Migrating to Subscription Pricing? - Transformational tips to help CFOs succeed
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Migrating to Subscription Pricing? Transformational tips to help CFOs succeed
CFOs are leading CX transformation with
bold moves to subscriptions
Business innovation cycles across all But with this move comes the risk of
industries have moved into hyperdrive. complicating and inaccurately reporting
In the next decade, more businesses company financials. Therefore, the
will move to subscription models to migration to/addition of a subscription
stabilize/extend company revenue pricing model has to balance the needs
streams, meet customer demand, and of financial discipline and strategic
solidify stronger competitive positions. flexibility.
These subscription models will put you
and your finance team front-and-
center in business and customer
experience (CX) transformation.
The end of ownership—the benefits
Your role of CFO is typically responsible
for leading business transformation;
therefore, you recognize the countless
advantages of subscription models.
Subscriptions mark the end of
ownership—for both sellers and buyers.
A subscription agreement is the first step
to building a recurring customer
relationship—one that is mutually
beneficial to both parties. Rather than
transferring ownership rights to the
buyer upon sale, subscription models
grant buyers the right to access
products, services, or experiences.
1 Migrating to Subscription Pricing? Transformational Tips to Help CFOs Succeed
The advantages of subscription models
for buyers and sellers
• Buyers can spread costs and payments over time rather than shell
out large upfront cash payments.
• There are new metrics for business success—customer
satisfaction and retention. Lowering subscriber churn becomes a
larger focus, and chasing new business is emphasized less.
• Subscriptions provide new opportunities for ongoing upselling
and cross-selling to increase share of wallet within the existing
customer base.
• Revenue and cash flow become more predictable, and the cost-
of-goods-sold (COGS) is spread out over time. Financial planning
and reporting become easier.
• More asset-light firms become possible because businesses hold
fewer fixed and intangible assets on their balance sheets, which
manifests in higher return-on-asset ratios.
5 REASONS TO EMBRACE SUBSCRIPTION PRICING MODELS
Subscriptions provide better entry-
level pricing and the ability to add
features as customers mature and
gain value from the initial experience
Source: Smarter With Gartner, May 2018.
2 Migrating to Subscription Pricing? Transformational Tips to Help CFOs Succeed
Subscription model challenges
require head-to-toe change
The challenge in shifting to a system, since it’s now necessary to
subscription model is the disruption that support recurring revenue models and
can occur in a variety of areas, from real-time, flexible billing. As businesses
culture to sales to technology to finance. transition to a recurring revenue model,
many CFOs decide to utilize their
Culturally, the successful management of existing CRM and ERP systems. Issues
subscription renewal cycles requires as arise because, at their core, ERP systems
much attention and investment as new were designed to support traditional
sales. Suddenly, non-revenue generating pricing models and don’t have the
functions are customer facing. revenue management component to
Marketing, sales, service, and finance are manage the complexity and dynamic
collaboratively and intimately involved nature of modern subscription models
throughout the customer lifecycle. and the customer-facing aspects of the
Go-to-market and sales approaches also revenue lifecycle like billing, renewals, or
change. Sales and marketing incentive changes. This lack of integration and
schemes move the focus away from functionality puts pressure on the ERP
closing new business to developing long- system to be the single source of
term customer relationships. Product financial truth and the backbone of sales
development becomes a series of and financial reporting. Additionally, the
ongoing improvements and is laser- lack of integration between ERP and
focused on customer satisfaction. CRM at critical points in the reporting
pipeline result in data inaccuracies,
Overcoming these challenges requires accurate forecasting, revenue leakage,
the full integration of a finance system and the improper recording of revenue.
with the right revenue management
5 CHANGES RECURRING REVENUE MODELS BRING TO A BUSINESS
3 Migrating to Subscription Pricing? Transformational Tips to Help CFOs Succeed
To get around this challenge, most CFOs Understandably, most CFOs are nervous
end up inserting manual processes and at the prospect of moving reporting and
purchasing external systems to support revenue recognition out of the ERP
subscription billing and management general ledger. But when it comes to
and spread out revenue recognition subscription pricing, many feel they
across multiple periods. At this point, have little choice but to endure the
data siloes have formed. difficulties and headaches.
But, over the long-run, none of these So why the massive headaches?
workarounds completely solve the Because recording and managing
financial reporting requirements of a revenue outside ERP means that
more dynamic and agile subscription invoices are passed as a single,
business. The lack of integration leaves collapsed line item with no detail.
many CFOs feeling that their only option Finance teams cannot see the granular
is to custom build a layer onto their details of the invoices. For example, a
legacy ERP to manage and record $10,000 complex order from ACME
revenue. Going outside the ERP Corp. that contains a mix of assets like
obscures visibility into the success of the hardware, maintenance, service
subscription business in terms of guarantees, etc. would pass from an
reporting and tracking. external system as just $10,000 from
ACME—with no detail on what ACME
ordered or now owns.
And when the finance team later Without a clear and detailed line-level
wants to run reports on what view of the metrics needed to track
customers own and where revenues progress within a subscription model,
originated? Bundling, reporting, and CFOs will struggle to effectively
accurately recording revenue on manage the transition period from
complicated bill of materials becomes traditional pricing models to future
impossible. If finance cannot see the subscription pricing or support mixed-
invoice details at a granular, line-item mode pricing models.
level, the team cannot report against
the individual components of the
order or understand the customer’s Read the SmarterCX article for
full history. More importantly, tips on how to best measure
recognizing and reporting revenue the success of your
outside of core ERP/finance systems subscription business model.
open new compliance nightmares with (HINT: all points to data)
ASC 6060 and IFRS 15 compliance.
KEY FINANCIAL CHALLENGES WHEN TRANSITIONING TO SUBSCRIPTION MODEL
5 Migrating to Subscription Pricing? Transformational Tips to Help CFOs Succeed
ERP: the reporting backbone of
omnichannel subscription sales
There are no quick fixes and long-term, So what to do? How can CFOs avoid
seamless workarounds when making company financials complex
implementing and supporting and cumbersome when moving to a
subscription pricing models. Clear views subscription model? How can they
of financials are needed to comply with maintain their general ledger and get
the financial tracking regulations that line-level detail into the core ERP
required by investors. With an additional so it can be utilized in other customer-
system—separate from the main ledger facing functions like sales, marketing,
—this becomes problematic quickly. and customer success?
ERP was designed to serve as the one
vetted, trusted source of data used
across the business from marketing,
sales, finance, and customer success.
5 STEPS TO TAKE WHEN MIGRATING/ADDING SUBSCRIPTION PRICING MODEL
Learn more on how subscription
management impacts CFOs' day-to-
day. We'll give you three hints:
1. ERP and revenue recognition.
2. New value models.
3. New levels of complexity.
6 Migrating to Subscription Pricing? Transformational Tips to Help CFOs Succeed
Oracle’s solution to subscription Oracle’s fully integration subscription
management tightly integrates our front management/ERP/revenue
office customer experience applications management solution gives CFOs a
with the ERP’s critical back-office data. clear picture of their subscription
Oracle Subscription Management links business throughout the customer
all your order-to-revenue processes to: lifecycle and through all customer
touchpoints: sales, service, marketing,
• Automate recurring billing, and ecommerce. Business teams can
payments, and revenue processes select and price recurring products,
• Support thousands of customer set up contract and term duration,
touchpoints, pricing, delivery, and create coverage service and warranty
billing models for service plans, modify and quote
• Maintain revenue recognition in configurable subscriptions and mixed
your core ERP systems orders, and create recurring and
• Easily connect various applications consumption-based billing.
in your order-to-revenue
ecosystem with an API-first
approach
7 Migrating to Subscription Pricing? Transformational Tips to Help CFOs SucceedCONCLUSION
To maximize subscription revenue and, For keeping information across multiple
ultimately, long term financial growth, systems will make it impossible to
CFOs need to understand what financial manage mid-term cancellations and
levers optimize the value of goods and changes. CFOs should avoid putting
services in the same way they do in a subscription management in its own
traditional sales model. By understanding basket and tracking revenue outside of
churn and CLV, finance executives are core ERP.
better set to lead the business by
establishing the pricing and contract terms Rather than going for a quick fix and
that provide the most customer value in layering on outside subscription systems
the long run. Similarly, financial reports will and in an attempt to outpace the
need to encompass more than what’s competition, successful CFOs define the
closed this month (or quarter) and focus key metrics they will use to track progress
on the long view in terms of company toward a subscription business model
profitability and revenue health. and ruthlessly determine processes to
track these metrics continuously. Then
Taking the long view means avoiding the they focus on building the fully integrated
temptation to ramp up manual processes system—with the right functionality—to
for tracking and monitoring the evolution get the job done, at scale.
and health of the subscription business.
Learn more
Go to oracle.com/subscription-management
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