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Aria Systems provides companies with software for managing subscription or recurring revenue business models. A recurring revenue business models includes three types of selling and billing structures: a one-time transaction plus a periodic service charge; subscription-based services involving periodic charges; or a contractual relationship that charges periodically for goods and services. Aria’s cloud-based software addresses key requirements of users in the marketing, sales, operations and accounting functions in this type of business.

Recurring revenue, first popularized in the telecommunications industry, is increasingly common in others. It is well suited to companies accessing software and hardware technology as a service through cloud computing. For example, has a strong impact in the entertainment business, as customers subscribe to rent movies, music and other creative digital products instead of owning them. In general recurring revenue is attractive to providers of services or products because it establishes a regular, predictable income stream as long as they retain the customer. In using it it’s essential to handle interactions smoothly and completely in order to sustain customer engagement and maximize each customer’s lifetime value. Software is an essential element to successfully doing so.

Aria’s software is designed to help companies maximize customer lifetime value in three main ways. First, it is designed to help create a positive customer experience with every interaction. In our benchmark research on recurring revenue,vr_Recurring_Revenue_03_recurring_revenue_challengesmaintaining customer engagement is the most frequently cited challenge in businesses that use it, cited by 55 percent of participants. Having repeated positive interactions can be an important determinant of renewal rates. Renewals in turn are a key driver of profitability in these businesses because of the relatively high cost of adding a customer. Along those lines, 39 percent of participants  cited customer retention as an impediment. Moreover, since a company’s costs related to its recurring revenue business are relatively fixed in the short term, almost all the impact of lost revenue drops to the bottom line, depressing profits.

Rather than treating billing as a purely functional accounting event, Aria’s software enables a company to automatically incorporate personalized usage tips or customized thank-you messages in anticipation of an approaching anniversary (and renewal) date. It also can automate up-sell and cross-sell messages tailored to each customer. Nearly half (46%) or organizations said cross-selling and up-selling are difficult. This may be because they can’t engage effectively with existing customers. Multiple internal factors may affect this, such as a poorly designed marketing program for existing customers, a lack of skilled agents for performing ongoing interactions or technology limitations that prevent a company from creating or executing an effective customer nurturing program. Using software to craft an automated process for deepening customer interactions can be a way to enhance engagement. Companies that find it difficult to up-sell or cross-sell also may discover that for some customers its primary service is of limited importance. This may be because they don’t want to consider a more expensive, deluxe version or add-ons. Understanding which customers fall into this category is important so that up-sell and cross-sell efforts are focused only on those who likely to be receptive. Aria’s software enables business people to manage these aspects of the billing process without involving IT professionals.

Second, to support positive customer interactions, the software offers flexibility to quickly create and modify customer offers in a controlled fashion. Aria has a centrally administered catalog that defines the products, services and bundles on offer as well as their pricing, terms and conditions. In addition the software can handle a range of things that a company can bill for, including types of content, service levels, usage metering based on physical quantities, time or distance  or some combination of factors. Companies can define and manage offers based, for example, on the sales channel, geographic location or currency, and it can do that without requiring expensive and time-consuming customizations; thus a company can introduce innovations rapidly or react quickly to changes in its market. The control provided by such a catalog enables sales people to configure a set of terms and conditions that best match a current or prospective customer’s needs within established parameters. These limits ensure that the offerings balance flexibility and complexity. They enable administrators to limit the available pricing and terms to offers are that are profitable (or at least not loss-making) for the company.

vr_Recurring_Revenue_06_finance_less_satisfied_with_invoicingThe third factor is that, by managing the billing process in a continuous fashion, Aria’s software ensures complete accuracy. For anything more than a simple subscription invoicing can be a chore because customers often add or remove services to and from their contracts or negotiate a new billing method to suit their needs. It’s easy for those outside of finance and accounting departments to overlook the impacts on the department of not having a controlled end-to-end process, which can be addressed by using a dedicated application designed to support the billing process in a recurring revenue business. In our research only 29 percent of participants with finance and accounting titles said they are satisfied with their company’s invoicing system, compared to nearly half (47%) of those who work in other parts of their company. Managing the billing process from contract to cash in a single system provides a control mechanism that makes sure that the customer is not overcharged and that the company doesn’t suffer revenue leakage.  Another benefit of the software is that by managing the process from end to end it ensures the integrity of the data used in the billing process and eliminates the need for time-consuming checks and reconciliations that are necessary when, for example, the same data must be entered into multiple systems or when companies use spreadsheets at any point in the process to move data from one system to another or to handle adjustments or allocations. A well-designed billing system also facilitates the revenue recognition process.

Some companies sell directly to customers either through sales people (assisted selling) or a commerce website (unassisted selling), and some do both. Where subscription-like services are concerned, using a centralized catalog as the authoritative source for controlling offers ensures that the offers are valid and consistent with policies. For directed selling, Aria’s offers integration with the salesforce.com CRM system to ensure data in the two systems is synchronized. The software can be integrated with a company’s e-commerce site and enable offers and promotions tailored to specific buyers based on their relationship with the company, their location, past buying history or other factors. For both types of selling, the software facilitates testing of plans, promotions and services to determine the best approach to use. Users can apply effective dating to turn promotions on or off automatically at set times.

Aria’s built-in analytics addresses the needs of various roles in managing the recurring revenue business. Analytics is necessary to measure and monitor the health of a business. Having up-to-the-minute data digested and displayed for specific roles and responsibilities supports faster, more coordinated responses to market developments. Confirming its importance, most (82%) of the participantsvr_Recurring_Revenue_08_analytics_most_important_for_recurring_revenuein our research chose analytics as an important new technology necessary to support their recurring revenue business.

Not every company needs a dedicated application to manage its recurring revenue business. Those with simple offerings that rarely change over the term of the subscription are likely to find that their ERP system will serve their needs. However, companies that have even moderately complex offerings, that serve a diverse set of customers or that need to be nimble in managing offers and promotions will find that a recurring revenue application improves their performance. Our research finds that users of dedicated third-party software said they are satisfied with its performance more often than those using any other method: 86 percent said they are satisfied or somewhat satisfied with it, compared to 70 percent of those that use their ERP system and just 40 percent that use spreadsheets. I recommend that companies that have recurring revenue businesses assess whether dedicated software can help their performance and, if they so decide, they should consider Aria’s offering.

Regards,

Robert Kugel – SVP Research

As I noted in a recent analyst perspective note the recurring revenue business model is gaining increasing use worldwide. Our recently completed recurring revenue benchmark research shows that companies are using this business approach because they find that it can convey a strategic advantage in creating additional sales opportunities, making future revenues more predictable, enhancing their customers’ experience  and increasing customer loyalty. However, recurring revenue businesses have unique challenges, especially in finance VentanaResearch_RR_BenchmarkResearchand accounting departments because most ERP systems (the ones that handle the accounting function) are not designed to manage the specific requirements of a recurring revenue businesses.

One of the root causes of the problems finance and accounting departments encounter with managing the invoicing and billing of recurring revenue is that the order-to-cash process often is fragmented, with each part of the business doing its own thing and managing its activities. Our research on information optimization confirms that this is a common issue. A choppy process leads to fragmentation of data as it is entered multiple times in multiple systems. And because of such multiple entries, inconsistencies and errors are almost inevitable. For example, last-minute changes in a contract or a purchase order may not be entered everywhere or at the same time. After a couple of months customers may add or subtract services, and these changes may not be reflected accurately in every system at the same time. Creating new services or products thus can generate complexities that take time to implement. All these complexities and changes can create billing errors.

Finance departments wind up bearing the brunt of data fragmentation, a fact that is rarely appreciated by the rest of the company. Since they can’t take for granted that the billing data is utterly reliable, they construct monster spreadsheets to vr_Recurring_Revenue_06_finance_less_satisfied_with_invoicingreconcile the information about the customers’ services, pricing, the contract terms, usage and other factors that are stored in each of the systems. It takes time to work through the reconciliation spreadsheets, and this job requires experience. The more variations in the services and products offered, the more complicated and time-consuming the reconciliation process becomes. Therefore, it shouldn’t be a surprise that our research reveals that those working in finance and accounting organizations are far less happy with their company’s invoicing process than everyone else: only 29 percent of them are satisfied with invoicing, compared to nearly half (47%) of people vr_Recurring_Revenue_07_dedicated_system_users_are_more_satisfiedworking in other parts of a company. One way of dealing with such complexities is to put tight controls on what sales people can offer and what product managers can introduce. But this isn’t a good solution. It might save time spent by the accounting department but can make the company less competitive. Moreover, it’s unnecessary.

Dedicated billing systems that are designed for companies that offer recurring or subscription services enable finance and accounting departments to get what they need to perform their jobs well without diminishing the company’s ability to introduce new products or features quickly, and without severely limiting sales teams’ flexibility in negotiating pricing, terms and conditions. These dedicated billing systems provide finance and accounting groups with controlled, accurate and up-to-date billing information so that invoicing becomes easier and more reliable. They can substantially reduce or even eliminate errors (which can speed up collections), and they enable companies to handle customer billing inquiries quickly. Automating the process means reducing the need for administrative or operational overhead, thereby cutting costs. This probably accounts for the finding from our recurring revenue research that almost all (86%) users of dedicated billing systems are satisfied or somewhat satisfied, far more so than those that use spreadsheets to support their process and those that rely on their ERP system.

A well-designed recurring revenue billing system usually will automate the revenue recognition process to make it completely reliable and easier to audit. Companies that try to manage revenue recognition in desktop spreadsheets almost certainly will find that keeping track of even slightly complex services is difficult and time-consuming. It’s all the more difficult because in many recurring revenue businesses, customers frequently modify or change their contracted services or products. Using spreadsheets to track what revenue can be recognized and when is even more difficult when customers decide to add or drop features, bring on new users or respond to a new marketing offer.

The business case for investing in a dedicated billing system often can be made simply on the time (measured in full-time equivalent employees) saved in bringing on new customers, modifying their contracted services and preparing and checking invoices. It’s also important to be able to quickly add or modify a company’s offerings and to give sales people the ability to adjust the terms and conditions of contracts (within reason, of course) as needed to close a sale. I recommend that CFOs, controllers and heads of accounting in a business with a subscription or any other type of recurring revenue business model that are not using a dedicated billing system investigate this software; they should admit that most ERP systems are not designed to handle the specific requirements of these types of business. These dedicated systems usually are available as a cloud-based service, so they are relatively easy to deploy, and most vendors have experience integrating their offerings with ERP systems.

Regards,

Robert Kugel – SVP Research

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