The how’s, why’s and what’s of adopting an annual revenue recognition model

The new business model you need to sit up and take notice of

We’re now in the age of what’s been called the ‘subscription economy’. And in a world where over the last 15 years, more than half of the companies in the Fortune 500 haven’t survived, it’s time to sit up and take notice. To reinvent and transform. To listen to what your customers want, and respond, quickly.

Annual Recurring Revenue (ARR) is a critical metric used by subscription businesses to show the money that comes in every year for the life of a subscription (or contract). More specifically, ARR represents the annualised revenue for your subscriptions.

So, in summary, you know what you’re earning, year in and year out. Certainty is a beautiful thing.

The pitfalls

Adopting a subscription model isn’t in itself a guarantee of business success though. Just as important is having the agility and flexibility to change. Businesses have flourished and failed in as little as the space of a year as their great idea has been quickly surpassed, enhanced, repackaged and relaunched – at a better price - by more enterprising competitors.

Take Sky TV. The rigidity of their subscription model opened the door wide for Netflix to walk on in and take over their customers. And Netflix further cemented their place as an innovator by providing subscriptions for single and multiple screens and family packages. Smart work, guys.

The peaks

Customer demand drives product and service development. And in this age of hyper-connectivity, they can easily influence its success or failure.

Part of the appeal of adopting a subscription-based model is the unprecedented access to a new stream of customer data. Richer, more detailed data than you’d ever collect if you sold products through a traditional retail model. Wonderful data which shares new ideas, gives you a head start on emerging trends, and the opportunity to test the viability of innovative products, experiences and services without committing to a full-scale launch. And the chance for the smart marketer to hook in new customers with your ever-evolving offerings.

And as you know exactly what your income will be for the next year, you know how much you have for R&D. So, you can develop the products and services your customers are demanding. 

So, what’s my point?

To be a successful subscription business you need to be a visionary and flexible company.

The move from a traditional to a transcription business model requires you to be able to support subscriptions, dynamic business decisions and pricing, and to test different pricing models. Quickly.

New markets, new services, and new business models usually mean new (and preferably subscription-based) technology platforms that automate the customer lifecycle. Because it’s now all about them.

And you need a technology partner that gets ARR and understands what you need. Talk to me, Lisa Nicks, now