Navigating a Recurring Revenue Paradigm Shift

As most of us would agree, one of the most compelling business models today is the recurring revenue model. Also known as subscription, recurring billing, or usage-based.Rapid progression in IOT, cloud computing, artificial intelligence, robotics, and mobile devices is empowering organizations to adopt these new models for generating new revenue streams.

Recent studies have shared the following insightful statistics:

• 70% of business leaders say subscription business models will be key to their prospective growth in the years ahead. (Source: Global Banking & Finance Review)
• 53% of all software revenue will be generated from a subscription model by 2022. (Source: IDC & Source: Digitalist Magazine)
• The global subscription and billing management market was valued at USD $3.8 billion in 2018 and is expected to reach USD $5 billion by 2025, at a rate of 15.5% growth between 2019 and 2025. (Source: Zion Market Research)

While this business shift to a recurring model impacts revenue recognition in a fundamental way, they also complicate monthly reporting for the finance function, which is only likely to increase with a scaling business.

The challenge begins with the idea of moving to a recurring revenue business model as most ERP/CRM and legacy systems are not designed to support recurring revenue. This can pose a huge problem for the finance team in achieving their goals of delivering precise forecasts and accurate revenue reports. Leveraging an existing system that is not designed to handle the complexities of a recurring revenue model compounds the challenges. With each new kind of transaction and change in purchase plan, accurate invoicing to the subscriber has to be ensured for correct financial reporting and to meet GAAP requirements and compliance and revenue recognition standards.

Key Challenges in Managing Recurring Revenue

Interestingly, most organizations that embark on a recurring revenue business transformation journey don’t transition from their traditional one-time transaction models to the subscription models at one go, nor do they abandon their current business models completely. Instead these companies leverage both models, as they expand into newer markets and customer adoption.

A recent survey by CFO Research and Salesforce confirms that:

• Most companies launching recurring-revenue businesses face operational challenges, and many recurring-revenue business models trigger accounting and reporting challenges.
• Customer contract renewals create operational challenges for most companies, often relying on manual processes and CRM/ERP systems that are designed for transactional businesses.

Knowing What Lies Ahead

Let’s look at some of the causes leading to those challenges and how to prepare for them.

1. Operational challenges with renewing customer contracts

An organization transitioning to a recurring-revenue model requires its sales, service and finance functions to work together. Housed in their own individual silos, these departments often rely on their own systems and processes. Also data errors in a customer management database can cause major issues when renewing customer contracts.

2. Automatic invoicing

An automated invoicing system using the customer database needs to be implemented.

3. Renewals can require the same Level of attention as new sales

A lot of effort and resources may be required to manage renewals and almost as much as the efforts needed to land new sales. 

4. Process driven delays make renewal opportunities harder

Demand for flexibility in product design and pricing by the sales team, may result in manual downstream processes.

5. Setting up new business metrics

Companies making the transition may not be set up to process, track, and manage recurring revenue. They have to learn how to manage and leverage customer data to align the business metrics with the subscription model.

6. Calculating and managing complex pricing

Offering different subscription levels is a great business strategy as it offers affordability and choice to the consumer. Managing new pricing can be more challenging as prices vary based on subscription levels, term lengths and bundling options with other products or services.

7. Adopting the required cultural shift

A strategic shift requires cultural values be established across finance, product, sales, marketing and customer success, all with customer satisfaction and growth in mind.

8. Frequent reliance and dependence on manual processes

During the transition, organizations need to frequently integrate their existing CRM and ERP systems and adopt a billing platform as existing systems cannot support the financial requirements of the recurring business model.

9. Accounting and reporting challenges

According to CFO.com, nearly half of companies with a recurring revenue model struggle to meet accounting and reporting requirements if the systems are not designed for this purpose.

10. Mismatched pro-ration calculations

Errors in billing calculations are common if audit and compliance standards are not clearly established.

There are numerous challenges organizations face while transitioning to subscription models. Overcoming these hurdles is possible, but only if an effective recurring billing system is in place. Deploying the appropriate recurring revenue platform can empower an enterprise with powerful insights to drive innovation and customer retention. 

If your organization is adopting or expanding revenue streams based on recurring or usage and services-based business models, it is time for you to evaluate your order-to-cash processes. RecVue’s unified platform integrates with any CRM, ERP and front-end order processing systems, enabling customers to improve efficiencies across order-to-cash, revenue and general accounting, while gaining real-time access to data. Finance groups are able to increase accuracy and timeliness of billing and invoicing and aggregate billing information in a single system to improve analysis and forecasting. RecVue’s monetization platform includes a 360-degree view into the entire contract lifecycle, rules-based attribute pricing, complete order-to-invoice capabilities, pay-side management for third party obligations, and robust analytics and reporting.

RecVue is the only order-to-cash automation platform powered by big data that is designed for high-volume recurring revenue models. RecVue’s solution helps enterprises manage their innovative business models and empower them with complete control over all aspects of their recurring revenue contracts at scale, while still maintaining flexibility for monetization innovation. The result is increased revenue growth, faster time to market and total visibility into all revenue streams.

Reach out to us today for an order-to-cash and recurring revenue assessment and let us show you how smart monetization can transform your business growth.