First some background before I ask the question…
In my work for tractbilling.com, I’m trying to understand which metrics are used to measure the success of activity-based billing models. If anyone out there has any insight, feel free to add your comments…
Activity-based billing is the process of measuring activities, aggregating them, applying utilization and other fees, generating invoices and receiving and recording payments. Activities are anything you can measure. Activities can include:
- the download of a song, wallpaper, movie, book, image or other piece of content;
- the launch of a streaming connection for music or a movie; or access to a digital version of an article;
- creation of an object in a SaaS application, e.g. a new project in a program; management application, an expense report, a time-sheet;
- the scan of a QR or bar-code; or redemption of a coupon;
- SMS messages, miles, points, credits, calories, gallons, distance, tokens, speed, or temperature;
Activities are anything you can measure or imagine. To monetize customer activities businesses have to break activities into measurable components that can be rated, metered and charged. The more activities that engage your customer, and the better the incentives for increased consumption, the more likely they are to remain loyal.
Now the question…
Because activities can be so varied, it is generally difficult to arrive at a common measurement metric. Simple subscription business models use ARPU (average revenue per user) as a key metric. But does ARPU work in a subscription+activity business? My gut says…sometimes. And when it does, it is important to break down the components and precisely define how they are added to the ARPU mix.
For example, in an activity model you may measure one or all of the following: DLL usage, storage, bandwidth, access cycles, transactions, real and near real time, usage, account numbers, duration or more.
How do you translate DLL usage in an application into an ARPU? And once you do, how do you demonstrate the measure makes any sense. MRR (monthly recurring revenue) is applicable if you can derive an accepted metric for the activity/transaction “unit” of measurement.
What do you think?
It is up to you and your business to think through the nuances of your business model, your activity-based revenue and your subscription revenue to define rules for properly measuring and managing your business.
Car2Go is a car sharing service that lets me skip the hassles of car ownership or conventional car rental. I paid a one time membership fee and — BOOM – I can reserve a car ahead of time, or simply find one via an iPhone app. When I’m done, I just park the car back within the operating area and the car2go Austin service team takes care refueling, cleaning and everything else.
So what is the difference between a car rental service like Enterprise or Avis and Car2Go? The difference between the two companies is not access to a rental vehicle. Instead, Car2Go competes on a range of value-added digital services that are more important than the car itself.
Car2Go provides a range of digital services that make renting the car for an hour more convenient than using a car rental company. These services include the ability to reserve a vehicle from any device, the ability to find a car in my neighborhood, a member card that unlocks the car and activates service, a geolocation function that makes finding a car easy (and charging you extra if you leave the geofence).
The value-added service, not the car, is the real product.
A the critical enabler of that product is billing. The value proposition of billing has changed from the simple delivery of an invoice to a function that measures time, miles and other customer activities.
In other words, Car2Go is using Billing as a strategic asset for building new, dynamic business models that meter, rank and store value AND as a means to disrupt markets and dramatically increase ARPU (average revenue per user). These types of car rental business models will disrupt business as usual. They also mean I don’t need to wait in line at the airport for a car rental.
Yuri Aguiar, CIO of Ogilvy Worldwide, stated that the time has come to focus on what business users need to get out of technology now that the computing power and the networking services are becoming more and more like a dial tone in their reliability and predictability.
That means increasing business performance is no longer about increasing efficiency (you’ve already streamlined everything there is to streamline). All processes and workflows and systems of record have already been optimized.
The next step is innovation. It’s time to dig into event and usage information to understand customers’ preferences and circumstances, and the ways in which they consume and wish to consume in terms of devices, services, payment methods, and on-demand capabilities. From there, new value-added services can be created that may become more important to your business than the products they support.
Building a formal process for content development is difficult for many small organizations, especially when one of the founders is the expert. Since the expert is also responsible for running the company, there is very little time left to develop content or give the content development process the time it deserves.
This creates a challenge. If the expert is the bottleneck, how do you tell your story and maintain the necessary flow of useful content?
To solve this problem, it sometimes helps to democratize the content development process. For example, allowing customer service reps to document and publish answers to commonly asked questions. This content can then be formalized and repurposed by content development specialists. It sounds simple, but it works. With a great editor, great content can come from anyone – CSRs, sales, tech support, development, even customers.
There’s a crowdsourcing idea that says that no matter how smart your employees, there are always people with equally good (or better) ideas and experience.
Use that experience to your advantage.
Customers and prospects produce documents such as comparative spreadsheets, RFPs or RFIs that can be easily repurposed and sterilized. When done properly, these repurposed documents can be very useful to other prospects. Offering a RFP template on your website is a great way to identify prospects thinking about writing a RFP. Likewise, a comparative spreadsheet is extremely valuable to prospects that are comparing vendors.
Learning how to tap the native knowledge in your organization can do more to speed content development than any other method. While your subject matter experts should still be used to validate content, democratizing content development is an efficient and low cost way to eliminate bottlenecks and increase project tempo.
Macon Raine hosts the Chicago Suburban Salesforce.com user group every other month. If you are using Salesforce.com, this is a fantastic and no-cost forum to learn from great speakers. Here’s the schedule through the rest of the year below. Location and speakers still TBD.
- 5/17/2012 7:30 – 9 am Implementing and Using SFDC Chatter strategically within your organization
- 7/19/2012 7:30 – 9 am SFDC Success and Implementation; Incentivizing Staff to use SFDC
- 10/4/2012 7:30 – 9 am DreamForce Overview, Key Insights, Presentations
- 11/15/2012 7:30 – 9 am Topic TBD
I use email. A lot.
So when I received an invitation to try a new product called Contactually, I was intrigued. The promise of Contactually is simple – it alerts you when you don’t follow-up on email or when email goes too long without a response.
Contactually is hard to define. It’s not exactly CRM and it’s not exactly an email client. It’s an overlay that let’s you organize your contacts into buckets (prospects, customers, vendors, etc.). Rules are then applied to each contact and each bucket of contacts. For example, a bucket can be assigned a regular 10 day follow-up schedule. You set the frequency of follow-up and Contactually reminds you when a contact falls through the cracks.
Since I do a lot of selling and communicating via email, I deal with quite a few activities and tasks all from the comfort of Gmail.
Keeping track of everything is a full time job and I’m constantly surfing Lifehacker.com and other websites looking for the holy grail of productivity apps. Is Contactually the solution to all my problems? Nope. But what I really like about Contactually is pretty simple. I like getting reminders when I forget to do things. By itself, that benefit is worth the price of admission at $15/month.
If you want to try the beta, use this link: http://www.contactually.com/invite/maconraine
A year or so ago, we built a lightweight marketing measurement dashboard called www.marketingreportcard.com.
The idea behind the website was simple: to reduce marketing and sales costs, it is important that you improve the way you manage your marketing projects. At the risk of repeating myself, why do marketing projects fail?
- Poor definition of project goals, role of marketing
- Overly complicated marketing objectives
- Marketing objectives not clearly defined and difficult or impossible to measure results
- Little-to-no accountability for results
- Not enough momentum
With these failure points in mind we build a lightweight marketing dashboard – nothing special. The only claim to fame for www.marketingreportcard.com is that it forces you to define why you are doing something and then measuring the results.
The problem? No one is really using the website except me. So what do you think? Take a look at it and let me know if I should invest more to improve the usability or just kill it?
This simple quote and this simple concept requires that we rethink what the basic concept of billing means to an organization.
When we evolve basic billing concepts from simple order to cash processes and being supporting activity to cash process, even simple products – like paper cups – create opportunities for innovation and new sources of revenue.
Hugo’s book uses the concept of the “Value Added Paper Cup” to illustrate the many ways that simple products can spin off new sources of activity-based revenue. It started when Hugos was CIO of a food-service disposables company. Commodity food-service disposables don’t have great profit margins, and, according to Hugos, “it gets lower every year.”
Hugos was given the task of using information technology to make his products more useful and more valuable to his customers. From that basic objective, his IT department built a program of dozens of value-adding services that could be added to every order by the sales team.
One of the enablers of the Value Added Paper Cup strategy was billing. Hugos distinguished between the actual item or service (the paper cup) and the information component.
The paper cup is easily copied, is a commodity and has a very low profit margin.
The information component helps customers use it more efficiently, is customized to each custom and generates much higher profit margins. Sample activity-based information services that increased the profit margin of every paper cup sold included online ordering, customization of labels to expedite a customer’s inventory process, custom invoicing formats, injection of GL codes into invoice line items and even an online dashboard that displayed a customer’s order history, usage patterns and purchasing trends.
Updated presentations on subscription billing, SaaS billing and activity-based billing business models for SaaS, ISV and cloud operators
Just posted a couple of new slide decks on SlideShare for www.tractbilling.com.
1) For a presentation delivered at SaaSUniversity.com, there is a new deck called “Overcoming the Challenges of Implementing Activity-Based (usage, transaction billing) for ISVs, MSPs and SaaS Operators.”
2) Another presentation yet to be delivered that dives into the critical process flows necessary to implement activity-based billing, especially bridging the gap between CRM and ERP. Content is most relevant for ISVs and SaaS operators. Deck is titled: Understanding the Critical Processes in Subscription+Activity-Based Business Models.
3) A deck delivered by Chris Couch, COO of Transverse with Susan McNeice about billing as a critical marketing touch point and using subscription and activity-based billing to build better relationships with customers.
4) Fantastic review of TRACT by Ben Kepes: http://www.diversity.net.nz/
6) New article on SoftwareCEO.com titled “Does activity-based billing create un-needed complexity?
If you have any questions, drop me a line.