The Subscription Economy Is Here
In a recent Sage Advice Podcast Craig discusses his thoughts around subscription models in the services industry with Ed Kless. Listen below:
Traditionally, [customers] would have to go through the long process of explaining the solution to the service provider along with laying down quite a lot of money to get the service provider to engage, were as with the subscription model the cash flow risk is really low on that. Also the discovery risk is very low, you don’t have to define the full six month, twelve month project up front, what you can just do is to take an agile approach, lets define the next two weeks which you can do pretty quick. If you don’t like what you are getting, cancel your subscription, if you love it you can scale your subscription upwards. It gives the customer ultimate control right from day one.
Predictable Revenue Stream
We can predict revenue for over say a twelve month period we can say, with that revenue how can we best serve our customer. And I think its very import, the question that we ask ourselves and that we encourage other business to ask themselves, is we know there is a global shift to sub economy, we know that, we look around us we see that all the time. The question is do you want to be a part of that.
We are finding and what many other sub companies are finding is that this idea of subscriptions, what it gives you is the reality of the relationship centric model. So when we sit down with our customers, we never talk to them about money, we never talk to them about scope creep, that conversation is gone. What we focus on 100% of the time is maximizing value, listening to them, understanding their changing needs and responding to that in a very agile manner.
What Are Some of the Challenges With Subscription Based Services?
How do consulting services work with the subscription model?
Its an exploratory model. From day one, even in the first four days of engagement, you can start exploring what the customers needs. We’ve done that, and it works very well in a services environment.
How do you avoid the fear of customers leaving after they have ‘gotten the answer’?
That is often the first thing our potential customers talk about. Our response is, what kind of customer are you choosing, and secondly, are we providing a compelling reason for our customers to stay with us. This is the core of the attitude our company has as we serve our customers daily. We believe that we shouldn’t be in business if we can not daily say that we have provided our customers with positive experience. If we are choosing the right customers and provided a valuable service, then we can’t lose.
What Are the First Steps to Shift Your Company to a Subscription Model?
One of the most important pieces is to not feeling like you have to do it all at once. Start small with variances in how you offer your services. These variances can start from different products, or from different services, or even with between different types of customers. Separate a specific group of these and begin trialing the subscription model for that group. In this way you get the best of both worlds. You are not moving all at once. This avoids cash flow shocks to your business but allows to begin exploring how this model will work for you.
Below is a transcription of the entire podcast:
Welcome to the sage advice podcast: energizing businesses around the world through the imagination of our people and the power of technology.
Ed: Well hi everyone and welcome to our podcast. I'm Ed Kless and with me today is Craig Juta. Craig is a PowerBI coach at FreshBI, a boutique business intelligence service provider. Craig has a passion for lifestyle coaching and finds his energy in sports and family life. Welcome Craig Juta.
Craig: Thank you Ed I'm glad to be back.
Ed: Well we’re breaking a little bit from our normal format cause you are as I like to call you a recidivist guest, this is your second time around on this podcast and we have a subject that I think is going to be of interest to a lot of you folks today. You've been doing a lot of thinking in your business but also in business in general around this notion of lets call it subscription based pricing; or creating a subscription model or subscription service. So, first off whats your initial thought, what would be your one shot definition of a subscription service model.
Craig: I'd say its a model that allows the customer to have almost zero risk and it allows you as a service provider to have a predictable revenue stream.
Ed: Okay so that is the two things you want to see as part of the model. And I like the first notion you talk up. Why do you think its zero risk to the customer? What are the important pieces to that?
Craig: The important pieces to that are that the customer traditionally would have to go through the long process of explaining the solution to the service provider also laying down quite a lot of money to get the service provider to engage, were as with the subscription model the cash flow risk is really low on that. Also the discovery risk is very low, you don’t have to define the full six month, twelve month project up front, what you can just do is to take an agile approach, lets define the next two weeks which you can do pretty quick. Lets throw down a percentage of what you would have thrown down before with a project before. If a project would have been $30,000 for instance now your putting down $1,000 on a subscription basis and its totally risk free. If you don’t like what you are getting, cancel your subscription, if you love it you can scale your subscription upwards. It gives the customer ultimate control right from day one.
Ed: So again its important that its zero risk to the customer. But then talk about the other side of it which is the nature of an on going business relationship that is a predictable revenue model.
Craig: Yeah, so depending on what side you are on, we are on the service providing side we can do a lot of things. So we can predict revenue for over say a twelve month period we can say, with that revenue how can we best serve our customer. And I think its very import, the question that we ask ourselves and that we encourage other business to ask themselves, is we know there is a global shift to sub economy, we know that, we look around us we see that all the time. The question is do you want to be a part of that. And there is a cost to being a part of it and there is a cost to not being apart of it. So, Gartner predicts that by the year 2020 all new entrance into the software space and 80% of the existing players would be on a subscription model and that has evolved from in the 1970's it was products that was the center of the economic world, then products and services in the 1990s, in the 2000's we have a customer centric model which was noble. But what we are finding and what many other sub companies are finding is that this idea of subscriptions what it gives you is the reality of the relationship centric model. So when we sit down with our customers, we never talk to them about money, we never talk to them about scope creep, that conversation is gone. What we focus on 100% of the time is maximizing value, listening to them, understanding their changing needs and responding to that in a very agile manner.
Ed: Now your offering with FreshBI is effectively a software package. If I were just a provider of services would this model still work because you have that stickiness of well if you don't pay me your not going to be able to use my software anymore. But what about someone who is just doing the service piece of it. say you had a partner org that did consulting on FreshBI that wasn’t reselling the product so to speak.
Craig: Yea that’s a great question because I love this idea of applying subs to everything. When I talk to my friends who have businesses I’m always pushing, I say guys try subscriptions. And when I think about the service model. Let me go back to the middle ground, an Idea like Tesla. Tesla doesn't have a sub model per se but what they do very well is they almost serve their customers as if the customer is on a subscription. So traditionally you’d buy a car and then five years later there’s a new model for that car. Where as with Tesla what they are doing is that they could give you an upgraded car every two weeks with software updates and they’re mobile maintenance teams as an example. So on the services side that’s what could be happening. But to answer your question on software service providers there’s a very huge opportunity there and we do that as well, we offer services, the challenge there is that you don't know what the customer wants yet but the very big upside with subscriptions there is it is an exploratory mode. So from day one, even in the first four days of engagement you can start exploring what the customer needs and we've done that and it works very well in a services environment.
Ed: And I think a fear of course from the service provider would be well they get what they want out of me which is the answer but then they drop us after they get those answers and think that from my perspective is that’s the fear, but what I think that does is that would keep you as a service provider hungry to say no what we are about is the constant improvement and provision and value on a go forward basis. Its not just a one time event and we've known this to be true for years right because software service providers I've talked to, being in this business for twenty years, the big challenge is you get an implementation done, you get somebody up and running on this stuff, but the real value would take place after this basic implementation is done but by that time the company has run out of money and they quote, can't afford to get the real value, which is bazaar.
Craig: Well it is. But I love that idea, because it comes up often. You’re right that is the first question we get. And this is my response, two things, I say what kind of customer are you choosing, number one, and secondly if your not providing a compelling reason everyday for your custome br to stay with you then you shouldn’t be in business. And I say that to us as well, I say that to my team every day, well not every day but the attitude we have every day is we shouldn't be doing this if we don't daily provide a compelling reason for our customer to stay with us. If we are choosing the right customers and we are providing a compelling reason to stick with FreshBI then we can't lose.
Ed: Yea its pretty neat, I love your example by the way of Tesla not being a traditional sub. But interestingly enough there are car companies that are moving toward this. Porsche for instance has a subscription model now where you can rent $2,500 a month but you can switch cards 18 times a year. and it includes everything except gas and air in the tires.
Craig: Yup that’s the way the world is going and I like it that way.
Ed: So what do you think is, if you were to break this down and say, alright what are the first steps that an organization needs to take in order to begin to offer subscription based modeling. What would they be.
Craig: Well there’s a few things. One of the most important ones is, not feeling like you have to do it all in one go. There are two things that you can have some variability on, the one is your products or your offerings in the case of services, and the other one is your customers, you could say were picking this set of customers and this set of offerings and for those alone we are doing the subscription model. And this way you are getting the best of both worlds because you are not moving all at once. You are not getting a big cash flow shock to your business because that’s the biggest challenge when you start this its a cash flow shock to your business because you are going to lower amount upfront but its a longer term. So because you are going on sub, if you are very reliant on partners and middle men agents, the subscription model is a very direct model which is good for your business. But just maybe play it safe on diversifying between products customers and protecting those partner relationships that you have.
Ed: Outstanding well Craig. We have an exit question that we ask all of our guests on the sage advise podcast. What is a hero of yours and why are they a hero.
Craig: My hero for now is Jordan Peterson. He hails from Canada, he is a leading academic, and I think he is changing the way the world sees many things including he has changed my opinion on many things to. And he has confirmed many things too. I like the way he articulates, I love the way he debates, I recommend checking out Jordan Peterson.
Ed: And lastly how can somebody get in contact with you Craig.
Craig: Contact us at www.freshbi.com. Our contact details are there and we look forward to hearing from you.
Ed: Craig Juta, thanks for being a guest on the sage advise podcast.
Craig: Thank you Ed.
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Author, Craig Juta
Speaker, Solution Architect - Business Analytics
Degree in Accounting and Information Technology.
Extensive horizontal experience in crafting business analytics solutions.
Team FreshBI is an innovation machine and the blogs that Craig writes mostly emanate from the innovations that FreshBI does for its customers
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