Using marketing to create meaningful product differentiation separates you from competitors and allows you to command price premiums. For SaaS and MSPs, one differentiation strategy should be the elimination of bad discounts. Discounts should never lead to a loss of margin. Instead, discounts should reward customers for activities that improve their value as a customer – either by reducing your costs or improving demand.
As a first step, evaluate and build systems that reward customers based on desired behaviors.
- Not getting paid on time? Equate prompt payment with a discount that reduces your aging.
- Have customers that are time consuming? Provide a discount for ordering online.
- Have customers that are not properly utilizing their software? What about discounts that kick in once certain adoption milestones are achieved?
With win win discounts in hand, sales is then equipped to suggest discounts from a menu. The customer can then select the discounts that are in their best interest. It is important to properly understand how discounts incentivize certain behaviors and how those discounts are enforced. For example, should volume discounts be granted before certain sales volumes are achieved or are they paid back as credits once the customer hits the appropriate milestones? Enforcing performance milestones can be a technical challenge without the proper billing system.
The challenges of win win pricing
Any activity that is measureable is also monetizeable. Win win pricing requires a complex array of interrelated processes that must be managed: everything from the initial contact with a customer, to the placement of an order, to the provisioning and activation of a service, to the billing and payment, and then beyond to the capabilities that keep the customers hooked over time with new activities.
Managing the recurring customer relationship includes two critical subscription processes not normally available in off-the-shelf ERP, CRM or GL applications: the Order-To-Cash process where the relationship with the customer is established; and the Activity-To-Cash™ process where the relationship is expanded according to the consumer’s behaviors and preferences over time.
Nurturing the relationship requires that multiple pre-billing processes and complex functions such as Event Handling and Rating be in place for controlling usage and activities. That control comes through the assignment and enforcement of entitlements, which help to authorize and authenticate whether a person is who he says, and whether he should have access to the services he’s requesting.
That means the billing platform must know what a customer has purchased and where he is in the consumption of his subscribed services, and whether actions should be taken, such as advice-of-charge, balance checks, updates of allowances or reversal of events, suspension of accounts, and application of late payment fees and penalties.
For organizations that want to capitalize on the natural evolution of consumption, win-win pricing should include a mechanism for accommodating, and even evolving the subscription relationship.
Activity-based subscriptions can create sustainable relationships and prevent the loss of customers that might otherwise not be able to, or want to, make one-time purchases. The goal of activity-based pricing is to stimulate more consumption with price levers that accommodate changes in circumstances, usage and preferences.
The ability to add and manage consumption – or activity-based price levers to a product mix – gives a company a powerful tool for growing its customer base (recurring revenue) and maximizing lifetime value of the customer (reducing churn).
The win win
When you adopt win-win pricing, you map your prices to what the customer is willing to pay. At the same time, your customer benefit from discounts that are aligned with their needs – which improves win-win behavior. Last, you only pay out discounts that reduce your cost or improve customer performance.
Previously, Avanquest’s VCOM division used a collection of homegrown systems to manage the sale, renewal, and tracking of licenses. With their aggressive growth plans, the VCOM division needed a centralized automated billing system that would scale with growth. After considering several billing solution providers, the VCOM division awarded Transverse the billing business and began the implementation process.
“The TRACT Billing platform is extremely flexible and sophisticated, allowing us to manage billing and licenses, as well as run reports that help us to better understand our business, understand our customers, and grow our revenue,” said Kevin Bromber, Executive Vice President and General Manager of VCOM, the SaaS division of Avanquest Software. <READ MORE>
Research consultancy Software Advice recently released the results of a five month-long investigation into which channels, content and offers business-to-business marketers find most successful.
The project called the “2012 B2B Demand Generation Benchmark Survey” asked 156 professional marketers which channels are most productive for producing a high quantity of leads, and which produce the highest quality prospects.
The poll also asked similar questions about content and offers, such as live demos, free trials, webinars, videos and more. Finally, the group was surveyed about their spending priorities next year and how that might change from 2012.
Overall, digital channels – particularly those related to search – dominated the results. Email marketing to a house list was the most popular channel and voted most as producing quality and quantity of leads. Oddly, social media was among the most popular and a top spending priority next year, despite receiving low marks for quality and volume.
Marketing Automation Adoption Survey
If you are evaluating marketing automation platforms, take some time to complete the marketing automation adoption survey at Macon Raine.
The survey is designed to identify and track marketing automation adoption trends and provide guidance to firms contemplating a marketing automation purchase.
The survey asks questions about barriers to marketing automation adoption including:
- Cost of the marketing automation platform
- Integration of the marketing automation platform with other systems such as CRM
- Lack of experience with marketing automation platforms
- Internal politics – people were not convinced we needed marketing automation
- Articulating the marketing / sales handoff to the sales team or other leadership
- Other priorities got in the way
- Change management and changing the behavior of the marketing department or the sales organization
- Demonstrating marketing automation ROI
In a few weeks, we’re getting ready to launch a new service called CleanMyCRM. We started the service at the request of customers who needed a smarter way to research incomplete contact records. They told us append services are expensive and they were looking for ways to clean smaller batches (1000 records).
The cost of dirty data is huge. Factor in the cost of bounced emails, returned direct mail, wasted time, salaries paid to sales people who are calling people that don’t exist in that role anymore.
Our service is simple – human researchers that manually maintain your database so that your sales and marketing teams have a edge in their next campaign. Human researchers to manually review, research and update incomplete contact records. Thanks to the power of technology to streamline our workflow, we can research 1000 records for only $400.
We’ve always preached that clean CRM is a journey – not a destination. It is an ongoing process. Cliff Langston likens cleaning the CRM to painting the Golden Gate bridge. “What do you do when you are done? Start over at the beginning.”
Getting started cleaning your CRM is not really that difficult. You can reduce your stale data and your data cleaning costs by following a few simple steps:
1) Someone should own the project. Your CRM administrator, your marketing manager, your sales admin. It doesn’t matter who owns it as long as someone owns it and is measured and evaluated based on the completeness and accuracy of the database.
2) Prevent bad data at the source. When you standardize data entry formats and enforce completion of critical fields, you eliminate a large part of the problem before it even begins.
3) Link customer self-service features to your CRM data. When customers maintain their contact information for you, you capture better data and maintain better data with little cost.
4) Use third parties to validate your data a couple of times a year. A regular schedule of data validation and augmentation prevents data from getting stale.
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.