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Your guide to moving to a usage-based business model - Let's get under the hood of usage-based pricing - Salesforce ...
Your guide to moving
to a usage-based
business model
Let’s get under the hood
of usage-based pricing
Your guide to moving to a usage-based business model - Let's get under the hood of usage-based pricing - Salesforce ...
Welcome to        Customers don’t want to own anymore –              By selling outcomes and not ownership, you

the usage-based   they want to use.                                  let customers pay for the value they need.
                                                                     Which is good for your customers – and

economy.          And that’s in all parts of their lives: how they
                  use software at work, how they listen to music,
                                                                     excellent for you: users grow, but usage scales.

                  even how they drive cars.                          A usage-based business model ensures               Usage-based SaaS businesses are
                                                                     your offering and operations can respond           valued substantially higher: a 21.6x
                  It goes for businesses too. Organizations don’t    dynamically to changes in the market and           revenue multiple compared to 14.4x.1
                  necessarily want to own all the equipment and      changes in customer use. So you can grow
                  infrastructure they need to run. They want to      your revenue, adapt to the ebb and flow of         1. The Usage-Based Pricing Playbook, OpenView, January 2021.

                  be offered the service instead.                    demand, and explore new opportunities.

                                                                     Plus, usage-based businesses are often
                                                                     valued higher, because they can demonstrate
                                                                     their products are actually used.

Trend
The

                                                                                                                                                                                        2
Your guide to moving to a usage-based business model - Let's get under the hood of usage-based pricing - Salesforce ...
But all this     There’s a lot to do: setting an initial strategy   This guide zooms in on one of the trickier

is easier said   and pricing, creating a go-to-market strategy,
                 and updating finance and operations.
                                                                    parts of monetizing usage-based business
                                                                    models: how to handle the usage data that

than done.       You’ll need to figure out all sorts of things –
                                                                    generates your revenue.

                 like which usage-based metric to use, your         We’ve spoken to a bunch of people who’ve
                 subscription or pricing model, how to process      spent their careers solving this problem.
                 data about usage, and how to evolve your           And we’ve compiled all their hard-won advice
                 usage-based services as you grow.                  and experience into this guide.

                                                                    Ready?

Journey
The

                                                                                                                   3
Your guide to moving to a usage-based business model - Let's get under the hood of usage-based pricing - Salesforce ...
Contents

01                     04
How to define          Build, buy,
usage.                 or integrate?

02                     05
Turning usage          Your best bet is a
into revenue.          Usage Data Platform.

03                     06
The foundations of     Your questions,
solving the problem.   answered.
                                              4
Chapter 01

How to

                01
define usage.
B2B2X and the
Chapter 01
                                                                                                                                                                                   partner ecosystem
                                                                                                                                                                                   Here B2B and B2C converge:
                                                                                                                                                                                   it’s B2B to any end user.
                                                                                                                                                    Shared bundles                 Partners team up to offer
                                                                                                                   Pre/post-paid                    Bundling combines several      innovative services and drive
                                                                                                                   Customers either purchase a      services or products into      new revenue.
                                                                                                                   service allowance in advance     a single package, usually
                                                                                                                   (pre-paid) or pay a bill based   at a reduced price.

How to
                                                                                                                   on the services they’ve
                                                 Subscription                     Pay-as-you-go                    consumed (post-paid).
                                                 Customers pay a recurring        Customers pay for what they

define usage.
                                                 fee at regular intervals         use, on a transaction basis.
                                                 (usually monthly or yearly) to
                                                 access a product or service.

                                                                                                                                                                                        Common usage-based
                                                                                                                                                                                        business models

Before you start making any changes,             No, instead you should look towards a hybrid              And then?                                                  Real-world example: VMware adds
you need to pick the right usage-based           model. This lets you offer a low subscription                                                                        a pay-as-you-go model
pricing model. And this involves a fair bit of   offer to lock in loyalty and establish that               It’s time to understand how that usage
experimentation: there’s a definite sweet        recurring revenue – while giving you the                  turns into revenue.                                        VMware is a global infrastructure
spot between “allowing for growth” and           freedom to achieve growth with additional                                                                            software provider and leader in
“ensuring the stability of recurring revenue”.   usage-based services on top.                                                                                         virtualization software. As the company
                                                                                                                                                                      transitioned to cloud-based services, it
A flat-rate subscription will box you in.        Once you’ve chosen the right model, you need                                                                         wanted to add subscription and pay-as-
Once you’ve scaled your number of users –        to choose the right metric to determine what                                                                         you-go business models. VMware chose
what next?                                       customers will pay. This needs to capture and                                                                        DigitalRoute’s Usage Data Platform
                                                 communicate your product or service’s value,                                                                         to capture and process cloud-related
                                                 while also being flexible, scalable, predictable,                                                                    usage events for billing purposes.
                                                 and feasible to monitor.

                                                                                                                                                                                                                   6
Chapter 02

Turning usage

                02
into revenue.
Chapter 02

                                                                                                                                             Hard-won tip:

Turning usage                                                                                                                                Don’t be fooled into thinking this is a
                                                                                                                                             case of simply lifting and shifting your

into revenue.                                                                                                                                product portfolio onto an all-you-can-
                                                                                                                                             eat subscription model.

First things first, there’s nothing simple       For a seriously scalable usage-based           All of this means that you need to           The worst-case scenario for usage-
about it. Even an all-you-can-eat model          business model, you need different             understand – in detail – how subscriptions   based billing: revenue leakage
requires understanding who your customers        levels of subscriptions. That way, you can     are used.
are, what they’re consuming and then             incrementally increase revenue as you                                                       The data that tells you about how people
transparently communicating that back            deliver more value to customers, allowing      With this level of complexity, it’s not      use your product is critical to your
to them. (All in real-time.)                     them to start small and grow with you.         uncommon to have tens of thousands of        revenue2. If you lose any of that data you
                                                                                                usage events per second hammering            lose revenue. In fact, you could lose 1-5%
More importantly though, this model doesn’t      But this is where it starts to get tricky.     your systems.                                of your revenue due to errors in data
scale. With all-you-can-eat services, you’re                                                                                                 processing.
basically saying that all of your services are   Think about it: you’ll have several            Not once or twice a day.
                                                                                                                                             2. https://www.ey.com/en_be/consulting/revenue-leakage--how-
free once someone subscribes. (Yeah, even        subscription types with varying service        Every. Second.                                   do-you-identify-revenue-leakages-in-your-co

new services.) Instead, you need to make sure    levels, and each with different costs and
you can charge for all the services you offer.   rules for service limits, then multiplied by
                                                 the number of customers.
And this is especially true for B2B
organizations.
                                                                                                                                                                                                             8
Not once or
twice a day.
Every.
Second.

               9
Chapter 02

Turning usage

                                                                                                                                                    Usage
into revenue.                                                                                                                                                         Revenue

These events help you understand usage and accurately
record revenue, and you need to respond to them in real time.

Which involves…

– Processing the data to compare it to the      At a minimum, this touches CRM (customers       This stack simply wasn’t made for usage-based          Real-world example: Dutch Railways
   subscriptions and packages customers          and contracts), CPQ (products), billing, EMS    billing and customer journey orchestration, with       offers mobility as a service
   have signed up for.                           (entitlements), and ERP (billable items for     their relentless, always-on cycle of collecting
                                                 revenue recognition and partner settlements).   data, categorizing it and taking action.               Dutch Railways is the largest passenger
- Using the data to measure your business                                                                                                              railway operator in the Netherlands.
   model’s performance.                          So that’s most of your quote-to-cash stack,     (Even if it wasn’t made that long ago.)                The company wanted to make it easy
                                                 then. (And when we say stack, we mean loose                                                            for customers to use multiple forms
– Triggering customer interactions to alert    confederation of systems not exactly famous                                                            of transportation, even from different
  them as they approach their usage limits, to   for playing well together.)                                                                            operators, and pay for them on a single
  upsell higher-value packages, and intervene                                                                                                           invoice. It deployed DigitalRoute’s
  to mitigate a poor experience.                                                                                                                        Usage Data Platform to capture and
                                                                                                                                                        process data about how passengers
- Figuring out how much each partner should                                                                                                            use the services.
  get paid (if you offer joint services).
                                                                                                                                                                                                  10
Chapter 03

The foundations

                  03
of solving the
problem.
Chapter 03

The foundations of
solving the problem.
Here’s what you don’t need: a new billing system.
(Not yet, anyway.)

We see it a lot.                                 Facing the data challenge first
                                                 will save a lot of pain.
Company X jumps in at the application layer,
eager to revamp their revenue systems.           That starts with figuring out what usage
The RFP goes out, the bids come in. If they’re   data you have and where it lives – which
lucky, one of those bids flags an overlooked     can be tricky. Enterprises today have data
and underappreciated problem – data –            in many disparate systems.
and the giant tender for the giant contract
delivering a giant system stops there.

If they’re not so lucky, they end up with a                                                   What’s usage data?
gleaming Rolls Royce of a system they can’t                                                   In its simplest form, usage data shows
drive because, while the engine is big, it’s                                                   you how your service or product is used.
underpowered. The data going in is outdated,
dirty, incomplete – or just the wrong sort.

                                                                                                                                          12
What’s                                     It tells you things like:

usage                                                           Who uses it?

data?
                                                                               How is it used?

                                                                                      When is it used?
                                           What is used?

                                                                                                 Where is it used?

Examples of usage data include:
                                                                                                                     How much is it used?
unlocking a shared bike, calling the
API of a cloud service, swiping a card
on public transport, clicking play on an                                                                                    How long is
online movie, a toll camera identifying                                                                                     it used for?
a license plate.

                                                                                                                                            13
Chapter 03

The foundations
of solving the
problem.

Once found, you need to ensure that data          Reckon it’s time to speak
is accurate and timely. Then you need to          to an expert?
integrate it with revenue and billing systems
to deliver one single, transparent invoice, and   Read on and you’ll find a few different
a simple overall experience for customers.        ways you can solve this problem, avoid
                                                  potential revenue leak, and succeed with
And this is a major point. In a usage-based       your new business model. But if you’d
model, billing becomes a fundamental part         rather speak to an expert first, we get it.
of your customer experience. Get it wrong
(and send inaccurate, outdated bills), and
you risk losing your customer’s trust –                Contact us here for a chat
and potentially their account.

                                                                                                14
Start with figuring
out what usage data
you have and where
it lives.

                      15
We don’t want to get technical,
but we think it’s important to know
what that looks like under the hood.

1
Data is taken from dozens of product
                                           3
                                           If it’s incomplete or potentially unsound,
                                                                                        5
                                                                                        And then – finally – your billing, auditing,
and service systems and normalized         then you need an automated way               marketing and BI systems register it as
so its format is consistent between        to go back and find what’s missing.          a revenue-generating event.
each system (and usable).                  (Any changes need to be auditable too).

2                                          4
                                                                                        Pretty tough, huh?

                                                                                        Most revenue systems aren’t built to
                                                                                        connect and monetize data in this way,
                                                                                        at this volume, or at this complexity.
That data is aggregated into the billing   Only once the data is complete can your      These traditional finance-led IT stacks
period, enriched with data from other      business logic be applied, by checking       can’t support launching new digital
systems, such as CRM (order data),         the usage record against customer            services, which are fast to market, highly
and then bound to the customer profile.    entitlements, for example.                   changeable, and super responsive.

                                                                                                                                       16
Chapter 03

The foundations of
solving the problem.

Instead, you need to add a                       With a platform like that, you can tighten up   To be clear, we’re not talking about application   Real-world example: Panasonic
brain to your billing system –                   your quote-to-cash stack to make it more        integration. This platform should work             Avionics automates its billing process
                                                 agile. You can also disentangle the arduous,    within your existing quote-to-cash process,
a single platform that:                          manual, error-prone workflows that everyone     connecting old, new, and not-yet-thought-of        Panasonic Avionics is a global leader
                                                 has (but few admit to), which are even less     IT infrastructure – without creating more silos.   in inflight connectivity. The company
– Mediates between systems.                      compatible with usage-based billing.                                                               was relying on manual processes to
– Normalizes their data output.                                                                                                                     collect data about how passengers used
– Solves for usage data management.             (We’ve seen it all, including a number of                                                          their services, which led to errors, lost
– Handles business logic in robust workflows.   Fortune 500 companies whose master                                                                 revenue and delayed billing. Now using
                                                 financial data records depended on a bunch                                                         DigitalRoute’s Usage Data Platform, the
                                                 of terrifying Excel spreadsheets.)                                                                 entire process is automated, there’s no
                                                                                                                                                    revenue leakage, and invoices get sent
                                                                                                                                                    in weeks rather than months.

                                                                                                                                                                                                17
In summary, life without a
usage data layer looks like:

1
Huge revenue leakage, as usage
                                         3
                                          uplicate systems (and middleware)
                                         D
events get lost or dropped by unstable   that drive high operational costs
or unconnected systems – or by           and create errors.
human error during manual processes.

2
Multiple billing processes and systems
                                         4
                                         Sluggish product launches and
                                                                               5
                                                                               Poor billing experiences.
that make it impossible to send real-    slow reactions to changes in
time, accurate invoices to customers.    the market.

                                                                                                           18
Chapter 04

Build, buy,

                04
or integrate?
Chapter 04

                                                                                                                                     Hard-won tip:
                                                                                                                                     Don’t forget to consider the cost of

Build, buy,
                                                                                                                                     delay that comes with using a generic
                                                                                                                                     integration platform or building your own
                                                                                                                                     system. Slower time-to-market, inflexible

or integrate?                                                                                                                        structures that can’t adapt to changing
                                                                                                                                     demand, and bad customer experiences
                                                                                                                                     are all a real risk.

There’s three main ways       Application integrations                          This is a many-to-many challenge. The vast        it’s vital to get it right. Customers need to trust
to capture, process, and                                                        majority of middleware is designed to connect     their bill, gain access to usage in real time, and
                              A traditional integration solution or             one source to another (or one source to many      see consistent amounts across systems.
monetize your usage data:     “middleware” is the first thing IT will want to   sources). But with usage data, you need to
                              explore. It’s not a bad shout: these solutions    connect many sources to many sources.             Ultimately, this data is intrinsically tied to your
1. Application integrations   are built by smart people at companies with                                                         revenue. So it can’t be left only to IT.
                              excellent track records for integrating           Achieving this with integrations means using a
2. DIY custom builds
                              complex systems.                                  significant amount of middleware. And with that
3. A purpose-built platform                                                     comes more complexity, more silos, and less
                              But they weren’t built for handling data that     efficiency. Your stack gets harder to maintain
                              leads to revenue.                                 and difficult to adapt.

                                                                                And in a usage-based business model, finance
                                                                                needs transparency into exactly what’s
                                                                                going on. As billing becomes an increasingly
                                                                                important part of your customer experience,

                                                                                                                                                                                        20
Chapter 04

Build, buy,
or integrate?

There’s three main ways       DIY custom builds                              It’s almost always messy work. You need to
to capture, process, and                                                     be able to iterate quickly without having to go
                              No approach offers quite as much control       back and fix everything you’ve already done
monetize your usage data:     over what the system looks like and what it    each time you want to make a change.
                              does as doing it yourself.
1. Application integrations                                                  Plus, you need to consider the costs.             Which brings us on
2. DIY custom builds          Unfortunately, that sense of control           Building your own system requires a dedicated     to purpose-built
                              evaporates once new requirements are           team that can continuously hack away at your
3. A purpose-built platform   added or the scale changes.                    data layer to keep up with changing demand
                                                                                                                               platforms…
                                                                             and needs.
                              These are complex, changeable workloads
                              and the applications handling them must
                              be seriously robust. (At the end of the day,
                              revenue depends on them.)

                                                                                                                                                    21
Chapter 05

Your best bet

                 05
is a Usage
Data Platform.
Chapter 05

Your best bet
is a Usage Data
                                                                                                It’s the
Platform.
                                                                                                turbocharger
We purpose built a Usage
Data Platform because,
                                                                                                for that
                                                                                                Rolls Royce
when it comes to revenue,                           Real-world example: Reliance Jio
you simply can’t wing it.                           offers new digital telecom services

Built specifically to solve the challenges          Reliance Jio is the largest mobile

                                                                                                we talked
enterprises face when adopting a usage-based        network operator in India and the
business model, it finds, collects, normalizes,     third largest mobile network
and corrects all of the data you need to generate   operator in the world. When the
revenue. By the time that data hits your            company launched its 4G digital
ERP systems, it’s reliable and ready to drive       telecommunications business, it chose

                                                                                                about earlier.
invoices, insights, and intuitive experiences.      DigitalRoute’s Usage Data Platform
                                                    to collect and process usage data in
It’s the turbocharger for that Rolls Royce          its billing stack. Today Reliance Jio has
we talked about earlier.                            more than 400 million subscribers.

                                                                                                                 23
With a Usage Data
Platform, you can:

 – Prevent revenue leakage by removing
    error-prone processes and speeding
    up billing cycles.

 – Accelerate your adoption of recurring
    revenue models.

 – Tap into new customer segments
    with new offerings.

 – Grow your revenue by charging for
    different levels of usage.

 – Provide accurate partner settlements
    to avoid disputes.

 – Communicate how a customer’s
    consumption is affecting their costs,
    in real-time.
                                            24
Chapter 05

Your best bet
is a Usage Data
Platform.

This is how it works, step by step:

– Data collection: Usage data is collected        – Aggregations and correlation: All the data       – Enable: Here, the data hits your revenue       – External systems: Rather than a one-way
   from any system (usually several, possibly         is combined and enriched to be matched              systems, driving the billing cycles and           flow of data, the platform can connect to
   hundreds).                                         with other data sources, such as a CRM              customer experiences that underpin                your other systems (like a CRM) and send
                                                      or CPQ system.                                      your usage-based transformation.                  data back to them.
– Normalization: Data is transformed into a
   consistent and usable format.                   – Usage binding: The usage data is bound           – Governance: The platform creates an
                                                      to an identity, user or asset (a critical step      auditable record for all the data processed,
– Data quality: Data is cleaned, and errors are      for usage-based models).                            so you can go back and see exactly
   identified and corrected so none is lost.                                                              what’s happened.
                                                   – Business logic: Now the data is
                                                      processed against customer contracts
                                                      and entitlements.
The four principles behind
the Usage Data Platform

Adaptive 1                                                      2
Agnostic
                             It adapts to any future thanks     It’s technology agnostic,
                             to its low-code configurability,   keeping the peace
                             built-in data integration          between systems.
                             catalogs, and widely tested
                             system interoperability.

Accurate 3                                                      4
Automatic
                             It’s accurate for every            It automates quote-to-
                             moment of usage, so you can        cash workflows at scale.
                             monetize your data correctly
                             and with full transparency for
                             your customers.
                                                                                            26
Conclusion

Your questions,

                  06
answered.
Conclusion

Your questions,
answered.

When customer satisfaction and revenues        (Plus, our platform has been battle proven
are at stake, your platform’s automation       in the most demanding environments.)
engine, data algorithms and logic engines
must be reliable, robust and stress-tested     If you’ve got something specific in mind
in the real world.                             that you want to talk about, or you want to
                                               hear more about how our platform could
Sometimes it’s hard to know where to start.    help your organization, then get in touch.
We can help you identify the right business
model for you and your organization: we’ve
seen it all when it comes to usage-based              Contact our experts
billing, and have been here since the start.

                                                                                             28
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