Using Feedback Loops to Manage Subscription Business
Measure, iterate, scale
Everyone in business claims to want to listen to the voice of the customer; it’s a non-controversial issue. But the approaches are all over the map. There is little consistency and, truthfully, many vendors do a poor job of it.
Capturing customer feedback has always been a challenge for conventional vendors because they have to generate new processes to reach out to customers. Surveys, focus groups, and even social media are useful but many of these approaches are time and resource intensive and they are not automatic in business models that make and sell things then move on to the next opportunity.
Subscription vendors are in a much better position because they can take advantage of all the customer data generated in the normal course of business. Virtually every customer action gives off data that, when aggregated and analyzed can give a business great insights into the customer base. Savvy vendors can use the information thus generated to measure, iterate, and scale their businesses.
One of the greatest built-in data sources a subscription company has is its billing data and this data becomes even more valuable when it is time stamped. Capturing billing data and its timing enables a vendor to make comparisons between periods and even between years that can reveal variations in use, uptake, and signal some aspects of satisfaction.
Measure
Subscription vendors have to measure everything, at least they should. Often a subscription business can run on an impersonal website and a decision about continuing use or changing to a competitor might come down to cosmetics like ease of use, clarity of design, and other things that a vendor can’t improve without feedback. Customer feedback does not usually come from long emails or in-depth interviews. It emanates from simple decisions by customers about how and when to subscribe. So use data can be a gold mine and analyzing this data is what ultimately drives business improvement.
Measurement provides vendors with visibility into customer behavior from initial purchase to future demand. Leveraging this visibility gives businesses the assurance of customer knowledge on which to make decisions.
Iterate
Visibility is fleeting and gaining it must become a repeatable exercise. Once you’ve figured out what to measure to gain the most useful insights, there are two steps you need to take to ensure the health of your subscription business. First, by all means, keep measuring and compare results with earlier measurements. Some businesses notice seasonal fluctuations and understanding this makes it easier to see the difference between the start of a worrying trend and normal variation. Second, use what you learn to improve your business. This might sound like common sense but some times your research will suggest doing things that are either expensive or counter intuitive. In either case, don’t reject the findings out of hand. Do more research.
The measure-iterate cycle can do more than simply tell you the health of your cash flow. For instance, it also provides a simple and economical approach to researching product demand. Customer use data can provide a quick and economical means for A-B testing as in do customers prefer this or that? With subscriptions there’s no need to guess and hope you get it right. The answers are available if you know how to set up a controlled experiment.
Pricing and packaging are two areas where subscription companies must constantly iterate and the measure-iterate cycle can be a great solution for helping a company zero in on the best pricing and packaging approach for the moment. Keep in mind that customers constantly change their minds, which is why measure-iterate is a cycle and not a one-time event.
Scale
If you analyze your customers’ use and payments data you can develop the confidence to plow good ideas back into the business. This will enable you to scale your business with confidence because you have real customer generated information to back up each decision.
When combined, measures like attrition and customer lifetime value can combine to provide a powerful picture of future revenues before new business is counted. This can give you a more precise way to build and achieve sales targets. At the same time, triangulating with measures like lifetime value and the cost of new revenue can provide insight into not just revenue but its profitability too.
Final thoughts
Every business uses some form of measure, iterate, scale and some are more effective than others. Subscription companies are fortunate because they have so much data in their possession to start with and so many ways to apply it. But some measurements are best made against outside measures. For example, you might be able to measure and accurately predict customer attrition, something every subscription business faces. Objectively, it’s easy to conclude that less attrition is better than more and determine levels that are acceptable for your business. But how does your business stack up against other subscription vendors in general and in your market? What is the best practice goal?
Historically, this kind of information has only been available through independent research; however, it could also be generated from anonymous customer data. As the subscription market continues to evolve and mature, providing this kind of information will become a necessity and I foresee a time when subscription vendors will pool their resources through a trusted third party to provide this kind of information.
We hear a lot about the customer experience these days but many prognosticators have little more to go on than their opinions about customer behavior. Subscription companies have a great advantage in the data they collect if they collect it faithfully and analyze it rigorously.
Developing Customer IP
Sales people have been demanding better leads for a long time and today marketing is in a position to provide them. At the same time, marketers have discovered that the kind of data they collect is as important as its volume.
Marketers need to provide rich prospect profiles that answer many of sales people’s most important questions including: Is there a need? A budget? An executive sponsor? This is information that doesn’t come from simply buying a target list and getting this information requires more than collecting a small set of demographic data.
A few years ago sales people were happy with basic demographics — a name, a title, a phone number — and with that they’d schedule a meeting to capture what was really important such as need, budget, the identities of the decision makers, and more. But with today’s high quotas sales people don’t have time to invest in this basic data gathering and managers want more meetings that advance sales processes rather than performing simple qualification. So all this has caused marketing to re-think its processes to meet sales’ demands.
Today marketers collect a variety of data through multiple techniques to enrich the leads that they ultimately hand over to sales. This approach also weeds out leads that might look good on paper but that will never close.
So, marketers might start with a generic list and apply nurturing campaigns hoping to cultivate information that sales people can use. For instance, they may use social media to engage with prospects and in the process build a knowledgebase and share content. With nurturing and enhanced collection feeding more data to analytics the refined sales leads that marketers are delivering today are a thing of beauty. Unfortunately, that’s not enough any more.
In addition to all the data we collect and analyze to produce sales information, we also need to be mindful of the current situation in all target accounts. By definition, situations change almost daily and the information about change, when added to data already collected through other marketing channels can produce a potent combination.
Information about changing circumstances comes in many forms — press releases, earnings reports, news items, analyst reports, and much more. When added to what we already know about our territories and target accounts, this new information can turn a pile of routine marketing findings into powerful sales knowledge that approaches intellectual property.
If you view IP as the sum of a company’s research, knowledge, patents, processes and the like, then you really should add sales knowledge to your list. The knowledge you can develop about your markets and target customers, in relation to your business’s other knowledge, designs, and plans is unique. You own it, no one else has it and it is a competitive weapon.
But just like filing a patent, there’s a long process involved in bringing knowledge together so that it can be used effectively. Until fairly recently, marketers didn’t have the tools needed to find the disparate data scattered across the Internet that could complete the picture of a prospect’s need. Also that completed picture is most useful when the competition does not also possess it so there is an advantage in being a first mover in the race to capture and collate market knowledge.
That’s why savvy vendors are increasingly relying on sales and marketing intelligence tools to scour the Internet for those bits of information that can complete a marketing profile and turn it into a hot lead. Every day businesses give off data about their aims, ambitions, results, and shortcomings, which can be viewed as moments of truth, and all of this data can be useful for vendors with specific solutions.
This takes some of the randomness out of selling. By identifying moments of truth and being able to suggest specific solutions, a vendor can move from a position of hawking a product to becoming a trusted partner and, of course, this provides the vendor with a competitive advantage.
For these reasons, developing customer knowledge really is like developing any other form of intellectual property in a company. It is also why so many forward thinking businesses see sales and marketing intelligence tools as vital to their continued success.
The Fine Art of Belly Scratching
I was at a dinner at a working cattle ranch outside of Denver not long ago, but this ranch had a difference. Rather than raising cattle for the table, the business raised breeding stock and sent animals and other products, like embryos, all over the world. Every animal on the ranch had its genetic makeup tracked in a database and a unique ear tag that told something about it. I thought it was cool the way they applied science to the ancient practice of animal husbandry. But not everything was about genetics — some of it was more psychology.
As entertainment a real cowboy (Hey, I’m from Boston, Ok?) was tending to a young bull outside the restaurant and I went over to check things out. The bull was not full-grown, weighing in at only about 2,300 pounds and the cowboy gave me a lot of information.
Then the bull got a little restless, but honestly, it was something I couldn’t pick up on but the cowboy, with his experience, easily could. He picked up what looked like a long prod and I couldn’t figure out what he was going to do with it but what he eventually did completely surprised me. He began gently stroking the bull’s belly, that’s all. When I asked what he was doing, in typical cowboy fashion he said something that I’ve never forgotten, though at the time I didn’t see it as an answer to what I thought had been a direct question.
“Everybody likes to get their belly scratched,” he said, and that was that. As confirmation the bull seemed to relax.
Of course everybody likes to get his or her belly scratched both physically and metaphorically. Whether it’s in business or your personal life, a little communication that says, I understand you and you’re Ok, is an important elixir.
Hold that thought for a moment, please.
About six months ago I was speaking with a community manager, someone who helps businesses develop and run communities that reach out to improve bilateral understanding between vendors and customers. This woman happens to be a former elementary school teacher and we were talking about the power of using gamification and badges in a community setting.
I was doing research for a book and frankly, I was skeptical of the value of badges as rewards for community participation — after all, we were talking about adults, right?
“You’d be surprised,” the former teacher told me. “Everybody likes being recognized, kids, adults, it’s all the same.”
All this has me thinking about incentive compensation plans. They’re all a kind of belly scratching and it makes me wonder why in business we treat incentives so casually. Why, for instance, don’t we put everyone on an incentive plan of some kind? Why just sales people? And why, if we know incentives are so powerful, don’t we do a better job of targeting the behaviors we want to cultivate?
First things first. Many businesses provide some form of retrospective attaboys for a job well done. But reward after the fact without some form or objective reduces the reward to a random act of kindness. I am not against kindness but this is business and the goal should be repeatability not randomness and if rewards are randomized the idea of incentivizing good behavior flies out the window.
But incentives are not enough. Every day we see examples of sales people with incentives and overly broad goals gaming their compensation plans as Chris Cabrera points out in his new book, Game the Plan. Incentives have to come with crisp and concrete objectives otherwise if there is a path of lesser resistance to the goal, some people will undoubtedly take it — and they should because it’s in their self-interest. But this results in the incentives being paid without the objectives being attained and that’s not good.
For example, a sales goal only focused on a revenue target in any company with more than one product makes for a compensation plan that’s begging to be gamed. We all know that revenue mix is important otherwise one part of the business can get too busy while another does little. Worse yet, some products are more profitable than others and tracking only gross revenue loses that. But creating objectives and incentives detailed enough to cover all this is a tall order.
For all of human history the path of least resistance has been the standard operating procedure, but something amazing happened when database systems became available in the Cloud and companies like Xactly began tailoring them to the incentive compensation question.
With a system to monitor and report on all of the myriad happenings in the revenue generation process it’s now a trivial matter to develop objectives and incentives for sales teams and even the whole enterprise. Individualized objectives and rewards can be programmed and detailed scoring can provide unambiguous answers to some of the thorniest issues in motivating and managing a team.
Not long ago incentive compensation systems were thought to be a boon to the CFO enabling a business to reconcile all of the accounting for commissions at the end of a quarter. They certainly do that but if you think that’s their sole mission, you might want to revisit how important it is to proactively incentivize the behaviors that maximize profits and not simply to do the accounting. In today’s decentralized businesses where individuals are supposed to take on responsibility for doing the right thing without being told, clear objectives and the certainty of a belly scratch have become key components of organizational success. Just ask a cowboy or a teacher that you know.
Microsoft’s Dynamics CRM Impressive Performance
Last week, as Microsoft Convergence was opening there was a story online supposedly quoting Kirill Tatarinov, Executive Vice President of Microsoft Business Solutions, supposedly showing disappointing results for Microsoft Dynamics CRM. The numbers actually released by Tatarinov at the show and the numbers Microsoft holds to are below.
– Microsoft Dynamics CRM has 40,000 customers and nearly 4 million users
– Microsoft Dynamics CRM Online doubled net seat adds in first half of fiscal 2014
– Microsoft Dynamics AX and Microsoft Dynamics CRM both grew double digits in first half of fiscal 2014
– Microsoft Dynamics AX License grew 40% in the Americas and double digits in EMEA and APAC in first half of fiscal 2014
You can’t say Microsoft is having trouble selling Dynamics.
The Partner Pyramid
A partner might not be a customer exactly but it’s never a bad idea to think of partners in that light, at least in some instances. Last time we delved into the partner experience and compared it to the customer experience and discovered some similarities. But we can take the comparison further and rather than emphasize the customer aspects of the relationship, look into the business attributes.
First time vendors setting up a partner channel are prone to making the rookie mistake of thinking, “If we build it, they will come.” This come and get it approach to the channel often results in an inevitable disappointment as vendors realize that potential channel partners don’t share their enthusiasm. But it’s not enthusiasm; it’s hard business sense that drives things. Partners need to be shown in good detail how they can make money working in the channel and that usually goes far beyond vendor promises that “You can make money selling our stuff because we offer big margins.”
This brings us back to the notion of whole product. In an end user situation it means the core solution plus all of the policies, procedures, programs, and outreach that assure customers that they’ll be successful not only in productively using your solution but in interfacing with your company. Partners are no different though their whole product needs are. Consider these needs and you’ll get the idea.
Partner value proposition
Your value proposition starts with margin but by no means ends there. It encompasses everything from the robustness of your product to how easy it is for partners to register a deal, leverage your marketing and content, create invoices and make returns, and, oh, yes, get paid. It also relies on your brand and product reputation in the marketplace. If your major competition has a more visible and trusted brand it will attract more partners simply because the competition will appear easier to sell. But everyone has to deal with differentiation via competition, which is why, all things being equal, you want to be the company that’s easiest for a partner to deal with.
Product
Your partners are like anyone else, they don’t want to spend a day on-site when an hour online might suffice. That goes to the heart of ease of configuration and deployment. You can always improve product usability and for that reason you should never stop asking partners how to do this.
Business processes
Many partner programs are made or broken on their business processes and for good reason. Your processes make up the part of whole product that your brand and product don’t. Your business processes are what make you easy or difficult to work with and they require constant monitoring. Processes typical to a partner channel can include business onboarding, ongoing ease of doing business, easy access to technical support and service materials, well thought out terms and financing programs, deal registration, and marketing cooperation and marketing funding support.
Partner community
Very often we think of partner relationships as bi-lateral between one vendor and one partner at a time. After all, partners don’t want to share their knowledge of customers and deals in a forum where others could scoop them and that’s completely understandable. But when it comes to product and business process improvements you might discover a different reaction. A community organized around sharing in these domains usually turns up many good ideas that benefit all parties because ideas mature quicker and with greater detail when many heads consider a problem and provide solutions. So don’t rule out a partner community.
The role of PRM
Most of the partner processes mentioned and many others, are best supported by a robust PRM system. For example, one process not already mentioned is integration with CRM. PRM is not CRM, it is a specialized platform for managing the relationship between the vendor and the partner. But data and process flows need to work bilaterally between the two management systems for maximum effectiveness.
PRM should support everything else in the partner relationship and enable and automate the processes discussed above. If a vendor is using separate spreadsheets to manually manage its partner program, that vendor may quickly discover that the spreadsheets put an effective cap on the size of the partner population it can manage and thus the revenues it can drive through the system. This is not to say that a manual, spreadsheet based system can’t work, but it does imply limitations based on volume, size and, importantly, error rates in all of the business processes managed by spreadsheets. If your competitor’s way of doing business is more streamlined, they will win some of your partners.
Automating your partner business processes will maximize the utility of your partner program by providing much better support for partner initiatives and reducing the time it takes a partner to get something done. It will also reduce the inconsistencies and errors associated with even the best intentions in a manual process.
All this boils down to a partner’s ability to make money and control costs in your program. It’s what everyone aims for but it’s a more realistic way of getting there than simply opening the doors and saying come and get it.
