Why ERP Solutions Fail to Manage Subscriptions
by Karen Turtle, on 20-May-2019 16:47:01
ERP solutions were the magic bullet technology that promised to integrate and streamline company operations from end-to-end, but the original ERP designers definitely didn’t predict the current subscription trend.
Enterprise Resource Planning (ERP) systems were all the rage back in the 1990s, replacing tired, disjointed back-office systems with a single shiny unified suite for sales, purchasing, accounting, human resources, customer support, and more. ERP was the magic bullet technology that promised to integrate and streamline company operations from end-to-end.
But what the ERP greats like SAP and Oracle didn’t foresee at the time, was the rise and proliferation of subscription and usage-based business models, especially at the scale we see today. Think of media streaming provided by Netflix, Amazon Prime and Hulu, cloud storage services such as Dropbox or Google Drive, and the explosion in subscriptions for physical products too; from make-up boxes and meal delivery kits, to subscriptions to luxury cars.
While ERP systems are great at supporting conventional one-off transactions —including; processing orders and contracts, billing, revenue, invoicing and collection—they struggle at managing the complexities of recurring revenue.
ERPs Simply Aren’t Designed to Manage Subscribers
The subscription model turns the traditional way of doing business on its head. Suddenly the continuous customer relationship takes priority over the product and the upfront purchase.
ERP system workflows and core processes were, and still are inherently designed to manage the product life-cycle; in other words, the sale, shipping, and collection of payment. The recurring revenue model, however, shifts the premise to owning and managing the subscriber life-cycle instead, and this life-cycle is much more fast-moving and action-packed.
Subscribers flex their subscriptions up and down; adding and taking away products, upgrading, downgrading, renewing and canceling services and memberships. There are 26 revenue-related transactions during an average subscription lifetime. This number multiplies exponentially as customer numbers grow. ERP systems simply aren’t built to track and manage this volume and these sorts of transactions.
“We have observed our clients try to leverage traditional ERP to handle the subscription end of their business and have witnessed the same battle play out repeatedly. Need 12 more software licenses? No problem. We’ll just process another sales order. Can we set those up for recurring billing? Want to take four licenses off halfway through a two-year agreement? Are we co-terming the end-date of the agreements?” shares Mark Adams, Chief Customer Officer at Cloudmore. “This process is complicated, wide-open to billing errors and can be very costly over time.”
Nimble Pricing Baffles ERP
To remain competitive in an environment where the customer is always on, businesses have to be nimble with their pricing and flexible with their offers. Big utilities suppliers have had their foundations shaken by the arrival of lithe new players that can move quickly to deliver more for less. Gone are the days when a big telecoms company could offer line rental, itemized call charges and no more. Today it’s all about dispensing a package of services, such as broadband, TV and landline. They might also throw in events promotions, free gifts, cash prizes and other deals for good measure.
Offering these types of flexible services requires a billing system that can operate with more spontaneity. ERPs aren’t designed to accommodate pricing tiers, product bundles, timed promotions and the latest add-ons.
Usage-Based Billing and ERP
IT providers are caught in an interesting transition as well. A fast-growing number of their customers are moving to the cloud with shares of revenue in traditional software licensing dropping fast. Customers no longer want to pay large upfront charges and software maintenance fees, preferring pay-as-you-go or ‘as-you-use’ offers instead. Now, more businesses than ever are paying for things like data volume in gigabytes, or CPU usage time in hours. Old back-office models of billing and ERP systems can’t meet this new type of usage-based billing demand.
Prices and offers today need to be easily flexed, and counter-offers, upselling, cross-selling and timed promotions have to be responsive to the changing demands and moods of the subscriber base. The traditional ERP doesn’t give businesses the level of visibility required to monitor customer data and interaction, nor can it track the constant changes made to the subscriptions themselves.
Subscribers, and not product, are increasingly becoming a first priority for many businesses. This means that systems need to be able to scale exponentially to manage the complexity of numerous plans and a range of terms.
In Brief: ERPs Can’t…
- understand the concept of time or recurring revenues.
- manage upgrades, downgrades, renewals or add-ons.
- help businesses to design pay-as-you-go premium pricing models.
- tell businesses how many active customers they have.
- give businesses a unified view of customers, billing, transactions and products and services.