that their company brings in. It stands to reason that the more recurring revenue a company has, the more stable that company is in the long term. Recurring revenue models work to build and sustain that type of dependable earning power.
The Shift Toward RRM
So why and how are more companies switching over to a recurring revenue model? Cloud-based technologies are one of the most powerful tools that have allowed for this shift. Users can now access technology remotely, obtain their data and information using various devices, and use the software through the cloud. This has allowed companies to introduce subscription services as opposed to single-sale packages.
This model allows companies to acquire a high number of subscribers whom they can depend on for consistent revenue, rather than big drops in revenue whenever the market leads to a downturn in purchases.
Making the Change
What are most important factors when determining whether your company should make the shift to a recurring revenue model? Here are some of the questions Odom poses and how you can answer them for your own company.
Are you a SaaS (software as a service) or software-based company? The distinction here is that SaaS vendors are already built heavily on RRM. Software subscriptions rely on monthly payments from users, which is the very definition of recurring revenue. If your company is a more traditional software provider, now is the time to seriously consider making the shift to a more SaaS-based approach, which will allow for more recurring revenue and more stable profits.
Do your contract management and invoice systems serve your model? Some companies make the shift to RRM but fail to address this change in areas of their finance management. Make sure that you implement an effective system for managing these recurring contracts and invoicing them effectively. One tool that can do this is a powerful document management system, which will unify financial document management throughout your enterprise.
Can your system support growth over time? One factor to consider when pricing out and managing your subscriptions and recurring revenue sources is whether they’re sustainable as your company grows. Price points and subscription terms that work initially might become unfeasible or unprofitable in the long term. Consider growth in every decision along the way.
Are you up-to-date on the technologies available to make RRM effective? Failing to adopt the new technologies available that make subscription-based services work is one of the main reasons businesses fail when trying to make the shift. Using powerful tools like enterprise content management software and DMS will allow everything from billing, revenue management, pricing, and practices to be unified and efficient.
More and more companies, even large and established giants, are making the shift to the recurring revenue model. Don’t get left out in the cold.