This piece was originally published in Global Banking and Finance Review
The finance function has come a long way from the days of solely “closing the books.” New technology, namely automation, along with market uncertainty amid the current pandemic, has ushered in the modern finance era. In fact, our recent State of Finance Amid COVID-19 report found 80% of finance professionals have been very or somewhat involved in their company’s internal and external response to today’s pandemic. Now, finance leaders, with the help of data-driven insights, are serving as strategic advisors providing confidence to the C-Suite on go-forward plans.
The CFO is now steering the ship, and it wouldn’t be possible without drawing metrics through automation and cloud-based technologies. The same survey found nearly 50% of finance professionals said that finance automation technology has helped their business handle the financial changes brought on by COVID-19, with Ecommerce Platforms (36%), Subscription Billing Software (25%), and Tax Compliance Technology (18%) identified as the most helpful technologies.
With the rise of the Subscription Economy, more and more companies are looking to finance teams to help drive a new kind of customer experience – the recurring bill. In fact, data and insights around customer usage gleaned from finance can lay the groundwork for new services, pricing and packaging experimentation, and more. Simply put, today, the insight gathered from recurring revenue is driving the subscriber experience.
Subscription insights to inform business strategy
Investors are taking notice of how subscription metrics can help to inform business strategy, with subscription data increasingly being discussed on earnings calls. For example, IBM referenced that their subscription business would be among the last of their businesses to be impacted amidst economic uncertainty during their Q1 2020 earnings call. Using subscription metrics to create a future-looking lens can give you the insight needed to make critical business decisions.
So, why are so many companies still missing the most important signal of customer loyalty – their finances?
Companies spend millions on product-focused marketing, yet forget their revenue is an essential customer experience touchpoint and should be analysed as such. You can find all the signs you need to understand your customer by analysing revenue trends. In subscription models, revenue is a signal that changes constantly, whether it be through upgrades, downgrades, suspensions or resumes, and should be used as a predictor for behavioural change.
Most often, the problem lies in the service architecture. Many companies are missing an orchestration layer between their CRM and ERP that enables them to listen and act on revenue changes in real-time. This means they’re not agile enough to shift alongside changing consumer needs. For example, a fitness studio can’t quickly spin up new monthly service offerings to fit with the ever-shifting local lockdown laws if they can’t access and act upon data trends in relation to their revenue.
In the current climate, only those who can quickly and constantly iterate their subscriber experience through unlocking revenue insights, namely through automation, will have any chance of succeeding. And this all begins in the back office, with the CFO.
Three subscription metrics for CFOs to watch
Whilst subscription-based companies have a wealth of customer data at their disposal, these insights can be hard to action if you’re new to the game. Those with subscription offerings should be using their data to track the right KPIs to drive growth, but this requires a standard, verified set of metrics. Traditional Generally Accepted Accounting Principles (GAAP) practice can’t measure the value of recurring revenue because subscriptions are forward-looking and often accrue over the life of the customer. So, a new set of metrics is needed to fit the modern subscription business model.
The business environment in 2020 is more competitive and dynamic than ever. As markets shift daily and uncertainty looms, businesses need to be agile to keep up with changing consumer needs and spending habits. Only through leveraging cloud-based and automated technologies to gather invaluable insights on customer spending will businesses remain agile and future-proof. The subscription model offers CFOs the right metrics to answer both the why and the how and make decisions that will drive growth and retention.
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