How the Subscription Economy Is Changing the Sales Process
Part 3 of 3
In the first blog post of this series, The Subscription Economy: What It Is and How It’s Changing The Way People Buy, we asked Zuora’s VP of Worldwide Sales Strategy and Execution, Dave Frechette, to introduce the concept of The Subscription Economy - the move from traditional pay-per-product/service models to subscription-based Software as a Service (SaaS) models.
In the second post, How the Subscription Economy is Driving a New Kind of Business Model, we pulled notes from our conversation with Dave to highlight four essential areas of business operations that are changing in response to the Subscription Economy.
In this third and final post of the series, we’ll discuss one of the most important changes brought about by the shift toward subscription-based businesses – How subscription-based sales models are driving changes to the sales process.
If Customers Buy Differently, We Need To Sell Differently
A customer who has moved to a subscription-based model of consumption has completely different expectations about how companies are going interact with them.
How you market to them, how you sell to them, how you bill them, how you nurture the relationship – it’s all affected by the Subscription Economy. The customer’s idea of value has changed. And, if the customer’s idea of value has changed, your value proposition should be aligned accordingly.
A shift in your sales process to support new customer value requirements includes making sure your company’s “currency of value” can be shared and demonstrated at every level in your organization. The Value Messaging Framework you create for your sales organization drives more than just a sales conversation, it now provides the basis for company-focused business development, delivery and customer nurturing conversations.
The subscription-based sales process relies less on the closing of a sale and more on the nurturing of a long-term relationship to create lifetime customer value.
The new sales process requires high-value interactions and messaging at every customer touch point – whether customer acquisition, increasing value to existing customers or reducing customer churn.
1. Acquiring New Customers
One of the critical components of selling in the subscription economy is aligning your organization's sales process with your customer’s buying process.
One of your most important goals will be to achieve “one voice” to the customer, harmonizing and aligning every touch point throughout the customer journey.
Success at this level requires a unified front to the customer through alignment of both sales and marketing materials. If done correctly, this unification ultimately creates an uplift in customer loyalty, as being aligned internally helps support being aligned around your customer.
For true alignment, your messaging should focus on three broad categories:
- Value Comprehension - Your company’s ability to identify and respond to trends in the market.
- Value Offering - Your company’s ability to translate an understanding of market and customer trends into world-class product and service offerings.
- Value Engagement - Your company’s ability to articulate value and differentiation at key “moments of truth” and deliver on your promises throughout the customer lifecycle.
2. Increasing Customer Value
In order to increase the value of an existing customer, you first need to know the baseline value of each customer.
Customer Acquisition Costs (CAC) are an incredibly important metric in the Subscription Economy. You start by knowing how much it costs your company to acquire each new customer. From there, you determine how long that customer needs to remain a customer in order to regain your initial costs.
Once you’ve reached your “break even” point, your job is to continue to find ways to provide value to that customer. Increasing the amount of time a customer stays with you, or the Customer Lifetime Value (CLV), greatly impacts your company’s overall profitability.
With subscription-based services, you often have the ability to interface with your customers both horizontally (across many devices) and vertically (across many interactions/logins). These key “moments of truth” should be your focal points for providing and leveraging value through:
- Increased usage of your product
- Increased reliance on your product
- Increased loyalty to your product
3. Decreasing Customer Churn
Stickiness - a successful company’s favorite word. In the Subscription Economy, stickiness is as important, if not more so, than in a traditional sales model. If you can get your customers consistently using your solution and can reiterate the value of your solution, then they're less likely to churn.
In The Economist's Intelligence Unit Report, commissioned by Zuora, the results showed that once people move to a subscription-based model, they're far less likely to revert back to their old relationship model. Today’s B2B buyers are beginning to adopt the “I have to have it” mentality seen in today’s B2C marketplace.
What’s in it for the Customer?
Cool Stuff. Business Value. Easy Accessibility. Low Risk.
Today, many powerful business platforms are easily accessible. In many cases, business users can get a 30-day free trial by simply sharing their email address. That’s a pretty low-risk requirement for a business buyer to check out a platform that could save them time and money on the job, help them collaborate better with teammates or create some impressive charts or graphs to add value to their next business initiative.
If a product provides value for today’s B2B market, a “tryer” will become a “buyer” by utilizing the platform on a trial basis with a current work project or initiative. If your product successfully adds value to a current initiative, that value will become associated with your company and your products.
Many subscription economy companies base their sales strategy on ways they can acquire the masses. By design, their strategy is to continuously provide more “free access” to increase usage, embed information, establish value and build loyalty. If done well, at some point, users of your “freemium model” are going to want to collaborate on projects with others, share more information and have more security controls.
That’s when it happens. Your tryers officially become buyers. They raise their hands and cross the threshold into the world of a paying customer.
What’s In it for B2B?
Monthly Recurring Revenue. Lifetime Customer Value.
Bottom line - paying customers mean Monthly Recurring Revenue (MRR) for your company – MRR is a driving factor behind a company’s decision to join the Subscription Economy. It helps companies maintain profitability and make informed decisions about future operational initiatives.
In the Subscription Economy, sales process decisions are more likely to be focused on “buyer first,” versus the “product first" approach of traditional models. Internal conversations focus more on customer success metrics determined by changes in your Cost to Acquire Customers (CAC), changes in your Lifetime Value of a Customer (LCV) and your success rate in upselling a % of your accounts to a premium product or service model.
The Subscription Economy requires a very different way of looking at your sales process and your overall business model. The luxury of having more predictability in your business model comes with some caveats: (1) the responsibility of successfully navigating scores of customer interactions and (2) the inherent risk that each interaction will either strengthen or weaken your customer experience.
Transitioning to or enabling integration of a subscription-based sales model will fundamentally change the way you operate your business. It will also affect many key functional areas of the organization.
- The Sales Organization: This effect happens because you’re changing the way you sell your products and services.
- The Finance Organization: This effect happens because you’re changing how you recognize revenue and how you predict profitability.
- The Information Technology Organization: This effect happens due to a radical shift from an SAP or Oracle life to an entirely different information ecosystem.
Despite the highly technical changes that need to be in place to make this sales model effective, the biggest barrier for most companies continues to be company-wide change management. An operational shift of this magnitude will require long-term change throughout your entire sales organization. True sales transformation and a plan to drive consistent adoption will be critical to your success. For more information on driving successful adoption and achieving true sales transformation, read Force Management’s eBook, Leading Sales Transformation – 5 Strategies to Successful Sales Adoption.
To learn more about the Subscription Economy, check out Zuora’s list of studies and eBooks here.
We’d like to thank Dave Frechette and Zuora for partnering with us to make these great posts possible.