CLARITY.SHOW Podcast: From selling products to subscription services
Selling subscriptions is on the agenda for many leaders today. Our guest Boris Aljancic, Lead, SAP Subscription Billing Product Management, and the host of the podcast Sergey Jermakov, Senior Partner at CLARITY, discussed the hottest trend - transition from selling products to selling services - and gave us insights on how to start selling subscription services and how to make this transition smooth and scalable.
Our guest Boris Aljancic, Lead, SAP Subscription Billing Product Management, and the host of the podcast Sergey Jermakov, Senior Partner at CLARITY.
Typical transition from selling products to selling services
Change of mindset in company
Technology perspective of transition
Core benefits of selling subscriptions
How to start selling services?
Some industries, such as telecommunications, utilities, and media, are very familiar with the subscription business and have a lot of experience. Despite this, many industries are still unfamiliar with the subscription business, including manufacturing and consumer goods, but now is the time to explore new business models in this space. What they should remember is that transitioning to a new model is not a one-day effort; it is a journey.
The first thing to do is to think about complementary services to their products. It depends on the product you are selling; it could be consumables as a service. Software as a service is a good example too and probably the easiest that you get on top of your product line.
More companies are bundling together different offering types to become holistic solution providers. It is not just about selling hardware, services, or even subscription-based services; the key here is being able to create a customized package that best suits your client.
Once you have started with complementary services, you can gather experience as you already have a direct relationship with your customers. Some companies may not know whether it is really accepted by the market in the beginning. The best strategy here would be to test it out in a selected country, and based on that experience, adapt their offering and services and then roll it out to further countries.
What other important components you see that should be addressed in this process of transformation?
The organizational and mindset changes are often underestimated. When you transition into subscription-based business models, you also should rethink how to incentivize your own sales force and partners. The huge change should be made in the organization when we switch to selling services. It starts with what we sell, the way we sell, who would be our customers, and who would get the most value out of what we are selling.
Quite early in the process it is needed to be addressed that it is not just offering a service, it is to have everyone on board, the own sales force, the partners. Everyone involved needs to fully understand what it is about, understand the journey, and be able to sell that to customers.
What are the important components for the organizations that would enable this from the technology perspective?
SAP provides a set of cloud-based applications and SaaS components that you can choose from and integrate with your existing back-end. Many customers want to be on the market very quickly, but with the minimum impact on the current back-end. Regardless of what back-end you are using, customers are looking for ways to run subscription-based business models. This is one of the key aspects we addressed at SAP.
SAP Subscription Billing is one component of the end-to-end Quote-to-Cash solution for subscription-based business models. Subscription Billing gives you all the capabilities to define subscription products, manage your subscriptions and compute regularly charges based on consumption in pay-per-use models. You may also need to connect that with the front office application, for example, a web shop. With SAP commerce, the subscribers can easily find the offerings and subscribe to those services. SAP provides a set of applications that are very nicely pre-integrated out of the box, so customers can choose what is required and come to market promptly.
In financials, you also need to adapt revenue recognition, create regular invoices with all those price elements, recurring charges, pay-per-use elements, and discounts. All of that needs to be reflected on the invoice and processed properly in your financials up to revenue recognition. SAP provides end-to-end capabilities in this regard as well.
What are the core benefits of selling services for the manufacturing companies?
1. Business resilience. During the COVID crisis, we saw organizations who already had subscription-based business models, and their operations were more resilient. Contracts have already been established, and it is far easier to execute an existing contract than to go out every day and find new buyers for your items. Subscription-based company models are more resilient in general, and your revenues are significantly more predictable.
2. Increased customer loyalty. There is a big opportunity to increase loyalty and improve relationships with clients that use your services. You can modify services to maximize the utilization of your machines by utilizing the insight you get from IoT. You can focus on justifying the subscription value on a monthly basis to ensure that the customer extends and continues to pay for the services. You are always ensuring that your customers are satisfied.
2. Expand your customer base. Some marketplaces, particularly those with high-priced products, may be saturated. In the life sciences, for example, where all the major hospitals have already purchased the top-of-the-line x-ray solution, there is a form of overload of products and options.
How can you expand the addressable market? That's where this as a service has a lot of potential; instead of selling your expensive products, you can provide it as a service so that smaller consumers can afford it and then pay-per-use for the model.
The Bottom Line
With the technology in place, everything can be turned into a service, even for companies where you would never think that this could be an option. There's so much potential and so many ideas, how you can really increase the addressable market, how you can reach to customers which you could not reach before just by selling the physical product. Selling services is all about providing experience and value to all customers. This journey starts with increasing customer loyalty, creating recurring revenue streams, and disrupting the competitive landscape.
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