Articles  |   24-08-2022

SaaS Recurring Revenue for Manufacturers with Salesforce

SaaS Recurring Revenue for Manufacturers with Salesforce

More and more manufacturers are pivoting to add recurring revenue to their traditional product-focused business model. This article focuses on how to make that transition using a SaaS offer as a complement to the company’s core product offering.

Specifically we look at how the various departments and business functions need to adjust to support the new SaaS offer. This includes sales, customer service, marketing, accounting, and customer enablement via self-service.

 

Contents

 

Video Conversation on this Topîc

If you’re more the Youtube type, you can watch this conversation, which covers the rest of the items discussed in this blog post.

 

 

Recurring Revenue Trend in Manufacturing

The manufacturing trend of adding recurring revenue to the typical product sales business model has been accelerated by unavoidable market realities: the COVID-19 pandemic and lockdowns, geopolitical events impacting supply chain, and inflation.

Faced with disrupted logistics, uncertain inputs to their production, and significant fluctuations in the price or raw material and components, manufacturers make the obvious choice: recurring revenue.

The average growth rate of manufacturers that include a service as part of their business model is 5% to 10%. And 50% of that growth comes from the service part, even though it only represents a fraction of their overall business.

 

Manufacturers that offer service

 

There are many models of recurring revenue that manufacturers can tap, including:

  • Product lease / Repair & replace / Warranty renewals / Etc.
  • Predictive maintenance.
  • Consumables (ink cartridges for printers for example).
  • SaaS.

Having such revenue streams is beneficial in many ways for the top and bottom lines. First and foremost, it makes revenues much more predictable, especially in turbulent times. The predictability is even higher if the model is completely independent from the availability of parts, such as the SaaS model.

Secondly it reinforces the relationship with customers by providing stickiness and engagement through the various touchpoints of service, or the daily use of software. The engagement is even higher in the SaaS model if regular software updates deliver value-added features to users.

 

Industry Examples and Targets

Are you wondering where to start your internal discussions? If so, a few benchmarks or comparables can be handy.

Here are a few examples of targets that well-known B2B and B2C manufacturers are setting for themselves, as well as where the market average stands…

  • Rockwell Automation aims at 10% of total sales in recurring revenues by 2025.
  • Vizio (consumer electronics manufacturer) gets 90% of its revenues from product sales, but the margins on software are 73%.
  • Volvo is aiming for 50% of their cars to be driven on subscription by 2025.

However:

  • Only 14% of manufacturers say they have created go-to-market IoT strategies.

 

Manufacturers with IoT strategy

 

In the case of SaaS, because it is ubiquitous for everybody in their daily life, B2B companies can also take inspiration from their favorite B2C companies, especially when it comes to the smoothness of the experience, and the regular feature updates and upgrades. You can think of:

  • Upgrades to the Tesla software, including its self-driving software. At the time of writing this article, the cost to enable the full self-driving Beta on a Tesla was $15,000 USD, while the price of the Model 3 base model was $45,000 USD. Meaning that in this case, a value-added software-enabled feature can represent 33% of the sale price of the product. Just for fun, if you are selling high-tech products or solutions, apply the same formula to your business model and see what numbers you end up with.
  • Upgrades to the software/app of smart home products like Nest.
  • Upgrades to the software/app of wearables like FitBit or the Apple Watch.

 

A software updagrade on a product can represent 1/3 of its price

 

Step 1: Stop Giving Away your Software

Most manufacturers that are in a position to sell software already have software and apps that are used along with their products.

This may apply to you if you sell:

  • High-tech products.
  • High-tech solutions.
  • IoT / connected devices.

The first step is very simple: stop giving away your software.

 

Step 2: Your SaaS Offer

As the SaaS offer will vary greatly from company to company, and from industry to industry, we will skip this step and address it in other articles. You can also contact our experts to help you define your offer or product roadmap.

 

Step 3: Your SaaS Rollout

When manufacturers start their journey towards SaaS recurring revenue, they are rightly focused on the software/app itself. What is often forgotten, but can be as critical, is all the business infrastructure and processes needed to support the go-to-market and offer rollout.

Here are, for several key business functions, the MVP that needs to be put in place to support your new SaaS business model.

 

Salesforce enables your rollout

As you go through this list, keep in mind that if you are using the Salesforce CRM, you are already equipped with a cross-functional enterprise platform able to support your rollout through additional configurations and customizations. You don’t need to get new tools, or overhaul your entire business infrastructure. You already have the master-platform needed to enable and accelerate your SaaS recurring revenue model.

 

Selling SaaS

If you are used to selling products, determining the right pricing model and payment terms might by itself be quite the head scratcher. Here are some of the options offered to you:

Licenses:

  • Company-wide licenses?
  • License fee per group of users (10, 20, 50, etc.)?
  • 1 license per user?
  • Different pricing per user based on the type of license?
  • 1 license per connected product or solution?

 

Payment terms:

  • Net 30 like you are used for your products?
  • Using purchase orders like you are used for your products?
  • Monthly, quarterly or annual subscription? Multi-year subscription/contract?
  • Does your offer fit a transactional model with purchase of licenses online via credit card?
  • Something different?

 

Pricing model:

  • Small recurring fee as a complement to the products?
  • Significant recurring fee to enable a reduction in the price of the products?
  • Literally giving away the products and transitioning to 100% subscription around the software or app that are necessary to use the products?
  • Premium pricing based on significant value provided by features of the software or app?
  • Something different?

 

Managing renewals:

  • Absolutely mission critical: the automation of renewals. Avoid at all costs your sales reps spending all their time renewing license contracts when all of that should be automated.

In addition to the aforementioned, the rollout also implies training your existing sales teams to properly sell and support the value proposition of the offer.

Salesforce / CRM Tip: streamline the options selected for your teams by building new Sales Paths that include automations, guided selling, quoting tools and templates that accompany sales rep in the adoption and execution of the new strategy.

 

Supporting SaaS

Customer service for your SaaS offer implies ensuring your agents can support this new type of offer, as well as its interdependencies with your products.

Here we will focus on the technical support aspect of customer service, rather than the ordering or invoicing, that we’re covering in the Sales and Accounting sections of this article. Make sure you have thought about:

  • Do agents need visibility on the types of licenses the customer has?
  • Do agents need visibility on the status / uptime / downtime of the software / app?
  • Do agents need visibility on the usage data of the customer?
  • What are the entitlements and levels of support specific to the SaaS?
  • What are the entitlements related to the specific mix of products and
  • SaaS licenses that the customer has?
  • Does the SaaS entitle the customer with product privileges, like advanced replacements, etc?

As you have noticed from some of these questions, supporting your SaaS may imply integrating the CRM that is used by your agents to your SaaS backend, just like your CRM might also be already integrated to your ERP. More details on this integration topic below in the Usage Data section.

In addition to the aforementioned, the rollout also implies training your existing customer service or technical support teams to properly accompany your customers.

Salesforce / CRM Tip: maximize customer satisfaction and reduce the risk of errors by setting up a new SaaS-specific Case flow and knowledge base for your agents. The knowledge based should be enriched in real-time by your agents with the latest available information. From a selective extract of your knowledge base, create an easily accessible customer-facing FAQ that your customers and partners can use to resolve their issues before contacting support. Note that 69% of consumers prefer trying to resolve issues themselves first, yet only 33% of companies offer that option.

 

Marketing SaaS

New offers require marketing for their go-to-market. New business models require even more, especially if this novelty is not intuitive for your company culture or processes.

In the case of a SaaS, your existing customer base is the first target audience that you should market to, for several reasons:

  • Your existing customer base may already be using the software / app that you are converting to a SaaS. This is the ideal scenario to transition their contracts or purchase orders to take on the SaaS model, while having the option to make it seamless for them via discounts on your products. You can tweak their pricing to balance the total cost of ownership in a compelling way.
  • A subset of existing customers can be the Beta testers or early adopters of your new business model. This is a great way to test your rollout in a more manageable sandbox.
  • The information contained in your CRM can easily be used to segment them for targeted campaigns, as well as to craft highly personalized messages that foster engagement, interest, and upsell.
  • Marketing content and nurturing journeys can be used to onboard new customers on the SaaS model, as well as guide them towards the right resources (FAQ, support, transactional site or customer portal, etc.).

Throughout this process, ensure that product owners, sales and marketing are fully aligned, and that marketing initiatives are adjusted based on market feedback, including input from the sales team.

Beyond your existing customer base, you can market your new model to completely new prospects. In that case, evaluate if common SaaS tactics can be applied to your offer:

  • Software / app free trials?
  • Demos that show the value of your software / app. These can be pre-recorded (shareable videos), or live demos with sales reps that are scheduled by appointment?
  • Freemium plans that entice users without giving them all of the features that they need to fully operate your products or solutions?

In the aforementioned, the relationship between your products and your SaaS will determine what is appropriate or feasible.

Salesforce / CRM Tip: segmentation is the name of the game. Leverage as much as possible the transparency / integration between your CRM data and your marketing automation tools to identify, segment and engage with your initial SaaS target audience. Use marketing channels, in coordination with sales, to promote the offer in a personalized way to convert or upsell the right type of customer. Adjust campaigns and content based on actual data (engagement and conversions reporting).

 

Accounting for SaaS

Many companies that are considering a move to incorporate SaaS underestimate the difference between their current accounting and managing licenses and subscriptions.

For example, what if a customer buys 100 licenses staggered over time for 100 different users, along with monthly billing. Would you send 1200 invoices per year to that customer? The answer must be no.

Similarly to the automation of renewals to avoid overwhelming your sales team, you want to organize and automate consolidated billing with prorated license subscriptions that align around 1 or 12 invoices per year per account.

Your accounting system must also be able to handle revenue recognition for those types of contracts or purchases.

Salesforce / CRM Tip: integrating your accounting system with your Salesforce CRM should be prioritized to sync opportunities / subscriptions from your CRM with your accounting. If you enable customers to pay online via credit card, then your payment gateway should be integrated to both your CRM and accounting systems for automatic revenue recognition, as well as to facilitate automated provisioning of licenses.

 

Auto Provisioning of Licenses

Many customers, including in the B2B space, now expect a B2C experience. As you start selling software, you want to strive as much as possible to deliver that level of experience.

That customers gain access to their software the minute they pay for it is now part of these expectations.

One way to achieve this is to connect these 4 key systems: CRM, payment gateway, accounting system, SaaS backend / SaaS license management system.

Salesforce / CRM Tip: with these 4 systems integrated, the moment the payment is through and the corresponding opportunity is won, your CRM tells both your accounting system (revenue recognition) and your SaaS backend / license manager (provision license to user) to do their part in real-time.

 

Self-Service for SaaS

Many B2C software and apps enable users to buy and manage licenses from within the application itself. This habit has created expectations that B2B companies have to answer to.

If your software / app offers license purchase and management by itself, you may be ahead of your competition. However, if that is not the case, your CRM can help.

Continuing the thread of having your CRM integrated with your SaaS backend / SaaS license management system, you can offer the same functionality through a dedicated customer portal, where customers can acquire more licenses and manage their users and user rights. The CRM can relay all the necessary information back to your SaaS for provisioning, user and rights modifications.

Salesforce / CRM Tip: use Experience Cloud to create your portal, which can also nest B2B Commerce or B2B2C Commerce, to enable users to log in, purchase and manage licenses. This is the easiest way to offer these features to your customers without adding all of that workload onto the backlog of your SaaS development team. This also allows them to focus on value-added SaaS features, and features that synergies with your products and solutions, rather than spending time trying to develop an e-store inside your SaaS.

 

Usage Data to Personalize the Lifecycle

Last but not least, an additional value-added benefit of having your CRM and your SaaS backend integrated together, is that you can share SaaS usage data with the various teams and departments that are tasked to interact with or serve your customers.

By having this information on hand, your people can be proactive in engaging your customers to generate more value for them and for your company.

Salesforce / CRM Tip: these interactions can also be initiated via automations that detect certain key thresholds. For example:

  • Marketing: accounts that are very engaged (use the SaaS a lot, or certain features) are automatically added to campaigns promoting advanced features at a premium.
  • Marketing: accounts that are not engaged enough are automatically added to campaigns tailored to highlight the most commonly used features for that type of customer, potentially rekindling the interest to use the SaaS.
  • Sales: throughout the lifecycle of customers and accounts, sales reps know exactly how the customers are using the SaaS and can better cater to the needs of customers and propose the best solutions for them.
    Sales: accounts that are very engaged (use the SaaS a lot, or certain features) trigger a notification or task to the account owner to ensure a follow-up about advanced features at a premium.
  • Customer service: agents handling support tickets or direct calls can see right away how the SaaS is being used by the customer, enabling them to resolve cases faster and provide a personalized experience where the customer feels understood right away.

 

 

 – – – – – Video Transcript – – – – –

 

Intro

Louis-Nicolas Hamer (00:02):

But really you have to stop giving away this firmware, this software, or these apps. You need to pivot towards a recurring revenue model.

Market trend: Manufacturers adding recurring revenue

David Lamarche (00:15):

More and more manufacturers have started to pivot, or are considering a pivot to add recurring revenue to their business model. That has probably accelerated a lot over the past two years with the supply chain disruptions. A lot of companies impacted by unpredictable costs of materials, components, the unpredictability of supply. So these are additional factors pushing manufacturers towards recurring revenue models, at least for a part of their business. Any comment on that trend and things you’ve seen in the market.

Louis-Nicolas Hamer (00:53):

Yeah. I mean that this is a trend that’s been going on for more than a decade now, and it’s all about providing value added services to your customers, to complement the hardware that you’re already selling to them. And it’s really also about creating stickiness with your customer base. Not only do you want to sell hardware once every few years, or maybe, you know, a couple of times a year, you want to have that engagement with your customers on an almost daily basis through that SaaS offering. And of course that translates into steady revenue, which, you know, everyone’s looking for these days.

David Lamarche (01:36):

Yeah. And so we are gonna dive deeper into the SaaS offering, but before we get there, there are a few ways manufacturers are getting that recurring revenue piece. The super traditional way, things like extended warranties, preventive maintenance, lease, rental of equipment. Another one that’s traditional is the consumables. With the good old example of the ink cartridges for printers. But what’s been, I would say, gaining a lot of speed, which you alluded to, is the SaaS model, or the IoT model. That often applies to manufacturers with more Hi-Tech products or solutions. So let’s dive a bit deeper into that piece.

 

SaaS model for manufacturers

Louis-Nicolas Hamer (02:23):

Yeah. So first of all, there’s the offer piece. You know, you’ve been selling hardware, and maybe on this hardware, you were providing some firmware, maybe you were providing desktop software to manage your hardware. And obviously then you may be providing some sort of an app, Cloud play, IoT play, but really you have to stop giving away this firmware, this software, or this, these apps you need to pivot towards a recurring revenue model. And that’s really, you know, the first step, which is kind of obvious. But then there’s all of the other infrastructure and processes that you need to think about in order to sustain and enable this new this new SaaS play.

 

Sales key topics for SaaS

David Lamarche (03:11):

Right? So if you have a new business model that you want for your business you need something to support it beyond the offer. And that impacts a lot of the departments of the company. So, I would like to ask your input, your directions. What does every business function need to do to support that go-to-market of SaaS play? Let’s start with sales. So if you’re used to selling products, now you’re gonna sell recurring software. That’s a completely different ballgame in many aspects.

Louis-Nicolas Hamer (03:47):

Well, that’s where it’s super important from a sales perspective, to be very, very focused on the customer experience. What is it that you’re going to sell to your customers? You need to think about payment terms. Is it monthly? Annual? Pay as you go? Usage-based payments? You need to define those different pricing models. You need to educate your sales teams on those pricing models. Then you need to think about how you are going to do the collecting? Is it a standard NET 30, like you’ve always been doing with your hardware? Or PO-based? Or are you going to offer customers the flexibility of paying with their credit card online and making it a very, very streamlined process? So these are just some of the key things to think about from a customer perspective.

David Lamarche (04:41):

And is there a reskilling that’s needed in terms of they’re used to sell products? Now they have to sell software. Of course it’s gonna depend company to company, but what do you typically see in the market?

Louis-Nicolas Hamer (04:53):

Yeah, there’s definitely some training that needs to happen to properly educate your sales team as to how to pivot from selling hardware, to selling subscriptions. So there’s definitely things there that need to be properly planned. But the most important thing is you don’t want your sales team to be handling renewals. So you need to automate this process. Let’s just look at typical example. If you have 10 or 100 customers, you can have your sales team manage those renewals. But hopefully you have tens of thousands or a lot more customers. That renewal process on a yearly basis can really overburden your sales team. So you need to properly plan this process and you need to automate it as much as you can so that your sales team is really focused on selling to new customers, upsell and cross sell. And all of your renewals are fully automated with your infrastructure.

 

Customer service alignment

David Lamarche (05:50):

And that might impact another department, which is customer service. Sometimes they share responsibilities with the sales team. So conceptually, it might be similar? How do you need to upgrade your customer service to manage a new SaaS recurring revenue model in your in your business?

Louis-Nicolas Hamer (06:08):

Well, the first thing you need to do is you need to provide your customer service team with the customer 360. And so they need to know what customers bought, which type of license? Maybe they even need access to usage data, for example. So they need to have that information at their fingertips. And then you need to make sure that you’re planning entitlements. What type of entitlements are you allowed to get as a customer when you call in? Are you getting premium support? Basic support? Is there some sort of an SLA in place? What about advanced replacements? How do you handle those? Are you entitled to those? So making sure that you’ve documented all those processes, hopefully automated most of them and making sure that again, that your team has that information and that customer 360 vision.

 

Marketing approach

David Lamarche (07:02):

You know, everybody who says new offer, new business model, implies promoting it. So if you’re gonna roll out SaaS to compliment your product business, what you need to do in terms of marketing,

Louis-Nicolas Hamer (07:14):

Yeah, marketing is critical. You know, you’ve been selling hardware maybe for years now, and all of a sudden you want to entice your customers to buy an annual license or a subscription. It’s hard. You need to plan this, you need to market, and you need to entice these customers to join in on your new plan. And, you know, things like free trials, freemium plans, anything to get your customers to taste and try it out, see the value-added services that you’re providing them and then get them hooked. So that marketing strategy will be key in making sure that you are going to be getting the maximum out of this new offer,

 

Accounting for a SaaS business model

David Lamarche (08:02):

You’ve discussed sales, customer service marketing. So once your new business model is up and running of course you want to tie that back to other of your operational systems like accounting and possibly your ERP. So can you discuss that piece?

Louis-Nicolas Hamer (08:19):

Yeah. Well, the first thing you need to think about from an accounting perspective is contract amendments and consolidated billing. Again, the example, if you have a customer that has, you know, half a dozen of your products, and maybe they’re buying subscriptions for those products at different periods of the year. If you’re sending them six renewals or six invoices, not a big deal. But if you have a customer that has hundreds or thousands of your products, and they’re buying those licenses scattered throughout the year, all of a sudden you’re sending them probably hundreds or thousands of invoices. That’s not acceptable. Customers will not accept that. And that’s where you need to prorate your licenses, maybe have them all align so they’re renewing at the same date. Maybe the concept of consolidated billing, where you’re sending one invoice for all of those renewals for the month or the quarter or the year. You need to think about these processes and put them in place before you launch your new SaaS model.

David Lamarche (09:27):

Anything else from an accounting perspective?

Louis-Nicolas Hamer (09:30):

Yeah. Let’s not forget revenue recognition. So again, it’s so important before you launch your SaaS offer that you think about the structure for your revenue recognition. Now you’re selling software, maybe for an annual sometimes, maybe a couple years. How are you going to recognize this revenue? How are you going to be planning this structure and making sure that hopefully, again, you can automate a lot of the revenue recognition in your backend systems.

David Lamarche (10:02):

All right. So we’ve covered a lot of the supporting pieces in terms of business functions for the rolling out the new business model.

 

Salesforce to enable your teams

David Lamarche (10:12):

There’s a lot of moving pieces, and you might say, “Oh, but do I need new tools? Do I need new tools for my sales team? My customer service team? My marketing team? Etc”… to support a new business model. Now, if you have a strong platform, a strong CRM like Salesforce, you’re already managing those business functions with your CRM. And that’s, I would guess, the good news. If you’re using that, you can simply add the personalizations that you need for every department to run that new business model. So instead of being a mountain, it’s actually a few tweaks for every department to run it. You don’t have to overhaul your entire business infrastructure to support a new business model. Any thoughts on that?

Louis-Nicolas Hamer (10:54):

So from a sales perspective, it’s as easy as just creating a sales path with guided selling to support your new SaaS offering. From a support perspective, same thing. What you want to do is create new case flows for your SaaS offering. From a marketing perspective, you wanna make sure you’re properly segmenting your customers so that you’re enabling your marketing team to reach out to these customers with the right message and personalizing it.

 

Self-service

David Lamarche (11:20):

Yeah. And so I would say those are the low handing fruits. If you have a CRM like Salesforce, let’s go a bit further on, I would say our last two topics to address. If I think of consumer apps, I can manage my subscription directly from the app. So that’s not always the case from a B2B software perspective. Many software. They won’t enable the addition of users or the purchasing of licenses from within the software. And so this is where your CRM is… if I’m being more precise – a portal – that’s connected to your CRM can help your customers with self-service. So how important is enabling customers with self-service when you’re pushing a SaaS offer to market?

Louis-Nicolas Hamer (12:06):

Yeah, David, it’s so critical. Customers expect this from a modern SaaS offering. They expect a self-service portal where they can go in, buy their licenses, add licenses, enable new features, and they expect that as soon as they buy and they pay with their credit card, that license or that new feature is enabled right away. So auto provisioning integration to your backend systems is a critical piece to your SaaS offering.

 

CRM to SaaS backend integration

David Lamarche (12:39):

And you mentioned the last point. So integration with your backend system, we’re actually seeing this either done or on the roadmap of many of our customers: integrating the backend of their software offering to their Salesforce CRM. Now, what that enables to do is if you have usage data in the CRM, then sales, customer service, marketing, and other business functions can now give tailored service to their customers based on their actual usage of the product. So comment on that, give examples so on.

Louis-Nicolas Hamer (13:15):

Well, you said it very well. I come back to this customer 360 view. Now what you’re doing is, because you’re getting the usage data from your customers, how they’re interacting, what features they’re using, how they’re using your product and your new SaaS offering, you’re providing this information to your different departments. And so from a sales perspective, I know which features my customer are using. I can call them up, upsell them new features, cross sell, use this to hopefully get more engagement with them from a customer support or maybe customer success perspective. I can use, again, this usage data to properly enable and help my customers, guide them to use and get more out of these value-added services. And if they get more value out of them, obviously they’ll come back next year, or they may buy more. And same thing from a marketing perspective: if you know which services they’re using, which services are providing value to them, you can use this for further segmentation and further personalization to engage with them in a much more meaningful way.

 

End of transcript