30 Mar How to get started: Subscriptions for manufacturers
by Kevin Willemse, Tom Lovell
The industrial sector has had a rough year; with supply chain disruptions and ongoing concerns about the talent pool, manufacturers need solutions to keep them agile and growing—and they need them fast. The latest numbers from the Federal Reserve show a decline across the board (utilities, mining, process, and discrete) in total output production and capacity utilization, continuing a trend of numbers that are failing to reach their pre-pandemic or long-run average levels. However, manufacturers who have developed (or rapidly pivoted to) a subscription revenue model to support more traditional capital sales figures have weathered the storm better than most, and those companies that have not are increasingly investigating subscription models for some of their best-suited product offerings as the innovative answer they’re after.
Previously, we’ve explored what subscription models might look like for manufacturers and why Salesforce is the ideal platform to support your subscription processes from a technology standpoint. Now, the big question remains: how do we get started? Let’s look at four areas a manufacturer stepping into subscription management—from a product and revenue perspective—must consider from the very beginning: product suitability, organizational culture, financials, and partner collaboration.
Are your offerings suited to this change?
First things first: you have to evaluate very honestly if your current business offerings are realistically suited to a subscription model in the first place (without complete overhaul). It’s one thing to acknowledge subscriptions are the latest and greatest innovation disrupting multiple industries, but that doesn’t automatically mean it’s right for you. Retooling your entire catalog and operations around a revenue model is rarely a sound strategy.
Subscriptions can be a powerful and creative way for manufacturers to stay on top of evolving market expectations and competitive offers, but not every manufacturer or their product is destined to take advantage of these. Take a look at your products and seriously consider this question: “Do we currently have, or can easily create or restructure, anything that could be subscribable or that lends itself to a renewal model?”
If the answer is no, that’s okay. For some manufacturers, subscriptions aren’t the way to go, but there are still plenty of ways to innovate the customer experience with traditional product sales models. Learn more here.
Is the organizational culture ready?
If you have the product offerings to make a subscription model work, the next step is to make sure your people and organizational culture are ready to support it. The crux of the subscription model is that you’re not simply selling a one-and-done item, you’re selling your expertise and servicing capabilities, overall value to the customer across an extended period, and a trustworthy, long-term relationship (plus the item itself!).
Manufacturers considering subscription models will need to be prepared to deliver seamless customer service throughout the life of each and every subscription, along with the various sales and service touchpoints. Otherwise, your organization runs the risk of having done more harm than good by selling a contractual obligation you don’t have the ability to support according to high customer expectations.
In our experience, we’ve found that many manufacturing organizations are entrenched in a decades-old sales methodology. Your sales reps aren’t just landing signatures and passing deals on to fulfillment: your sales reps are also responsible for customized service excellence—as all of your employees will be. Customers expect everyone they interact with to know their history with the business and be equipped to answer any and all questions they may have regarding their subscription contract. With a subscription model, you have to perpetually nurture relationships even after the “closed deal” stage, or risk losing the revenue you worked so hard to secure.
Consider if your sales and support team is prepared with the right mindset to start supporting knowledge libraries, technical support, customer communities, value-based selling methodologies, and more in a new digital way to keep subscriptions renewing for as long as possible.
Do you have a strategy in place for pricing and renewals?
This is a critical step for any industry moving to subscriptions: conduct a full COGS analysis to guide you in making pricing decisions for the new subscription offering. You’ll need to pick a price that protects margin and revenue but is still appealing to the market and competitive. And, perhaps more importantly, you don’t have multiple tries to get this right. If you change pricing too often in the early stages of getting a grip on subscriptions, you’ll end up with far too many pricing contracts in place, creating more hassle for both sales reps and customers to maintain and navigate. This rapidly leads to a perceived “failure” of the subscription model you implemented, which is inaccurate. KPIs, predetermined price review intervals and strategies, and structured planning around your revenue subscription model performance criteria must be established before you launch your first subscription SKU to your customers.
Keep your pricing simple and straightforward, and make sure you have a precise, all-encompassing understanding of the associated costs supporting the subscription model. This will help business stakeholders get on board and see the potential for scaling subscriptions in the future, in a controlled, structured, and easy to maintain manner.
In addition, make sure your organization has considered the renewal stage of subscription management: do you have the people and technology in place to support renewing customers? This may mean new team members, standard operational documents and procedures, and supporting technology platforms designed to streamline renewal sales. The concept of customer “churn” may be one you never had to care about up until now, but moving forward, it is going to be critical to your success.
How will you collaborate with your partner channels on this?
Finally, the element of channel partners engaging with your newly minted subscription model is an especially important one for manufacturers. Manufacturing companies often come with very involved, complex networks of wholesalers, distributors, and partners that they depend on to take their products to the next stage, be that another factory for further assembly, a storefront, or a warehouse. Your organization needs to set up clear expectations for how subscriptions work with this network: are you selling subscriptions to the dealer or partner? Are your subscriptions going straight to the end consumer? Will you investigate ways to change or streamline (or eliminate) these channels in a strategic way? The answers to these questions will change who needs to be enabled and trained on your evolved sales process and mechanics
Chances are, not only will your internal team need some change management to adopt the new subscription offering into their processes, but you’ll also need to enable external partners to sell subscriptions, too, or adjust to other changes to how you interact with end customers. This leads to an even larger discussion surrounding training materials, collateral, sales messaging, marketing campaigns, etc. Because even if you have the best subscription strategy in place in terms of the financial numbers, it will mean nothing if your partner network isn’t properly equipped to take those subscriptions the last ten yards to end customers.
If your organization is wary of trying out a subscription model or you’re wondering if you have the size and maturity to pull it off, it’s worth considering a small pilot program of subscriptions that go straight to your product’s end consumers. This way, you can test the market without having to go through the full-blown channel partner enablement.
Wherever you are on your journey to creatively innovate new product offerings, subscriptions, or customer experience, Simplus can help. We have worked with countless manufacturing leaders on their digital transformation goals, and you can be next. Learn more here.
Kevin is a Director in Simplus’ Strategic Advisory Practice, focused on bringing valuable transformation to customers looking to maximize their investment in Salesforce.com alongside their integrated systems and business processes.
Tom is VP, Manufacturing CoE here at Simplus. For over 15 years, Tom has helped companies implement data and process-driven strategies to bridge the gap between business and IT. These strategies have improved patient outcomes, reduced financial risk, and improved operational efficiency in healthcare organizations while bringing to bear streamlined costs, reduced risk, and improved revenue at manufacturers. His passion is architecting and sharing practical solutions that deliver valuable results for customers.