New software, new features, new deployments, and new monetization models are the norm for technology companies today. Companies and their customers are rapidly embracing the subscription monetization model, in which customers pay monthly or yearly for software use.
In 2023, 82 percent of survey respondents indicate that they’re using subscription/term models at least moderately, up from 68 percent a year ago, as detailed in the Revenera Monetization Monitor: Software Monetization Models and Strategies report. Part of the appeal of subscription is its ability to secure and grow annual recurring revenue (ARR) for software suppliers. Yet one of the top barriers to growing ARR is the customer churn rate. Part of the churn risk comes from supplier failure to identify what their customers need and how they use products.
Preventing customer churn and growing ARR requires that subscription offerings must not only be available, but they must also be customer centric. Technology companies and their product managers must embrace best practices that are based on looking at the product and customer experience from the customers’ point of view.
Evaluate the Process from the Customers’ Point of View
Your customers bought your software because they need to use it. They want the entire customer journey—from initial trial, through purchase, entitlement, use, and (ideally for the supplier) renewal—to be seamless. Is it?
Depending on how software products are offered or bundled, complexities may make it difficult for customers to understand what they’re ordering. Beginning the customer experience with a complicated, confusing, or even frustrating experience doesn’t bode well.
To know how effectively you’re delivering your software product, product managers should evaluate:
- Customer end goals. What does the company that bought your software need to deliver to all its staff using your newly licensed or renewed product(s)?
- Every step of the process of engaging with your products, considering it both forwards and backwards to see where hurdles or inefficiencies exist. Gaps can be areas of failure that drain your resources—annoying your customers, putting customer retention and brand reputation at risk.
- How sustainable your licensing process is, including compliance and enforcement. Identifying and implanting efficiencies can help your business grow.
- How effectively you are meeting customer requirements. Know your customers’ needs (such as for reporting or license bundling) and be sure you are delivering.
- Where and how your process can fail. Be sure to have a backup plan.
Software companies that align their enterprise resource planning (ERP) and entitlement management systems can help facilitate a flawless flow of information about product entitlements, accounts, and licenses. Taking the time for optimizing internal processes can help ensure that what customers experience is exemplary.
Many customers who buy software subscriptions are coming to this form of monetization after years of using perpetual licenses, where they paid once for unlimited use of software. As they transition to subscription/term licenses, the entire process needs to be user-friendly.
Streamlining subscriptions requires automation of the quote-to-cash (QTC of Q2C) process. This means that from the moment a customer receives a quote for a product, to when they make a purchase, and receive the entitlement for the defined license metric (such as the quantity of users, computers the software can be installed on, amount of storage, or the number of processors), the process should be smooth.
A simple product structure can improve ordering and delivery, preventing confusion down the road. Co-terming software (having a defined point every year when license renewal takes place) can strengthen the customer experience. Businesses have many customers using a supplier’s software, often running multiple versions of products. Enterprise agreements, with all renewals aligned to a single date, can be beneficial. This approach works around the difficulties that result in having multiple subscription calendars for a given customer—meaning someone who needs access to software would need to go back to their purchasing team, complicating budgets, and creating recordkeeping headaches associated with a slew of staggered expiration notifications. Instead, prorating a mid-term purchase to the existing term can ease the entire process for both the provider and user.
Solid customer communication is essential. When a change is made to licensing options or entitlement management, have a transition plan in place. Notify your customers in advance that changes are coming. Have resources in place to provide explanations to those who may need additional guidance.
When the subscription or term ends, a user should receive an automated prompt notifying them of the upcoming license expiration date. It wouldn’t be a pleasant experience to use software on Monday, only to try it on Tuesday to find out that the license expired, and the that product is no longer accessible.
Be sure to provide effective communication internally. Know what resources the engineering and sales teams, for example, will need to anticipate meeting the needs of your customers and end-users. This can range from making sure the information the support team requires from your entitlement system is communicated to your CRM, to making sure that your service level agreement (SLA) clearly details the amount of time required for an integration of your product (i.e., between order commit and license delivery). Not only will this help internal operations, but it will also help prevent frustrations or delays that could negatively impact the overall CX.
Integrate Customer Feedback
Last, but certainly not least: product managers must act on customer feedback in order to provide effective CX. Whether it comes from qualitative methods (such as customer interviews, sales feedback, support calls) or quantitative (automated, objective, scalable methods, such as advanced product usage analytics), customer feedback provides the opportunity to optimize customer lifecycles.
Software usage analytics, the process of tracking and analyzing how users engage with software, can deliver actionable insights about engagement with the product (such as where drop off takes place) to illustrate where users are encountering issues with the software. Valuable usage data includes if customers are using the software at all, if they are using specific features of a product, and if a customer’s utilization of a product is increasing or declining. Acting on this feedback can help ensure customers’ needs are met and provides valuable insight into product acceptance, in turn supporting revenue growth.