Aria-DefinitiveGuide-ebook-2016

Introduction:
The Multi-Million Dollar Decision
COPENHAGEN 2009
It was a miserably cold, damp, and drizzly morning in Copenhagen, the
kind of morning they don’t talk about in tour books. Our Danish busi-
ness unit was expanding, hoping to increase their usage-based business
and add new subscription options. Supporting that growth required the
had just completed three days of long, tense meetings trying to sort out
what needed to be done to get it back on track.
We had started our project with high hopes and expectations of a quick
win that could easily be repeated across other business units. Now, eleven
expectations and the vendor seemed unable or unwilling to fix our prob-
lems. The project was late and hemorrhaging money, with no end in sight.
Our business partners were unable to provide adequate project resources,
the regional CFO was threatening to kill the project, and I was in charge—
at least for the moment.
I remember looking out the window of the train that morning on the way
back to the airport and asking myself, “How in the world did we get into
this mess?” and, more importantly, “How are we going to get out of it?”
How we got into that mess was easy to understand. We were a global com-
pany growing rapidly through an aggressive acquisition program and in
the process of standardizing financial operations on a global ERP platform.
We asked our ERP provider for a billing solution and they provided one—
on a beautifully executed PowerPoint presentation.
there were a couple of items that should have been red flags, that should
quantities of blood, sweat, Prilosec™, and proprietary information that I
months to complete and was over budget by an undisclosed amount. Our
solution limped along in production for many months until our vendor was
finally able to resolve several key issues. The last time I checked, the solu-
that there had to be a better way. Subsequent projects have convinced me
there is a better way.
DEFINITIVE GUIDE TO
CLOUD-BASED BILLING
FOR THE ENTERPRISE

TODAY
It’s your turn. You’ve been tasked to look at whether a recurring revenue
initiative will work for your company. Or maybe that decision has already
been made and your task is to figure out how to make it happen.
There are a host of questions to answer: What business capabilities are re-
quired for success? What questions do you need to answer before getting
started? What about software? What do you really need, now and in the
future? Where are the potential land mines?
You’re faced with a potentially multi-million dollar decision that could
shape the trajectory of your company (and your career) for years to come.
How do you get started? Then, how do you make the effort successful?
And how do you do that faster than your competitors?
The goal of this guide is to answer those questions, to provide the infor-
mation you need to get started, and to help you make informed decisions
along the way. In the process I’ll try to separate hype from reality, give you
a clear view of the decisions you’ll need to make, and provide a framework
to help you with those decisions.
In the guide, I’ll explain:
→ Why recurring revenue is an unprecedented opportunity for your
business and why this opportunity is available now
→ How you’ll need to change your thinking to manage a recurring
revenue business
→ Why creating recurring revenue offerings may be as simple as
repackaging existing products and services
→ What business and system capabilities you will need to have in
place to support your new business model
→ How to go about selecting vendors to help you achieve your goals
→ What elements are necessary for success in a recurring revenue
implementation program
→ How recurring revenue changes the way you look at data and
measure success
→ The steps you need to take to get started on your recurring
revenue journey
→ What the future holds for recurring revenue
Introduction
DEFINITIVE GUIDE TO
CLOUD-BASED BILLING
FOR THE ENTERPRISE

One of the things I’ve learned through multiple projects over the years is
that where there is opportunity there is also the potential for pain. They
seem to go hand in hand. Meaningful change is almost always disruptive
and painful in the short term, but the right knowledge can help ease that
disruption and prepare for it.
This guide is about the things I wish I had known before we bought off
on that PowerPoint presentation several years ago. It’s about lessons I’ve
learned on different projects supporting businesses in a dozen different
countries on five continents. It’s about the things you need to think about
from start to finish to improve your chances for success in the recurring rev-
enue world. It’s about helping you wade through the hype and BS surround-
ing subscriptions and recurring revenue to get to the answers that will help
propel your business forward. Some of the material is theoretical, but much
of it comes from practical lessons learned over many years as a practitioner.
In the interest of full disclosure, it should be noted that this guide was
commissioned by Aria Systems. Aria provides a monetization platform
for recurring revenue businesses. While Aria provided design help and
reviewed the book, they provided editorial freedom in its creation. The
design effort is primarily Aria’s. The content is mine. I am grateful for the
opportunity to work with Aria in creating this guide.
Because I’m a consultant, I need to add a disclaimer: Each business situa-
tion is unique and should be viewed individually. The information provided
here is made available to help you understand the choices you will need to
make, but should not be viewed as direct advice for your specific situation.
About the Author
Bob Harden has nearly 30 years of IT experience in diverse industries. For
the past 16 years, he has focused on billing and receivables systems, with
experience as a programmer, analyst, development manager, service man-
ager, and program manager. Bob served 4 years as a global software direc-
tor for Experian before leaving to start The Harden Group LLC, a consulting
practice based in California.
Introduction
DEFINITIVE GUIDE TO
CLOUD-BASED BILLING
FOR THE ENTERPRISE

“We think subscription-as-a-service is the
future. However, we think people’s shift from
packaged software to subscription services
will take time. Within a decade, we think
everyone will choose to subscribe because
the benefits are undeniable.”i
clint patterson
Former Director of Communications,
Microsoft Office & Office 365
“Customers are overwhelmingly choosing
subscriptions instead of perpetual model
licenses, which are accelerating our transition
to a new business model. We are building a
stronger, more predictable model for Adobe
which will drive higher long-term growth.”ii
mark garrett
CFO, Adobe Systems
“From a financial perspective, companies that
are able to generate a growing audience of
subscribers producing predictable revenue
streams are far more capital-efficient than
companies that need to acquire, and then
reacquire, each customer interaction.”iii
dan burkhart
CEO, Recurly

Recurring revenue is a disruptive trend empow-
ering companies across diverse industries to
grow revenue and gain competitive advantage
by changing the way they package and sell their
products and services. The potential is staggering:
some estimates place the total market value of the
opportunity for recurring revenue business at $500
billion or more.iv
Recurring revenue models provide stable, predict-
able revenue streams and cash flows that CEO’s
and CFO’s love and investors covet.
Venture capitalists and Wall Street investors are
rewarding companies that embrace these models
with infusions of seed money and with stock valua-
tions that exceed market norms.
A convergence of cloud computing technologies,
mobility, and changing consumer preferences has
created an unparalleled opportunity for companies
to gain competitive advantage, often by simply
repackaging products and services that are already
in the marketplace.
“CEOs are beginning to appreciate the value
of recurring revenue in a way I’ve never seen
before… I think that the software industry
adopted it, which caught people’s attention.
Now you’re seeing companies in just about
every kind of industry embracing it.”v
Jim Schleckser | Inc Magazine CEO Project
IN THIS CHAPTER WE WILL:
Examine the recurring revenue trend
Identify the convergence of factors driving
this shift
Explain why investors reward recurring rev-
enue strategies
1
An Unparalleled
Opportunity
Forward-thinking companies like Netflix, Salesforce, Adobe, and others have disrupted
established industries with new consumption and distribution models built on recurring
revenue—undermining their competition, reaching new customers and markets, and rapidly
growing shareholder value.
DEFINITIVE GUIDE TO CLOUD-BASED BILLING FOR THE ENTERPRISE 5

6
Chapter 1: An Unparalleled Opportunity
THE OPPORTUNITY
The shift to recurring revenue monetization models
presents a high-value opportunity for companies to
transform their markets with new or existing prod-
ucts. A growing number of companies are taking
advantage.
Subscription and usage-based monetization mod-
els have become pervasive in the marketplace,
with analysts predicting the annual recurring
revenue opportunity for business to be $500 billion
or more.vi
This new way of monetizing products, fueled by
a convergence of new technologies and changing
consumer preferences, is driving a global transfor-
mation in business.
→ By the end of 2012, the average American
consumer spent $857/month on subscription
servicesvii
→ A recent survey from The Economist’s Intelli-
gence Unit (2014) showed that 51% of com-
panies have changed (or are in the process of
changing) how they price and deliver goods and
servicesviii
→ The same Economist study showed that 72%
of companies agree that their business’s own
consumption preference is shifting to rental and
subscription modelsix
→ Gartner forecasts that by 2015, 35% of Global
2000 companies with non-media digital prod-
ucts will leverage recurring revenue models to
boost revenuex
→ A study from Incyte Research found that 47% of
U.S. businesses have adopted (or are consider-
ing adopting) a recurring revenue business mod-
el for at least some of their product offeringsxi
High visibility, early-adopter success stories like
Netflix and Salesforce have created a sense of
urgency in C-Suites and boardrooms. Individual
companies and even entire industries are scram-
bling to provide recurring revenue options. Estab-
lished companies like Microsoft, ESPN, Toyota,
Philips, Ingersoll Rand, and United Airlines have
added recurring revenue offerings, often by simply
repackaging existing products. Startups like Zip-
Car, Pandora, and ShoeDazzle have brought new
consumption models into established industries.
Even traditional big-box and warehouse retailers
like Best Buy and Costco have gotten into the act,
expanding into recurring services to add predict-
able revenue streams.
“The entrepreneur always searches for
change, responds to it, and exploits it as
opportunity.”
Peter Drucker
C A S E S T U D Y
Disrupting Markets
Netflix is a prime example of how to completely
disrupt an industry with a new product distribu-
tion model. Over 44-million people and count-
ing subscribe to their video streaming services
worldwide. Netflix didn’t create a new product,
but instead jumped into an existing market with a
unique and disruptive distribution, consumption,
and monetization model: providing a subscrip-
tion-based service by mail. While Blockbuster and
Hollywood Video invested in new retail stores (the
old model), Netflix developed a whole new way
of doing business. Netflix’ success completely dis-
rupted the market, driving their competitors
With this change comes opportunity—opportunity
to gain competitive advantage, undermine the
competition, and disrupt your markets by reaching
new customers and market segments.
DEFINITIVE GUIDE TO CLOUD-BASED BILLING FOR THE ENTERPRISE

7
to insolvency. Netflix has since cannibalized their
own business model, migrating from providing
DVD’s by mail to video streaming services while
maintaining their industry leadership position.
consumer preferences are shifting
Customers are looking for a more personal and
continuous value proposition and they are growing
more sensitive to aligning value with cost.
monetizing the internet of things (iot)
requires new models
Gartner predicts that by 2020, there will be 26-bil-
lion connected devices on the Internet of Things
(IoT), providing an almost limitless array of ser-
vices and generating over $300-billion in annual
revenue.xvi
IoT service providers are focusing on re-
curring revenue models to monetize their services,
providing customers a low cost of entry and an
opportunity to closely tie costs to value received.
The bottom line is that cloud computing provides a
highly cost-effective platform for enabling services.
The emergence of mobile computing platforms
means consumers are always just a click away.
Consumers understand that the pay-per-use mod-
els enabled by these technologies provide better
value than traditional pay-to-own models. The
convergence of these factors drives a new busi-
ness strategy, “Anything-as-a-Service,” in which an
ever-growing variety of products are now available
to consumers on a pay-as-you-go basis.
WHY NOW?
This transformation in how consumers purchase and
use goods and services is driven by two converging
trends: cloud computing and mobility.
With all of the hype about subscription commerce
and recurring revenue, you might think it’s a new
idea. It isn’t. You can find examples of subscription
and usage based services dating back to at least
the early 16th century.
So why is the rush to recurring revenue happening
now?
business is going digital
A June 2014 global survey from McKinsey & Com-
pany found that over half the companies surveyed
expected significant revenue growth from digital
initiatives over the next three years.xii
cloud computing enables digital business
Cloud computing is driving the surge in digital
business. Commoditized computing services expo-
nentially reduce the costs of IT infrastructure and
remove barriers to entry.xiv
consumers are moving online
Your customers spend more time online today
than ever before. A December 2013 study from Ven-
tana Research proclaimed, “The digital customer is
here.”xv
mobile computing is ubiquitous
There are over two billion smart phones and tablet
devices in service globally. Each is a potential point
of sale.
Riding the Cloud
Salesforce popularized a radical new idea: software
in the cloud on a subscription basis. Salesforce
went to market with a new concept, providing a
service that eliminates the need for on-premises
software. Taking advantage of cloud technology
and the need for mobile sales solutions, Salesforce
bumped on-premises provider Oracle from the
top position in the CRM application space. In the
process, Salesforce became the model for a new
C A S E S T U D Y

8
GAINING COMPETITIVE ADVANTAGE
The migration to new monetization models opens
access to new customers and market segments,
allowing companies to gain competitive advantage
in their markets.
Consumer preferences change. Markets go un-
der-served. Competitors offer new products,
packaging, and pricing. Technology brings new
opportunities. Competition is a continual process
and change is constant.
Against that backdrop, you’re looking for ways
to differentiate your services, reach new custom-
ers and market segments, and gain some kind
of competitive advantage. A growing number of
companies are seeking new ways to distribute and
monetize their existing offerings to take and keep
that advantage.
Recurring revenue models can make it easier for
customers to choose your products by removing
economic barriers to entry, reducing purchase risk,
and providing better overall value. This allows you
to reach new customers and markets.
In a recent Economist Group survey, companies
listed differentiation from competitors, access to
new customer segments, and new revenue oppor-
tunities as the top three benefits of moving to new
delivery models.xviii
For many companies, the next big thing won’t be
a new thing at all, but instead a new way of distrib-
uting and monetizing existing products. Getting
there first will give you a competitive advantage.
If your competitor gets there first, you’ll need to
follow quickly to defend your existing turf.
Reaching New Customers
Philips Medical Systems, a division of global giant
Philips, is one of the largest electronics companies
in the world, with a large and growing footprint in
the health care industry. Products include home
monitoring devices, imaging devices (Magnetic
Resonance Imaging (MRI), X-ray, etc.), and just
about everything in between. Devices like MRI
machines are multi-million dollar purchases.
Philips found that this up-front capital expense
was a barrier to entry for smaller regional hospi-
tals in the U.S. and for medical providers in devel-
oping markets.
Philips’ solution has been to make the machines
available on a pay-per-use basis. This shift,
enabled through IoT technology and recurring
revenue monetization models, has allowed Philips
to enter markets that were previously closed to
them. In the process of reaching a new market
segment, Philips has also made inroads to serving
new customers in existing markets.
C A S E S T U D Y
Adobe Grows its
Customer Base
As of this writing, Adobe has 2.3 million
customers (and counting) for its Creative
Cloud service. Over 20% of those cus-
tomers are new to Adobe. For many of
those customers, the $1,800 purchase
price for software was a barrier to entry,
but the $50 monthly access fee is low-
risk and provides continuous value.
generation of SaaS business application providers
like NetSuite, Workday, Aria Systems, and Zuora.
With a market cap now in excess of $35-billion and
over $4-billion in annual revenue, xvii
Salesforce is
an example of what’s possible in a world where
technology and customer preferences evolve
rapidly.

9
Cannibalizing Your
Customer Base
Steve Jobs once said, “If you don’t canni-
balize yourself, someone else will.” If you
add a new pay-as-you-go subscription
or usage option to an existing product
line, you will cannibalize some portion
of your existing one-time-sales customer
base. That’s a feature, not a bug. Apple
is betting that the loss of one-time sales
on iTunes will be more than offset by a
growing, stable, and predictable (i.e.,
more valuable) recurring revenue stream
from Beats. When looking at your own
situation, make sure to take this factor
into account in your packaging and pric-
ing strategies and financial forecasting.
Defending Their Turf
For years, Apple worked to build a dominant po-
sition in the music industry. By taking advantage
of the shift in consumer preference from CD’s to
downloadable music, iTunes became the world’s
largest music retailer. By mid-2013, Apple was
seeing that position erode with subscription music
streaming services like Spotify and Pandora chang-
ing the way listeners consume music content.
With download sales declining, Apple made a
move in May 2014 to defend their turf by acquiring
Beats for three billion dollars.xix
Beats was best
known for its designer line of headphones, but the
real prize was the Beats Music Service, a subscrip-
tion streaming service that will allow Apple to
directly compete in the music streaming subscrip-
tion market. While the Beats service may further
erode download sales on the iTunes platform,
Apple decided it is better to cannibalize their own
business than to allow others to do it to them.
C A S E S T U D Y
Whether they seek to disrupt existing markets
like Netflix, pursue new customers like Philips, or
defend turf like Apple, recurring revenue monetiza-
tion models allow companies to gain or maintain
competitive advantage in their industry.
BUILDING SHAREHOLDER VALUE
—CASHING IN ON PREDICTABILITY
The predictability of recurring revenue streams and
cash flows adds value for investors. Companies
moving in this direction are being rewarded with
increased stock valuations.
We’ve all heard the phrase “A bird in the hand
is worth two in the bush,” and most of us agree
with that concept to some degree. The more risk
averse you are, the more true that statement is.
Investors are by nature risk averse, which leads to
another truism, “Not all revenue is created equal.”
Predictable revenue carries less risk and is there-
fore more highly valued by investors, resulting in
higher valuations for companies with predictable
revenue streams.

10
Building Shareholder Value
On April 23, 2012 Adobe stunned the software
world by announcing the Adobe Creative Cloud.
The day before this announcement, Adobe’s stock
closed at $32.92, with a market cap of just under
$16 billion.xxi
Fast-forward 27 months to mid-2014,
and the stock is trading in the low seventies with
a consensus target price of $80 and a consensus
recommendation of ‘Buy.’ Market cap currently
sits at $35.5 billion, an increase of 115%.xxii
In the same period that saw the stock price
double, revenue declined from $4.4 billion in
fiscal year 2012 to $4.06 billion in fiscal year 2013
and net income-per-share dropped from $1.68
to $0.58.xxiii
This was by design: It was inevitable
that replacing a software purchase of $1,800 with
a $50/month subscription would impact revenue
in the short term. The key to Adobe’s success was
letting Wall Street in on the plan.
C A S E S T U D Y
From Adobe’s VP of Investor Relations, Mike
Saviage: “To help the financial community under-
stand this business model transition, and with
a goal to communicate our creative business
remained healthy during the transition despite
declining reported revenue, we introduced several
metrics to indicate the value of the new business
we were building… This transparency calmed
concerns about our reported financial results.” xxiv
“We needed Wall Street to understand a
different model for valuing the company,
otherwise we would have been dealing
with a significantly under-valued stock
price in addition to having to deal with
all that transition.” xxv
David Wadhwani
SVP and General Manager, Adobe
Adobe’s Annual Recurring Revenue (ARR) in the
most recent quarter was 53% of total revenues,
compared to about 20% at the end of 2012.xxvi
As Adobe shifts from a product-based to a ser-
vices-based company, investors are rewarding
the shift by placing a premium on the rapid growth
in low-risk recurring revenue.
“Wall Street rewards recurring revenue
streams...”xxviii
Andre Kindness | Forrester Research
Adobe’s investment performance over the past two-
plus years is fairly typical. Public software-as-a-ser-
vice companies using recurring revenue models enjoy
enterprise-value-to-revenue (EV/R) multiples of more
than twice that of their on-premises peers.xxvii
The
research is industry specific, but the effect is not.
customers and creating an annuity of cash
flow, you begin reaping the benefits of what
is known as a recurring revenue stream.”xx
Jim Schleckser | Inc Magazine CEO Project
“There’s an inconvenient truth in business
that most CEO’s and entrepreneurs alike
tend to overlook: not all revenue is created
equal. Sure a dollar in sales is a dollar in
sales. But the more predictable that dollar
is, as in the more likely that you will receive
that dollar from your customer every month,
the more valuable it becomes. When you
begin to multiply that dollar by adding new

11
Silicon Valley and tech corridors from San Francisco
to Boston are teeming with venture capitalists
looking for the next big recurring revenue opportu-
nity, with billions of dollars invested annually. Wall
Street investors are looking for predictable, low-
risk revenue streams in all industries. Recurring
revenue is the gold standard for the investment
community. One private equity firm even gives out
bumper stickers that say “I ♥ recurring revenue.”xxix
CONCLUSION
The rapid growth of recurring revenue represents
a disruptive shift in the way goods and services
are sold and presents an unparalleled opportunity
for companies to change their market position.
Driven by new technologies and a shift in consum-
er preferences, recurring revenue models enable
companies to reposition themselves in the market-
place, often by simply repackaging existing goods
and services. Companies are using these models
to reach new customers and underserved markets,
often undermining competitors in the process.
Recurring revenue businesses boost shareholder
value by producing predictable revenue streams
and cash flows that investors love.
To be successful in the shift to recurring revenue
you have to think differently about your business
and your customers. We’ll explore those changes
in the next chapter.
THINKING ABOUT RECURRING REVENUE
What is stopping your company from at least con-
sidering a shift to recurring revenue?
How would recurring revenue offerings change
your value proposition to your current customers?
Could you serve unserved or underserved markets
with a new monetization model for your current
products?
Could you compete in new markets or market seg-
ments where you’re not currently competitive by
just repackaging a current offering?
Is there any appetite for cannibalizing existing
sales to build new recurring revenue streams? How
would you explain the value of doing this?
What would the impact of an increase in (EV/R)
multiple be on your business and shareholders?

12
References
i The Big Book of Recurring Revenue Innovators, Tim Clark, The Fact-
Point Group, 2014
ii The Big Book of Recurring Revenue Innovators, Tim Clark, The
FactPoint Group, 2014
iii Understanding the New Boom in Subscriptions, Dan Burkhart, All
Things D, 2013-03-27, http://allthingsd.com/20130327/understand-
ing-the-new-boom-in-subscriptions/
iv New Rules of the Road for the Subscription Economy, Tien Tzuo,
2013-11-05, The Economist Group, http://www.economistgroup.com/
leanback/consumers/zuora-rules-of-the-road-for-the-subscription-
economy/
v Among Online Entrepreneurs, Subscriptions Are All The Rage,
Darren Dahl, The New York Times, 2012-03-07, http://www.nytimes.
com/2012/03/08/business/smallbusiness/selling-online-products-by-
subscription-is-all-the-rage.html?_r=2&
vi New Rules of the Road for the Subscription Economy, Tien Tzuo,
2013-11-05, The Economist Group, http://www.economistgroup.com/
leanback/consumers/zuora-rules-of-the-road-for-the-subscription-
economy/
vii 47% of Businesses Are Jumping on the Recurring Revenue
Bandwagon Infographic, Aria Systems, Inc., http://www.ariasystems.
com/resource-center/infographics/47-businesses-are-jumping-recur-
ring-revenue-bandwagon
viii Supply on demand: Adapting to Change in consumption and
delivery models, The Economist Intelligence Unit sponsored by Zuora,
November 2013
ix Supply on demand: Adapting to Change in consumption and deliv-
ery models, The Economist Intelligence Unit sponsored by Zuora,
x Building a Strategy for the Subscription Economy, Gartner Inc.,
2011-04-11
xi The Anatomy of a Recurring Revenue Model, Incyte Research, info.
ariasystems.com/IncyteWhitePaper.html
xii The Digital Tipping Point: McKinsey Global Survey Results, McK-
insey & Company, June 2014,http://www.mckinsey.com/insights/busi-
ness_technology/The_digital_tipping_point_McKinsey_Global_Sur-
vey_results?cid=DigitalEdge-eml-alt-mip-mck-oth-1406
xiv Understanding the New Boom in Subscriptions, Dan Burkhart, All
Things D, 2013-03-27, http://allthingsd.com/20130327/understand-
ing-the-new-boom-in-subscriptions/
xv Companies Struggle to Engage with Customers Digitally, Richard
Snow, Ventana Research Perspectives, 2013-12-11, http://richardsnow.
ventanaresearch.com/2013/12/11/companies-struggle-to-en-
gage-with-customers-digitally/
xvi Gartner Says The Internet of Things Installed Base Will Grow to
26 Billion Units by 2020, Gartner, Inc., 2013-12-12, www.gartner.com/
newsroom/id/2636073
xvii Yahoo Finance, http://finance.yahoo.com/q?s=CRM, as of
9/30/2014
xviii Supply on demand: Adapting to Change in consumption and
delivery models, Economist Intelligence Unit Sponsored by Zuora,
November 2013
xix Apple to Acquire Beats Music & Beats Electronics, Apple Press
Release, 2014-05-28, http://www.apple.com/pr/library/2014/05/28Ap-
ple-to-Acquire-Beats-Music-Beats-Electronics.html
xx The Power of Recuring Revenue: Building a Better Business Model,
Jim Schleckser, http://www.ceoprojectinc.com/pdf/Articles/The%20
Power%20of%20Recurring%20Revenue%20-%20Inc%20CEO%20
Project.pdf
xxi Wikinvest, http://www.wikinvest.com/stock/Adobe_Systems_
(ADBE)/Data/Market_Capitalization
xxii NASDAQ, Adobe Systems Incorporated (ADBE) Analyst Research,
2014-07-09, http://www.wikinvest.com/stock/Adobe_Systems_
(ADBE)/Data/Market_Capitalization
xxiii Adobe Condensed Consolidated Statements of Income, Adobe,
2012-12-12, http://www.adobe.com/aboutadobe/pressroom/pressre-
leases/pdfs/201312/Q413Earnings_is.pdf
xxiv Tech Industry Subscribes to New Revenue Model, Tom Kaneshige,
CIO.com, June 5, 2014, http://www.cio.com/article/2375702/market-
ing/tech-industry-subscribes-to-new-revenue-model.html
xxv The Pain and Pleasure of Cloud-Based Subscription Billing, Strictly
VC, June 5, 2014, http://www.strictlyvc.com/2014/06/05/pain-pleasure-
cloud-based-subscription-billing/
xxvi Adobe’s Cloud Solutions Fuel Strong Financial Results, Adobe
Systems Inc., Adobe Systems Inc., 2014-06-17, http://www.adobe.
com/news-room/pressreleases/201406/061714Q2FY2014results.html
xxvii Q1 2014 Software Industry Financial Report Q1 2014, Software
Equity Group, LLC, http://www.softwareequity.com/Reports/1Q14_
Software_Industry_Financial_Report.pdf
xxviii Brocade Offers I&O An Opportunity To Control Costs With
Their Subscription Program, Andre Kindness, blogs.forrester.com,
2011-09-22, http://blogs.forrester.com/andre_kindness/11-09-22-bro-
cade_offers_io_an_opportunity_to_control_costs_with_their_sub-
scription_program
xxix The Power of Recuring Revenue: Building a Better Business
Model, Jim Schleckser, http://www.ceoprojectinc.com/pdf/Articles/
The%20Power%20of%20Recurring%20Revenue%20-%20Inc%20
CEO%20Project.pdf

Recurring revenue requires a shift in focus from
managing sales transactions to managing cus-
tomer experiences over time. In this environment,
customers have more control over the relation-
ships with companies they do business with, forc-
ing changes in the way you engage and manage
customers.
Managing every aspect of the customer experience
becomes the driver for a successful recurring rev-
enue business, changing the way you market and
sell products and measure success.
Maximizing customer lifetime value (CLV) be-
comes key and CLV becomes a critical metric for
understanding the success or failure of a recurring
revenue program. The more each sale supports the
goal of maximizing CLV, the more valuable it is to
your business over time.
“In the 21st (century) economy the way customers buy
and consume their products and services is changing.
It’s actually pretty simple: their customers want what
they want, how they want it, when they want it, and
the competitive environment to acquire and retain
these target customers is fierce… This new dynamic
requires that CIOs invest in the technologies that can
enable all the processes and responses that create suc-
cessful long-term relationships with the end customer.”
Tom Dibble | CEO, Aria Systems
Explain how recurring revenue is different
from traditional transaction models
Identify why some sales are more valuable
than others
Define customer lifetime value (CLV) and its
importance
2
A New Way
of Thinking
Recurring revenue changes the focus of your business from managing sales transactions
to managing customer relationships with the goal of maximizing the lifetime value of each
relationship.

Chapter 2: A New Way of Thinking
RECURRING REVENUE IS DIFFERENT
Rather than creating a one-time revenue trans-
action, in recurring revenue each sale creates an
ongoing, predictable revenue stream and cash flow.
That cash flow lasts for as long as the customer
stays enrolled in your service.
The traditional sales cycle
It begins when you identify a potential customer. It
ends when you close the sale, deliver your product,
and collect payment. In the middle there might
be any number of steps: matching customers with
products, performing proof of concept, generating
quotes, marking up contracts, or taking orders. But
in the end, it’s a simple process that ends with a
single sales transaction.
Because it’s easier and more profitable to sell to
repeat customers, companies like Apple, Ama-
zon, and Zappos have perfected the art of getting
customers to come back over and over again. But
repeat sales do not equate to recurring revenue.
Each purchase is made separately. The “Prospect-
to-Cash” sales cycle repeats itself for each separate
sales transaction.
Recurring revenue is about relationships
In our mobile, on-demand world, customers have
relatively simple expectations: They want what
they want, when they want it, the way they want it.
That means a personalized experience, delivered
anytime, anywhere, on any device. If you can’t de-
liver, they’ll happily find someone else who can.
“We believe that the subscription model puts
control back in the hands of the customer.”
Iain Gray | VP Customer Engagement, Red Hat
New research from McKinsey & Company found
that “Consumers expect to be valued by compa-
nies and treated as individuals,” citing Spotify and
Netflix as examples of the “for-me” experience
that customers look for. McKinsey also found that
“The demand for ‘quick and easy’ is compelling
companies to modify how they deliver real-world
offerings.”i
A recent report from Forrester Research described
a phenomenon they labeled ‘the age of the cus-
tomer,’ in which “customers increasingly control
the relationships that they have with companies
with whom they do business. Customers have
become more demanding, staying loyal to brands
only when they deliver ROI.”ii
Your customers are in control, and they’re looking
for value and a consistently high-quality, person-
alized experience. They’re in the driver’s seat. The
successful company is one that caters to this new
reality, putting new emphasis on customer en-
gagement and the overall customer experience.
Vendor or Partner
Your customers aren’t just looking for
vendors or products. They’re looking for
trusted partners. Partnership becomes
part of your value proposition. That has
implications for every aspect of your
business from your eCommerce site, to
your acquisition and on-boarding pro-
cesses, to how you manage preferences
and handle customer service needs. This
means keeping data and processes in
sync across platforms and organizations.
Every interaction is an opportunity to
build trust or kill it. Getting these things
right increases the perceived value of
your product. Getting them wrong
reduces value, and customers stay or
leave based on value.

NOT ALL SALES ARE CREATED EQUAL
The value of a recurring revenue sale is dependent on
the predictability and growth potential of future cash
flows and their impact on customer lifetime value.
Recurring revenue sales create revenue streams
that extend over time. Sales that create longer,
more predictable, or larger revenue streams will
result in higher CLV.
Traditional Sales Recurring Revenue Sales
Transactional Relationship and
event based
Order/ Payment is
the end point
Order/Payment is the start-
ing point of the acquire,
nurture, and grow model
Repeat Sales · Nurture
· Retain and renew
· Upsell and cross-sell
One Time Iterative and interactive
Growth by
repeat sales
Growth by retention and
upsell/cross-sell
“In the recurring revenue world, every con-
tract signed, every customer gained or lost,
every upsell or downsell has the potential
to impact revenue, not only in the quarter in
which it occurs, but every quarter thereafter
for many years or decades to come.”
Ron Gill | CFO, Netsuite
You’re not just selling a product any more. In re-
curring revenue, you are building a relationship. At
point-of-sale (enrollment), you create a continuous
relationship with your customer. Your customer re-
ceives value from the ongoing use of your service.
You receive periodic payments (monthly, annually,
etc.), creating a revenue stream and cash flow that
will last for as long as the relationship continues.
This customer relationship is made up of dozens or
even hundreds of individual interactions or events.
Each event is an opportunity to provide your
customer with the personalized customer experi-
ence they’re looking for—to add value—which can
ultimately lead to more revenue.
Retaining customers over time becomes a matter
of not just how your product performs, but of how
you perform at each interaction. Maximizing the
value of each customer relationship requires you
to nurture the customer relationship at every op-
portunity. As the customer derives more value over
time, the door opens to growing the relationship
through cross-sells and upsells.
The Acquire, Nurture, and Grow Framework
The ‘prospect-to-cash’ sales cycle allows you to
manage the steps needed to acquire a customer
and close a sale. Managing recurring revenue re-
quires an expanded framework that takes custom-
er relationships into account. In its simplest form,
it can be defined as acquire, nurture, and grow.
You acquire a customer (the traditional customer
acquisition process), you nurture the relationship
by providing continuous value over time, and you
grow the relationship through upsell and cross-sell
opportunities. Your focus shifts from generating
sales transactions to maximizing the customer
lifetime value of each relationship.
There’s an old way of doing business and a new
way. The old way looks at sales transactions that
occur at a single point in time. The new way, the
recurring revenue approach, looks at managing
relationships.

Sales have differing values to an organization, de-
pending on the value and predictability of the rev-
enue generated. The Sales Value Pyramid defines
a hierarchy of sales value.
The four levels of the pyramid are:
→ One-time sales: Sales that generate revenue at
a point in time with no future revenue stream
→ Recurring revenue month-to-month: An ongoing
revenue stream with no fixed length and a built-
in risk of churn at any time
→ Recurring revenue on multi-period agreement:
An ongoing revenue stream with a minimum
duration; churn risk is greatly reduced
→ Recurring revenue with cross-sell and up-sell:
Increases the value of the recurring revenue
stream, especially when the added service
makes it more difficult for a customer to leave.
The acquire, nurture, and grow framework is
designed to drive customers toward the top of this
pyramid, with the goal of maximizing the custom-
er lifetime value of each relationship. In recurring
revenue models, customers are generally acquired
at the second level (recurring revenue month-to-
month). As you nurture customers and they receive
value from your products, there are opportunities
Recurring revenue with cross-sell and upsell
Recurring revenue on multi-period agreement
Recurring revenue month-to-month
One-time sales
Hierarchy of value in sales, which is represented by the Sales Value Pyramidiii
first proposed by Jim Schleckser, CEO of the Inc. CEO Project and adapted for use here.
to reduce risk and offer additional value through
fixed-length agreements and to grow monthly
recurring revenue through cross-sell and upsell.
CUSTOMER LIFETIME VALUE
The prime target in recurring revenue is to maxi-
mize the customer lifetime value of every customer
relationship.
Customer lifetime value (CLV) has multiple defi-
nitions. For our purposes, it is defined as the net
financial value realized over the life of a customer
relationship. It’s a simple calculation that encapsu-
lates key recurring revenue metrics (retention rate,
monthly recurring revenue) and personalizes them
at the customer level.
A simple view of average CLV for a business or
product line is shown in this formula:
CLV = Initial Margin +
(1–Retention Rate %)
Monthly Margin

Add the discount rate to view the present value
of future cash flows and the average CLV formula
looks like this:
→ Initial margin includes revenue from activation
fees, equipment purchases, and any other one-
time charges minus any costs associated with
customer acquisition
→ Equations assume constant margins and reten-
tion rates
→ Time period is monthly for this equation; use
monthly values for discount and retention rates
OR use annual margin with annual values for
discount and retention rates
This formula points out clearly that there are two
ways to increase average CLV:
1) Increase Retention Rates: Reduce churn, keep-
ing customers longer (nurture each relationship
resulting in higher retention rates). This can also
be accomplished by increasing the length of term
on fixed-term contracts, which effectively increases
retention rates.
2) Increase Monthly Margin: Cross-sell and upsell
to increase Monthly Recurring Revenue (grow the
relationship) or reduce costs.
A recent survey from Ventana Research across all
levels of management shows varying degrees of
priority placed on CLV across the average enter-
prise.iv
The survey showed that the higher you go
in an organization, the more important CLV is rec-
ognized to be, with C-Suite executives ranking
it near the top of their lists.
In recurring revenue, CLV becomes a critical metric
in understanding the success of managing cus-
tomer relationships. Since the healthiest recur-
ring revenue businesses can often see a third of
Maximizing CLV
CLV is the lifeblood of your recurring
revenue business. Every decision you
make, every process you build, every
system you deploy, everything you do as
a business should be viewed through the
lens of “How will this help me improve
customer lifetime value?” Since C-suite
execs seem to have a clearer under-
standing of this than their subordinates,
it might make sense to build awareness
across your organization by adding CLV
growth targets to your incentive plan as
part of a recurring revenue initiative.
their growth come through upsell and cross-sell,
CLV trend lines become a strong indicator of the
success of the nurture and grow portions of the
acquire, nurture, and grow strategy.
CONCLUSION
Recurring revenue is different. How you sell is
different, how you market is different, how you en-
gage customers is different, and how you measure
success is different. The focus shifts from manag-
ing sales transactions to managing the myriad inter-
actions and events that make up each customer
relationship. Your customers want what they want,
when they want it, the way they want it. Maximiz-
ing customer lifetime value depends on delivering
that level of customer experience.
CLV = Initial Margin ($) +
Monthly
Margin
×
[ 1 + Discount Rate (%)
– Retention Rate (%) ]
Retention Rate(%)

THINKING ABOUT IMPROVING YOUR
CUSTOMER RELATIONSHIPS
Is the concept of nurturing customer relationships
already a driver in your business, or will it be a
culture shift?
What are the impediments in your current business
environment towards managing long-term cus-
tomer relationships?
If you truly believed the customer was in control,
what would you change about your business?
How is the customer lifetime value (CLV) metric
viewed in your enterprise? Is there visibility to this
metric across the enterprise?
References
i Ten IT-enabled Business Trends for the Decade Ahead, Jacques
Bughin, Michael Chui, and James Manyika, McKinsey & Company, May
2013, http://www.mckinsey.com/insights/high_tech_telecoms_inter-
net/ten_it-enabled_business_trends_for_the_decade_ahead
ii Measuring Customer Health To Drive The Right Conversations,
Forrester Consulting, Forrester Research Inc., 2014, http://access.
gainsight.com/csm-forrester-3/?mkt_tok=3RkMMJWWfF9wsRogvan-
MZKXonjHpfsX56%2BgqXKaylMI%2F0ER3fOvrPUfGjI4ARMpgI%2BSLD-
wEYGJlv6SgFSLPEMaVhzrgFXxE%3D
iii The Sales Value Pyramid is derivative from several sources, most
notably Jim Schleckser, CEO of the Inc. CEO Project
iv Subscription Billing Model Can Maximize Customer Value, Richard
J. Snow, Ventana Research, 2013-02-07, http://www.ventanaresearch.
com/blog/commentblog.aspx?id=3682

Many companies have already proven that recur-
ring revenue models provide a wide variety of op-
tions for packaging and repackaging products and
services. While most of the industry buzz is focused
on basic subscriptions, there is a much broader
range of monetization options available than many
companies are aware of.
You have choices. Whether your business strategy
is to grow your customer base, revenue, market
share, share of wallet, or all the above, recurring
revenue provides many options, often by simply
repackaging products that you already sell.
Nearly any product in your catalog can be repack-
aged into a recurring revenue service with a vast
array of pricing options. A key constraint may be the
ability of your existing revenue systems to support
the full range of recurring revenue pricing tools.
Describe the various monetization and
pricing options available
Identify the key characteristics of recurring
revenue products
Provide simple advice on pricing strategies
3
On Products, Packaging,
and Pricing
Recurring revenue models can provide a multitude of options for creating new revenue streams
from new or existing products.
“Pricing is actually a pretty simple and
straight forward thing. Customers will not
pay a penny more than the true value of the
product.”
Ron Johnson
Former SVP Retail Operations, Apple

Chapter 3: On Products, Packaging, and Pricing
MANY PATHS TO SUCCESS
Recurring revenue monetization models provide
your business with a wide variety of options for
meeting your business objectives.
What is your strategy to grow your business?
Are you trying to rapidly grow your revenue or
customer base? Are you trying to increase profit-
ability or market share? Are you trying to grow your
share of wallet from existing customers? Are you
an upstart in your market, trying to disrupt your
competition? Are you trying to defend existing turf
from competitors? Are you trying to create a whole
new market?
Whatever your goals, you have options—lots of
options. And it may be as easy as repackaging
existing products or services.
Building Revenue
Struggling with the loss of revenue from declin-
ing subscription sales, the Times decided to buck
industry trends and charge for online access to
existing content. The Times “paywall” has become
a model for a struggling industry trying to reinvent
itself for the digital age, reaching new customers
while providing new options for its existing sub-
scriber base. With subscriptions ranging from $14–
45 per month, the Times has reached over 600,000
paid online subscribers, creating a $160-million
dollar annual recurring revenue stream by repack-
aging its existing content in multiple ways.
Repackaging a Classic
Microsoft legitimized software-as-a-service for
the masses with the announcement of the Office
365 suite. For a monthly or annual fee, subscrib-
ers receive access to the same set of services that
they can purchase in shrink-wrapped form. Aimed
primarily at consumers and small and medium
businesses, Office 365 grew to over $1 billion in
annual recurring revenue in less than three years.
The business world is currently abuzz about
subscriptions, but subscriptions are not the only
option. There are three basic monetization models:
→ Subscription: A customer pays in advance for
a defined set of services to be delivered over a
specific period of time.
→ Usage: A customer is given access to a product
or service and is charged periodically on a per-
unit or per-event basis.
→ Subscription plus Usage Hybrid: A customer is
charged a combination of a subscription rate
plus some type of usage charge.
C A S E S T U D Y
C A S E S T U D Y
“Our goal with this next phase of our paid
products strategy is to satisfy the demand
for Times journalism by giving new subscribers the
ability to choose the amount of access they desire
at a price point that suits them, and to enhance
the value we offer our current loyal subscribers.”
Mark Thompson | CEO, New York Times Co.

Your product offerings can be as simple or complex
as they need to be. The three basic models provide
a starting point that can then be supplemented
with a wide variety of pricing treatments and fea-
tures including:
· Monthly vs. annual subscriptions
· Activation fees
· Cancellation fees
· Monthly minimums
· Flat-rate pricing
· Tiered pricing
· Volume-based pricing
· Thresholds
· High water marks (a usage measurement
based on peak usage)
· Accumulated usage pooling (family plans,
associations, etc.)
· Overages
· Rollovers
· Pay-as-you-go
· Discounts
· Surcharges
· Complex mediation rules (pricing driven
by business rules)
· Promotions and free trial offers
· Combinations of the above
When you combine the basic monetization models
with various pricing treatments and features, the
options are almost limitless.
Looking to increase your customer base? Build a
simple subscription plan with a 30-day free trial
offer, or combine models and methods to create a
family plan with activation fees, standard subscrip-
tion pricing, overages with pricing tiers, and usage
rollovers. Looking to increase share of wallet from
The right monetization model can accelerate your
business strategy, whether your chosen objective
is building customer base, revenue, market share,
share of wallet, or all of the above. The ability to
quickly define and deploy a new monetization mod-
el can help you out-maneuver your competition.
Combining Subscription and Usage
Zipcar created a new concept in the car rental
industry, called ‘car sharing,’ by combining sub-
scription and usage based monetization models.
For a small monthly membership fee, members get
access to hourly or daily car rentals. In addition to
monthly fees, members are billed for the hourly or
daily usage. Pricing plans are available that provide
discounts for pre-paid usage. By mid-2013, Zipcar
had over 810,000 members globally. The model has
become popular in urban areas like Boston, San
Francisco, and London where car ownership is not
always the best option. It has also spawned a wave
of imitators, the true sign of success.
C A S E S T U D Y
existing customers? Create a usage based plan that
features tiered usage and discounted cross-sell
opportunities. Looking to differentiate your brand
from your competitors? Create another usage plan
that features complex mediation schemes, offering
tiered discounts based on the purchase of defined
sets of products.

In addition to Hootsuite, streaming music provider
Pandora, online collaboration solution Dropbox,
and online publisher Issuu provide popular freemi-
um services.
Recurring revenue provides many pathways to
reach your business objectives, giving you the
freedom to try new things, test new options, and
make educated guesses aimed at building market
share and growing your business. Who really knew
that millions of consumers would pay for stream-
ing music services until someone actually tried it?
The company that got there first gained a compet-
itive advantage. If your first bet doesn’t pay off, try
something else. Packaging and pricing become an
iterative process, allowing you to learn from expe-
rience. Recurring revenue monetization models
provide that flexibility.
Whatever monetization model you choose, you
need to get to market fast. You don’t have time for
years of R&D to build your recurring revenue prod-
uct. The alternative is repackaging something you
already have. But how do you determine whether
products you currently offer will work with recur-
ring revenue models?
PRODUCTS
The Consumable, Measurable, Repeatable (CMR)
Model provides a simple tool for identifying products
that can easily be marketed and sold using recur-
ring revenue models.
In one-time sales, you sell items. In recurring reve-
nue, you combine items and consumption models
to create services. For example, software-as-a-ser-
vice is a specific method of consuming software
products. Microsoft delivers several versions of
Office as shrink-wrapped items and also delivers
Office 365 (the same software) as a recurring reve-
nue service. Items in your product catalog can be
repackaged over and over again into any number
of recurring revenue services.
A fourth model, freemium, is a popular way to at-
tract market share by providing a minimum level of
service for free. This provides a captive audience for
offers of higher levels of paid service.
Freemium Service
Social media management pioneer Hootsuite
started in 2008 as a free service that attracted hun-
dreds of thousands of customers through word-
of-mouth marketing. Today, Hootsuite maintains
its freemium offering for customers who require a
basic level of service. Users requiring higher levels
of service (primarily businesses) purchase paid
subscriptions based on their needs. The majority
of business and enterprise users started with the
free service. While freemium subscribers still make
up nearly 95% of Hootsuite’s subscriber base, the
paying customers keep the business profitable.
C A S E S T U D Y
Use All the Tools
Most of the hype today is about subscrip-
tions, and many of the high-visibility
early adopters like Netflix and Salesforce
focused primarily on subscription mod-
els. Subscriptions are a powerful tool for
building predictable revenue, but they are
just one of the tools in your toolkit. You
wouldn’t try to build a house with just
a hammer, so why would you limit your
business with a single monetization tool?
Recurring revenue provides more and you
should look at every tool in the bag to ac-
complish your goals. If you don’t, there’s a
good chance you’ll end up leaving money
on the table.

The CMR Model for Recurring Revenue Products
The CMR Model defines three basic characteristics
shared by virtually all recurring revenue ‘products’:
→ Consumable: Anything that a customer can use
(i.e., physical goods, digital content, services, etc.).
→ Measurable: Consumption or usage can be mon-
itored and measured.
→ Repeatable: Usage is not a one-time event but is
repeated over time.
As illustrated by the CMR Model, almost anything
can be packaged as a recurring revenue offering.
The table below illustrates several well-known sub-
scription and usage-based services, identifies what
Company/
Service
What is being
sold?
Monetization
model
What is being
consumed?
What might be
measured/recorded?
Amazon
Prime
Shipping services,
Streaming Video,
Music & e-books
Subscription Shipping services,
digital content,
bandwidth
Page visits, shipping,
titles accessed, band-
width consumed
Netflix Streaming Video Subscription Digital content,
bandwidth
Page visits, titles viewed,
bandwidth consumed
Adobe
Creative
Cloud
Software-as-a-
service
Subscription with
custom enterprise
pricing
Computing
resources
User time online, mod-
ules used, processing
cycles, storage used,
bandwidth consumed
ZipCars Car rental on-de-
mand service
Subscription plus
usage with over-
age and late fees
Time and mileage Odometer and GPS
readings, check-out and
check-in times,
ESPN
Insider
Exclusive online
content
Subscription Digital content,
bandwidth
Time on site, page views,
bandwidth consumed
Philips Medical imaging
services
Usage with usage
pooling
Operating cycles on
imaging systems
Who used, when,
for how long
Experian Credit Reports Varied models Information Volume of reports and
value-add options
MONETIZING YOUR SERVICES
The Sky’s the Limit
If you’re looking at the CMR model and saying,
“That could include just about anything,” then
congratulations. That’s the point. How many
of your existing products already fit this
model? You probably don’t need to create
anything new. You can probably re-package
the products you already have as recurring
revenue services.
is consumed (not always what you think), how the
services are monetized, and what might be measured
as services are delivered and used by customers.

Your company already sells products and services.
How many of those could you make more money
from if you could repackage them as recurring rev-
enue services? And how do you go about packag-
ing and pricing those services?
PACKAGING AND PRICING
Whether creating new products or repackaging
existing offerings into recurring revenue services,
packaging and pricing become iterative processes
that provide a wide variety of opportunities to meet
business and customer needs.
This is not an exhaustive text on pricing. There isn’t
time or space here to do justice to the topic in any
detail. Instead, this section contains a few general
observations specific to recurring revenue.
Iteration
Packaging and pricing are iterative processes. You
make your best guess based on marketing re-
search. You test-market new offerings, price plans,
and promotions. You keep what works, discard
what doesn’t, and repeat the process. It’s called
adaptive selling and it is the trademark of success-
ful recurring revenue businesses.
Pricing is Iterative
There is no perfect price. It doesn’t
exist. Pricing is not a ‘set it and forget it’
process. It is iterative, driven by compet-
itive pressure, evolving usage patterns,
changing customer preferences, and
shifting value propositions. If you watch
successful companies like Adobe for any
length of time, you will see that they
continually fine-tune their offers to meet
the current value expectations of both
existing and potential future customers.
Simple or Complex
Recurring revenue options allow your pricing strat-
egy to be as simple or as complex as it needs to be.
Need to provide a simple set of subscription offers?
Or do you need to create a complex subscription
usage hybrid scenario with tiered usage? Want
something even more complex? Recurring revenue
models provide tools to support these scenarios
and more.
Enterprise Pricing
Recurring revenue models support the
simplicity or complexity you need to
differentiate your product offerings and
remain competitive. Where complexity
exists in pricing, it should exist to accom-
plish a specific business purpose. At the
simple end of the scale, there are any
number of online content providers offer-
ing various flavors of bronze, silver, and
gold subscription plans. These are simple
and easily understood by their target
audiences, supporting high volume traffic
with little need for sales, finance ops, or
CSR intervention. At the other end of the
scale, enterprise pricing often requires
much more complex arrangements to re-
main competitive. Amazon Web Services
provides roughly 5,000 different price
points for a virtual machine, dependent
on dozens of options. The complexity
supports a specific business purpose: pro-
viding the exact platform configuration a
customer requires.

Know Your Customers
—Customer Personas & Value Propositions
Customer personas and value propositions can
change as you shift from one-time sales to recur-
ring revenue. New models can create new custom-
er personas and value propositions that you hav-
en’t previously considered. Customers should be
able to recognize themselves and their own wants/
needs when they look at your list of offerings.
Customer Personas
As of this writing, Adobe has broadly defined two
key customer characteristics for its Creative Cloud
Application Suite: User Type (Individuals, Business-
es, Students and Teachers, Schools and Universi-
ties, and Enterprises) and Service Type (Photog-
raphy, Single Application, Complete Suite). Adobe
has combined those characteristics to create a set
of customer personas (individual user of photo
app, individual user of complete product suite,
small business user, etc.) and created service defi-
nitions and price points for each of those personas.
The rate structure provides discounts for annual
purchases, encouraging customers to move from
Level 2 to Level 3 on the Sales Value Pyramid.
C A S E S T U D Y
The Impact of Systems
While recurring revenue monetization models and
pricing methods provide a broad array of options
in theory, many businesses are constrained by
their revenue management software platforms
(billing, ERP, etc.). Taking advantage of the full
potential of recurring revenue requires having sys-
tems in place that don’t constrain your monetiza-
tion options but allow you to exploit the full set of
recurring revenue tools. Adaptive selling requires
agility and flexibility, which are not common char-
acteristics of traditional billing and ERP systems.
CONCLUSION
Regardless of your business objectives, recurring
revenue monetization models can provide many
options for you to reach your goals, often by simply
repackaging products that you already sell. The
CMR Model (Consumable, Measurable, Repeatable)
provides a framework for identifying candidate
products for recurring revenue models. Pricing
strategies can vary from simple to complex de-
pending on the needs of your business and cus-
tomers. A key to success is having systems in place
that put lots of options and permutations at your
fingertips, allowing you to discover what works
best through iteration.

To manage recurring revenue customer relation-
ships and meet customer experience expectations,
a business must be proficient in a set of core busi-
ness and operational capabilities. This includes cus-
tomer engagement, responsiveness, service delivery,
customer service, invoice and payment, scalability,
channel management, analytics, and agility.
Data fragmentation is a common business problem
that can be amplified by the scale and pace of re-
curring revenue business. Compliance and security
concerns should be identified and mitigated early
in any recurring revenue initiative.
Businesses should assess these areas prior to
launching a recurring revenue initiative and miti-
gate key gaps and risks as part of their implemen-
tation process.
“Success depends upon previous preparation,
and without such preparation there is sure
to be failure.”
Confucius
Identify business capabilities necessary
to support a recurring revenue business
Identify key data, compliance, and security
issues to be assessed
Provide a list of key consideration
questions
4
Business
Considerations
Recurring revenue transformation requires strategic assessment of gaps between new and
current business capabilities.

Chapter 4: Business Considerations
There are two key areas of preparedness busi-
nesses must examine as they enter the recurring
revenue world: business readiness and systems
readiness. In this chapter we’ll focus on business
readiness. The next chapter will look at systems.
BUSINESS CAPABILITIES
To gain competitive advantage, you have to give
your customers what they want, when they want it,
the way they want it. Delivering a customer experi-
ence that meets those expectations challenges your
business capabilities in several areas.
Customer Engagement
It starts with the initial customer engagement. Do
you have capabilities in place to answer customer
questions in real time as part of the enrollment
process? Once enrollment is complete, can you
automatically provision service? If not, you’re
likely falling short of the “when they want it”
expectation. Does the service you provide take
into account individual customer preferences? Do
you have the tools in place to create promotional
strategies based on customer history and usage
patterns?
Can you adequately communicate with and
instantly respond to your customer across multi-
ple channels throughout the customer lifecycle?
A Ventana Research study recently showed up to
17 possible channels of communication in play
between you and your customer,i
with the average
company supporting only seven channels. Your
customers are looking for a consistent experience
across all channels and they will quickly expose
any gaps.
Service Delivery
Recurring revenue is a volume business and if you
sell online, you must be available 24/7. How will
customers access your services and how will those
services be delivered? From a browser? From a mo-
bile app? Do those channels already exist? Provid-
ing a variety of access methods is part of meeting
the “way they want it” expectation.
Communication
Channels
Ventana Research identified 17 possible
customer communication channels.
Needs vary based on industry and cus-
tomer demographics, but an enterprise
business should be proficient at 8-12
of these, with a growing emphasis on
mobile and social channels, to meet the
“way they want it” expectation.
Possible customer engagement channels
according to Ventana Research:
· Telephone
· Email
· Letters or printed forms
· Customer portal
· Social media
· Web-based self-service
· eCommerce site
· Text messages
· Chat (instant messaging)
· Service locations
· Mobile business app
· Social media forums
· IVR-based self-service
· Retail locations
· Mobile customer service app
· Video calls
· Virtual agents

Mobile Apps
Younger buyers want mobile apps. Many
companies rush to market with apps that
are poorly conceived and buggy. App
stores are full of brand name apps with
1 & 2-star reviews (i.e., customers hate
it). You can’t afford that. Mobile should
not be an afterthought; it should be core
to your strategy and execution. Make the
investment in time and resources to do
this right.
Recurring revenue speeds up the pace of your busi-
ness. Can your supply chains handle the demands?
Are there any weak links in your infrastructure
or supply chains that could cause interruptions
in service delivery? Can you give your customer
“what they want, when they want?”
Scalabillity
Service delivery is tied to the ability to scale your
business to support a growing customer base. You’ll
need infrastructure and systems that are scalable
and secure to support rapid growth. Client-facing
business processes, call center operations, supply
chains, and security capabilities will all need to
scale to support recurring revenue volumes.
Customer Service
Your recurring revenue business operates 24/7
and customers expect you to deliver on their time-
line, not yours. From enrollment through the entire
customer lifecycle, your customers expect their
issues to be resolved on their first contact with
your customer service center. Customer service
efficiency becomes part of meeting the “when
they want it” expectation.
“Customers… generally don’t care with
whom they interact or what technology is
employed. They want answers, they want
“Customers… generally don’t care with
whom they interact or what technology is
employed. They want answers, they wan-
them fast… hence the increasing impor-
tance of first-contact resolution rates.”iii
Richard Snow | Ventana Research
Customer Service
Channels
Since a goal in relationship commerce is
to stimulate customer engagement, you
might consider making customer service
help pro-active, i.e., providing a “Do you
have questions?” dialog box that pops
up when customers visit your web site.
Invoice & Payment
Recurring revenue allows you to leverage new
monetization models and pricing schemes. These
can range from the simple to the complex. Billing
and payment processing become strategic busi-
ness enablers. Recurring revenue also introduces
time-based concepts like proration and deferred
revenue recognition. Traditional billing systems
and processes often don’t support these concepts
and may not give you the flexibility you need to
respond to changes in the marketplace.
On the payment side, the ability to schedule re-
curring payments, automatically renew accounts,
collect charges from multiple sources, and remain
PCI compliant may stress existing processes and
systems. These issues must be addressed to gain
the full competitive advantage recurring revenue
can provide.

Channel Management
It has become common practice to create part-
nerships and distribute services through multiple
channels. Channel relationships can be highly
complex and difficult to track. Because business
scales and operates in real-time, manual processes
and spreadsheets will be inadequate. If you man-
age a channel operation, you’ll need a better way
to sort through who sold what to whom and where
the money should be allocated.
Predictive Analytics
Recurring revenue is a new way of business built
on acquiring and then retaining customers and
maximizing customer lifetime value. It’s not
enough to monitor past customer behavior. Analyt-
ics should give you the ability to identify customer
behavior patterns that are predictive of future
behavior. Your analytics tools should help you
identify potential churn risks and upgrade op-
portunities, allowing you to respond in ways that
maximize customer lifetime value. New metrics
like customer lifetime value, churn rates, retention
rates, and monthly recurring revenue will help you
monitor the health of your business.
“Companies lose business consistently due to
the lack of attention to customers and shifts
in buying patterns.”v
Gartner
“There is nothing permanent except change.”
Heraclitus
Agility
Markets will change. Customer preferences will
change. The things you will need to do to satisfy
your customers will change. Successful recurring
revenue businesses have the ability to respond,
adapting to new market conditions and compet-
itive pressures whenever necessary to maintain
competitive advantage. An agile business can in-
troduce new product offerings, pricing, or promo-
tional opportunities quickly. It can adjust to new
technology opportunities and shifting customer
preferences. Flexible business systems and pro-
cesses that don’t constrain your ability to change
create agility.
These are the minimum table-stakes capabilities for
entering the recurring revenue world. You may have
additional needs based on specific products and
markets.
UNDERSTANDING YOUR DATA
In large enterprises, data is often fragmented,
impacting your ability to get a complete view of the
customer and provide adequate customer service.
You probably have data about your customers,
their contracts, and their transactions sitting on
multiple platforms. CRM systems hold the data you
need in order to sell to customers. Fulfillment plat-
forms hold the data you need to process and ship
orders or provide services. Billing platforms hold
the data you need to generate and send invoices.
Receivables platforms hold the data you need to
collect on debt. By definition the data is fragment-
ed, residing in multiple places. It can be difficult to
get a complete view of the customer, resulting in
a fragmented customer experience. The scale and
real-time nature of recurring revenue businesses
can amplify this problem.
“The bill presentment and payment process
is an often overlooked and under-leveraged
opportunity to drive business efficiency, in-
crease cash flow, enhance profitability, and
make—or break—customer relationships.”
Mitch Rose
“The Strategic Value of Billing Practices”iv

Fragmentation can also result when your custom-
ers update their information, like changing names
or addresses. If your business acquires or merges
with another entity, you can end up with multiple
views of a single customer. The same can happen if
a B2B customer goes through acquisition or merg-
er. Industry best practices point to data cleanup as
an important step in managing a transition to new
revenue models and systems.
SECURITY AND COMPLIANCE
Recurring revenue models may bring new chal-
lenges in security and compliance areas related to
financial reporting and data management.
Customers expect you to protect their security and
privacy. Software systems must provide adequate
protection for customer data and financial transac-
tions. Payment processing and storage of customer
data should meet PCI Level 1 compliance stan-
dards at a minimum. In the EU, you’ll also encoun-
ter EU Safe Harbor data compliance requirements.
Other regions may impose additional compliance
standards.
Investors and regulators require accurate financial
data in compliance with GAAP/IFRS standards.
Recurring revenue complicates revenue recogni-
tion processes with advance payment for services
and revenue recognized when services are deliv-
ered, not when payment is received. If you manage
deferred revenue with spreadsheets and manual
processes, those processes can become a failure
point as your business scales.
WHAT YOU SHOULD THINK ABOUT
BEFORE YOU START
The shift to recurring revenue is a transformational
process, requiring alignment of strategy and action
across your business.
Here is a set of questions on topics you may or may
not already be considering to stimulate thought
and discussion as you continue to work through
transforming your business. The list is by no means
exhaustive, but is intended as a starting point for
internal discussions that need to occur in your
business. The questions are organized by function-
al area, but many of the questions cross functional
boundaries.
Enterprise
· What does success look like and how will you
measure it?
· Who owns the initiative? Is it enterprise driven
or line of business driven? How much autonomy
will the recurring revenue business have? Will it
operate as a stand-alone business unit, or will
you treat it as a product line within an existing
business unit?
· Is there any possibility the recurring revenue
product line could spin off as a stand-alone
business or IPO? If so, how would that possibility
impact business and systems decisions?
· Who are the ultimate decision makers? Who has
veto authority and over what types of decisions
do they have that authority?
· What trade-offs are you willing to make in your
business plan and decisions? How will you
balance time-to-market, cost, functionality, and
scope of offerings? How will you prioritize these
dimensions in decisions?
· How urgent is this initiative? What is the intend-
ed launch time frame? How critical is that time
frame? What compromises are you willing to
make to avoid extending the time frame?
· What would the impact be if you could go to mar-
ket sooner? How can you accelerate the process?
Customer Experience
· If you repackage existing products for recurring
revenue, some of your existing customers will
migrate to the new service. How will you manage
people through that transition? Will the customer
experience improve or degrade?

· What needs improvement about your current
customer experience? What will the impact be
on customer experience if your customer base
grows?
· How do customers want to buy the product?
How will they interact with your product line (on-
line, mobile app, customer service, sales reps,
etc.)?
· Starting with the enrollment process, do you
have customer service operations that can an-
swer customer questions on first contact, 24/7?
What would it take to achieve that capability?
In-house or outsource?
· How are customers acquired? What systems are
used? Are there multiple pathways? How does
this change in a recurring revenue world?
· What does the connection between the com-
merce system and the service system need to
look like? How are services provisioned? What
service response times are required?
· What information do you need or want to provide
to your customers?
· Will customers self-manage their own customer
experience? What constraints would hinder or
prevent this?
Information Technology
· How well are your current infrastructure/back-
end systems working? Where is there room for
improvement? How do current needs impact a
recurring revenue initiative?
· How well do current systems scale?
· Where does this initiative fit within your enter-
prise systems roadmap? Will this initiative oper-
ate stand-alone or leverage corporate resources?
· What is your future software direction (custom,
on-premises, or cloud)?
· What is your core competency? How does that
align with changes necessary to support recur-
ring revenue? What skills do you have on your
team to implement and manage a recurring
revenue solution? What skills will you need to
acquire?
· In choosing systems to support this initiative, do
you have everyone you need involved with this
project or are you going to select something you
like and hope everyone else will love you for it?
Who owns the decisions? Finance? Line of Busi-
ness? IT? Who has veto authority? Are Sales and
Marketing involved in the process?
Sales/Marketing
· How do you acquire customers today? What
systems and tools do you use? How is this likely
to change?
· What does your minimum viable product look
like? Is there a need to go to market with more
than a minimum viable product at initial launch?
How do you prioritize time-to-market vs. product
features?
· How will you differentiate from your competitors
(products, pricing, placement, cross-sell/upsell
options)? How can you differentiate on customer
experience?
· If you repackage existing products for recurring
revenue, some percentage of existing customers
will migrate to the new service. Is there a target
mix of net new customers vs. migrating custom-
ers? What is the impact of under or over-perform-
ing against that target?
· How frequently will you roll out new products
and pricing?
· How do you sell the product and how is it con-
sumed today? How will this change six months
from now, two years from now, and beyond?
What will change about this over time?

· What are your current thoughts on monetization
strategies and how might this change over time?
· What specific thoughts or plans do you have
around customer retention strategies? How will
you boost retention and minimize churn?
· Who owns the product catalog and product data
across your environment? Sales? Finance? IT?
· What are your current capabilities around recur-
ring revenue sales KPI’s (churn, retention, cus-
tomer lifetime value, monthly recurring revenue,
etc.)? Do current BI solutions provide actionable
customer behavior data?
Finance
· How will a recurring revenue initiative impact
existing pain points? How can you leverage this
project to mitigate current issues and derive
added value from existing teams?
· Do current business processes scale? What do
you currently do manually?
· Do current systems support recurring revenue
monetization models and provide the necessary
levels of flexibility and complexity?
· Do you have visibility into revenue leakage? How
do you mitigate leakage? How will this be im-
pacted by new business and added volume?
· How do you manage accounting for indirect
sales? What level of support do you provide for
channel operations? What is the impact of a re-
curring revenue initiative on channel support?
· How will compliance and security requirements
change?
· Is there any potential for geographic expansion
and how would that affect compliance and secu-
rity requirements?
· How does the initiative impact current business
risk assessments and mitigation strategies? What
new risks are introduced? How will you mitigate
these?
References
i Companies Struggle to Engage with Customers Digitally, Richard
Snow, Ventana Research, 2013-12-11, http://richardsnow.ventanare-
search.com/2013/12/11/companies-struggle-to-engage-with-custom-
ers-digitally/
iii Companies Struggle to Engage with Customers Digitally, Richard
Snow, Ventana Research, 2013-12-11, http://richardsnow.ventanare-
search.com/2013/12/11/companies-struggle-to-engage-with-custom-
ers-digitally/
iv The Strategic Value of Billing Practices, Mitch Rose, The Credit and
Financial Management Review, http://www.billtrust.com/sites/de-
fault/files/newspdfs/StrategicValue-of-Billing.pdf
v The Gartner CRM Vendor Guide 2013, Gartner Consulting, 2012-12-04
· What are current processes around non-sales
transactions (e.g., upgrades, downgrades, can-
cellations, refunds, etc.)? How will these process-
es change due to this initiative?
· How do you future proof your recurring revenue
business?
· What type of reporting is required at corporate
and line of business levels?
· What level of flexibility will you need in business
models and pricing plans?
CONCLUSION
Recurring revenue success requires competence
in a core set of business capabilities. Assessment
of current capabilities and gaps is an important
early step in a recurring revenue initiative. It’s not
just products or monetization models, recurring
revenue transforms many aspects of your busi-
ness. The more time spent preparing, considering
alternatives, and planning, the more likely you are
to be successful.
In the next chapter we’ll look at system require-
ments to support your recurring revenue business
requirements and growth.

In a recurring revenue business, monetization is
more than just a billing or payments system. It’s an
end-to-end process that spans the entire customer
relationship from activation through cancellation.
Traditional revenue systems are designed to man-
age one-time sales. The demands of managing
recurring revenue relationships expose gaps in the
capabilities of traditional processes and systems.
These gaps most commonly appear in the perfor-
mance of legacy billing platforms.
Modern billing systems designed to support recur-
ring revenue management include the functionality
and integration capabilities necessary to coordinate
and manage business processes and customer
touch points across the enterprise.
Define the scope of recurring revenue
monetization processes
Identify the common failure points of
traditional billing platforms
Describe the capabilities of modern billing
systems necessary to support recurring
revenue monetization processes across
your enterprise’s ecosystem
5
What About Systems?
A recurring revenue business requires a modern and agile approach to monetization. Not just
about billing or payments, monetization covers every aspect of the customer relationship.
“Billing is no longer a commodity service—
instead it is a strategic differentiator for
managing customer relationships and mon-
etizing 21st century products and services.”
Brendan O’Brien | Aria Systems

Chapter 5: What About Systems?
MONETIZATION IS A PROCESS
Monetization is a process that changes as your
focus shifts from traditional item sales to recurring
services.
In recurring revenue, monetization is a continu-
ous business process that begins with customer
engagement prior to account activation and ends
when an account is closed. Every customer inter-
action in between has an impact on your ability to
maximize the customer lifetime value of a relation-
ship and must be managed accordingly.
The monetization process spans a variety of sys-
tems, including eCommerce platforms, customer
and CSR portals, CRM, sales quote tools, financials,
and traditional revenue systems like billing and
receivables. Activities must be coordinated across
systems and data must be kept in sync across plat-
forms to deliver the seamlessly connected experi-
ence customers look for.
Author Story from
the Frontlines
A couple years ago I had a meeting with
a line of business president at a global
company. I was deploying a new reve-
nue management solution to support
his new recurring revenue product line.
He asked a simple, but revealing ques-
tion: “It’s only billing, why does it cost so
much?” I was ready for a lot of questions
that day. I could have quoted chapter
and verse on his project and budget, but
that’s not what he was asking about.
The question was more strategic—it was
really more about the scope of revenue
management in his business operation.
The basic assumption behind his ques-
tion was that the monetization process
is a commodity. Nothing could be further
from the truth.
Traditional billing and receivables systems were
predominantly designed to manage one-time sales
transactions. Monetizing recurring revenue is fun-
damentally different and adds the element of time
and the dynamics of managing customer relation-
ships to monetization processes.
Recurring revenue monetization models are time-
based. Charges are generated and payments are
received on a recurring periodic basis. Payment
methods shift from checks and electronic trans-
fers to card-based processes. Credit cards expire
and credit payments are rejected, requiring new
exception processes. Revenue is recognized over a
period of time as services are delivered. Customers
upgrade, downgrade, or cancel service during a
billing period, requiring proration of charges and
revenue recognition. Customers change address or
contact information, which can impact invoicing,
payment processing, and service delivery. Custom-
ers consume services and want a current view of
their usage data.
All of these elements must be managed in re-
al-time or near real-time to meet customer expec-
tations, with processes and data often crossing
system boundaries. Systems like CRM, ERP, billing,
fulfillment, and e-commerce that might not cur-
rently talk to one another must be linked together.
Existing integrations may prove inadequate for
new business models impact the custom-
er relationship and require companies to
connect marketing, sales, customer service,
and finance because these and other busi-
ness units all interact with customers but
through different channels and at different
times in the customer life cycle.”i
Richard J. Snow | Ventana Research
“More companies are adopting the telecom-
munications model of introducing packaged
services that include multiple products
and services, use-based invoicing, bundled
pricing, and volume discounts... These

increased demands. Manual, paper-based, and
spreadsheet processes that may have been ade-
quate to support one-time sales quickly become
unworkable and obsolete.
The weakest link in this process usually turns out
to be the billing platform, where traditional billing
or ERP systems tend not to support the basic mon-
etization models, time-based processing, and level
of cross-platform integration necessary to manage
customer relationships.
KEY FAILURE POINTS OF TRADITIONAL BILLING
SYSTEMS
Traditional billing and ERP systems often fall short
of meeting the needs of recurring revenue monetiza-
tion models.
Traditional billing and ERP systems are built and
configured to sell items at a single point in time.
In the recurring revenue world, a business delivers
services over a period of time, which exposes gaps
in functionality and common failure points.
Failure Point #1—Billing functionality
Traditional billing systems often fall short of pro-
viding the functionality needed to support recur-
ring revenue monetization. The most common
gaps are:
monetization models
Many traditional systems do not support subscrip-
tion models, usage aggregation, or a combination
of the two.
pricing
Traditional systems often lack support for complex
usage pricing models, discounting, promotional
offers, or the ability to mix and match complex
pricing capabilities in new and creative ways.
product catalog
Legacy product catalogs were designed to sell
items. In recurring revenue, a single ‘item’ could
be packaged and priced in many different ways,
which can often lead to an unmanageable explo-
sion of SKU numbers.
non-sale transactions
Recurring revenue models generate non-sale
transactions like upgrades, downgrades, cancella-
tions, and renewals that are often unsupported.
proration
When a customer changes service levels mid-cycle
(upgrades, downgrades, etc.) adjustments must be
made to period charges to account for the change.
revenue recognition
While not really a billing problem (most enterprises
do ‘rev rec’ in ERP systems), billing can contribute
to revenue recognition problems by not providing
the necessary data to support the process.
It’s not just billing functionality that can come
up short. There are other potential failure points.
These are the ones that surface most often:
Failure Point #2—Provisioning and entitlements
When a customer enrolls in a service, they expect to
be able to access that service immediately. Delivery
systems need to be in sync near real-time with com-
pleted orders and contracts. The interfaces neces-
sary to make this happen are not available out-of-
the-box with most traditional billing systems.
Failure Point #3—Data fragmentation
In a typical enterprise, data about customers and
their transactions is spread across multiple plat-
forms with no single system providing a complete
and current view of the customer relationship.
Companies often try to solve this with batch file
transfer processes, but batch processes by their
nature can’t keep up with the real-time nature of

a prime enabler for your recurring revenue business,
addressing key failure points of traditional systems
and supporting end-to-end monetization processes.
Billing sits in the center of your software ecosystem,
with touch points to eCommerce, customer portals,
CSR portals, CRM, fulfillment, financial systems, and
even analytics. It’s the only system in your environ-
ment with all of these connections, making it the
most logical choice to manage the flow of data and
activity across the enterprise.
Modern billing systems provide the functionality to
support charging and invoicing for a wide variety
of monetization options and much more. Tools like
sophisticated work-flow engines and business-rule
engines enable you to coordinate end-to-end mone-
tization activities and even embed your own unique
business rules and processes into the solution. Ad-
vanced integration options provide tools for connect-
ing systems to ensure data stays in sync across the
enterprise.
most recurring revenue businesses. This fragment-
ed view of customer and sales data often leads to a
fragmented customer experience.
Failure Point #4—Revenue leakage
Revenue leakage, incorrect billing, or not bill-
ing for services delivered can be a result of poor
provisioning processes that provide unauthorized
access to products, data fragmentation that causes
usage events to go unreported or unprocessed, or
pricing errors due to manual setup processes.
Failure Point #5—Integration
New ways of doing business often require hooking
things together in ways that were never intend-
ed. The end result can be complex systems and
interfaces that perform even direct and simple
tasks, like activating a new customer, in indirect
and complex ways. Data fragmentation problems
About Your ERP System
Traditional ERP systems were built to
support manufacturing or shipping
processes, where orders generated
pick lists and order-based invoices.
Like traditional billing systems, most
ERP platforms were not designed for
recurring charging and invoicing. Many
vendors have bolted on modules that
support time-based billing, but these
add-ons were generally built to support
specific-use cases like maintenance and
service agreements and may not match
up well with your new recurring revenue
business needs. If you’re trying to bill
from ERP and your vendor tells you,
“We have a work-around for that,” that’s
a red flag. You need billing functionality
that was designed specifically for the
kinds of use cases you’re going to base
your business on.
“The challenge is that companies need
systems that can create product and service
catalogs, manage the customer life cycle
from marketing through sales, billing, and
service, collect and calculate the cost of us-
age charges, and provide either embedded
accounting or links to existing accounting
systems. Crucial to success is managing
customer engagement throughout the
lifecycle.”ii
Richard J. Snow | Ventana Research
and revenue leakage are often the result of poor or
missing integration points between systems.
There are other potential failure points as well,
including the ability to perform real-time charging
and deliver invoices to mobile devices, but the
five listed above are the most common and most
difficult to address in existing platforms.
MODERN BILLING—THINKING BEYOND BILLING
A modern revenue management system becomes

The traditional view sees billing as an invoice
assembly and presentation tool—a commodity
product. The modern view sees billing as a service
enabler operating at the center of your business.
So, how exactly does a modern billing system en-
able your business?
The Great Enabler
It starts with the billing product catalog. Products,
bundles, packages, and price plans are maintained
in the product catalog, which can be made avail-
able to your eCommerce site, CRM, ERP, Sales
Quote, and CSR solutions. Data can be shared with
multiple systems and stored in multiple places,
but it’s managed only in billing, providing a single
source of truth for product data.
When customers visit your eCommerce site, they
select from the list of services provided by your
billing product catalog. When they enroll in ser-
vice, the billing system becomes the repository
of contract data (i.e. which product/services the
customer can access). That data can be pushed
Think Revenue
Management
It’s time to change the conversation
about billing. We shouldn’t be talking
about a set of commodity services.
Instead, let’s talk about the set of tools
that enable and manage an eight-, nine-,
or ten-figure annual revenue stream.
That’s a completely different conversa-
tion, and it’s the conversation we need
to have with the executive sponsors who
need recurring revenue management
solutions. It’s not about billing, it’s about
revenue management, providing the
tools and processes to support moneti-
zation of recurring revenue services.
to fulfillment platforms to support customer
provisioning, keeping entitlements in sync with
purchases. Again, data can be shared with multi-
ple systems and stored in multiple places, but it’s
managed only in billing, providing a single source
of truth for contract data.
When a customer upgrades, downgrades, or cancels
service, billing can prorate charges, notify financial
systems of changes, and notify fulfillment platforms
of any changes in product entitlements. Most mod-
ern billing systems support card and other payment
types, so payments, refunds, etc. can be processed
directly or coordinated with financial systems.
Usage data is aggregated on the billing platform,
providing a source of data for display on customer
service representative (CSR) and customer portals
and for predictive analytics. Analytic tools can
identify customer behaviors based on usage data
and offer appropriate discounts, promotions, up-
sell, cross-sell, and churn mitigation strategies to
maximize customer lifetime value.
Rating logic assigns pricing to aggregated custom-
er activity (usage models) and invoices are gener-
ated and distributed to customers either directly
or in coordination with other financial systems. If a
customer fails to pay, dunning processes can con-
nect with product delivery to automatically restrict
access to services, all from your billing solution.
This is not an exhaustive list, but it’s indicative of
the types of processes that can be managed across
platforms. To efficiently perform these functions, a
modern billing system has four key characteristics:
configurable (vs. codeable)
Modern billing systems are configurable, allowing
business users to control settings, create inter-
faces, schedule processes, build workflows, and
manage products and pricing through configura-
tion options without massive IT intervention or the
need to write lots of custom code.

Aria-DefinitiveGuide-ebook-2016

Aria-DefinitiveGuide-ebook-2016

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