How IT teams can stand out from the crowd without complicating their product stack

By John Phillips, General Manager at Zuora.

  • 1 year ago Posted in

Given the events of the past two years, digital transformation is no longer a choice for businesses; it’s essential. The technology sector is evolving at a rapid pace, and organisations that don’t adapt will get left behind – unlikely to survive, let alone compete.

Behind every customer experience initiative, every operational improvement and every employee strategy will be a new layer of technology. Alongside this rapid growth, however, is a whole new set of challenges for IT leaders. Each time an organisation makes an upmarket motion, an expansion into an international market, a merger or an acquisition, a pricing or packing change, it is a struggle to re-architect systems that are neither scalable nor agile enough to keep up with the rate of growth their business is trying to achieve. If a business can’t grow, then its performance and profit potential will be limited, ultimately, placing its long-term survival in jeopardy.

Eat, sleep, subscribe, repeat

For decades, many companies have operated under the same traditional business model. Customers buy their products, which are built to last, and may or may not replace them later down the line. But a growing number of businesses have begun to shift their way of thinking and their primary method of operating, which accelerated even more during the pandemic. 

As a result, recurring business models such as subscription services have been rapidly increasing in popularity. In fact, Zuora’s latest Subscription Economy Index found that subscription businesses have grown 4.6x faster than the S&P 500 in the last decade. Looking forward, we can expect to see this growth snowball, as Gartner has predicted that by 2023, three quarters of organisations that sell direct to consumers will offer some type of subscription service.

This projected growth is hardly surprising given the difference in cost and success rate of acquiring new vs retaining existing customers. For context, acquiring a new customer can cost five times more than retaining an existing customer. Additionally, the success rate of selling to a customer you already have is 60 to 70%, while the success rate of selling to a new customer is 5 to 20%.

The subscription service model also demonstrated considerable and somewhat surprising success throughout the worst of the pandemic. Despite UK households reducing their spending by an average of £109.10 (or 19%) a week during this period, subscription services still grew, proving to be resilient even throughout tough economic uncertainty. Zuora data found that the average percentage of revenue from existing subscribers has increased over the last few years, with an average 70% of revenue coming from upsells, cross-sells, and renewals.

Switching their focus from the Product Economy to the Subscription Economy means that organisations can re-evaluate their priorities and their approach to sales. While in the Product Economy revenue and profits depend entirely on the number of sales made, the Subscription Economy is based around building and maintaining ongoing customer relationships. Seeking additional and renewed revenue from existing customers is far less time consuming than chasing new revenue. With this in mind, organisations are able to focus their resources on new ventures.

In practice, adopting a new recurring revenue model requires a new system that will support an evolving growth strategy. Businesses will need to invest in an enterprise-grade solution that allows for configurability, scalability, orchestration, and automation throughout the entire process.

Looking to the future

The last two years have demonstrated how unpredictable the business landscape is. To survive, organisations must be willing to rapidly adapt to its changing geography. A move to the Subscription Economy is a great example of this. Though it may appear to be drastic– given organisations have likely been operating with the same purchasing model for generations – it could be the key to future-proofing.

Such a move will only be successful if the organisations are able to invest in and implement the correct tools and technology to transform their existing IT infrastructure. The new system will need to be robust enough to support any and all future growth initiatives. This could involve anything from recurring revenue or one-time purchases to usage or consumption pricing. It must contain a tech stack which is flexible enough to rapidly monetise on the new offerings.

As with any digital transformation initiative, organisations need to implement a scalable solution that will support any future growth or customisation requirements. The last thing businesses need is ripping and replacing their technology within a year, just to keep up with their evolving needs. Given the plethora of different solutions available, investing in the best one for your business might seem like a daunting task. But it doesn’t need to be, especially given that the benefits of adopting such a solution will far outweigh any difficulties in implementation.

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