I can see why people thought I was crazy. Back in July 2014, CRN published the article announcing our “all you can eat” subscription service. Charging $200 per user, this offering for accounting firms had a massive effect on our market, our clients and our business.
Changing the revenue model had its high points and low points. Let me tell the story so you don’t make the same mistakes we did.
Over three years we’d developed an end-to-end IT architecture for accounting firms, called the ‘Modern Practice’. We were having a modicum of success selling it, but prospective clients weren’t really engaging. The implementation cost was just too high.
I remember sitting in my boardroom discussing a fundamental change to the business. By removing the implementation charge and delivering a solution at a simple price – per user, per month – we would not only ease the cost of implementation but also create an annuity business that would drive a far higher value in our business.
We knew we’d need a smart billing system; recurring invoices through Xero wouldn’t cut it. We settled on Chargify, a fantastic recurring billing system that allows our customers to manage their own subscriptions and allows payment via credit card.
Some skeptics suggested there was no way we’d get accountants to pay $200 per user per month.
The results were a little startling.
When we launched the program in June 2014, it had an initial revenue line of $5,000. By Christmas, we had grown that to $50,000 and by May 2015 we clocked over $100,000.
That’s recurring monthly revenue. That then gets a multiple of 10x at acquisition.
I felt I had proved my point on the business model and customer propensity to purchase everything as a subscription. However, we were bankrolling the implementation for these customers; rarely would we break even with a customer until month eight, many times not until we hit year two.
We’d done a great job of getting customers excited, but a poor one of setting expectations, naively expecting customers to actually read our terms and conditions (a document we’d spent years refining).
We were also booking more work than we could deliver manually. In December 2014, we had more than 86 concurrent projects. Our really smart team of delivery engineers struggled to cope with a cacophony of demands, calls and requests from customers.
To truly deliver a repeatable, cost-effective and reliable service, we had to invest in delivery automation – and do it fast. We relied on Dynamics CRM and developed a complex system of workflows that to this day handle our provisioning of all the products in the Modern Practice.
Automating delivery allowed us to deliver projects in record time. But not all of our customers were ready to work with us to deliver solutions. We started seeing customer churn.
Realising customer satisfaction was dropping, I personally reached out to our top 50 customers, and asked them all for their open and honest feedback.
Seems the Modern Practice is awesome – once you get there.
Our customers wanted more than just an electronic service; they wanted an individual to hold their hands through the process that, although is really simple, is something they just don’t want to do.
We’ve now slightly changed direction. We still develop and deliver the Modern Practice, but do it hand-in-hand with the partner channel, allowing partners to deliver as much of the services as they want and we support them with skills, tools, architecture and software to deliver a truly happy client.
We’ve learned a lot of lessons along the way but I can sum it up in seven things to think about as we change our business models
ONE Never assume what your customers want and will pay for. Price is not the only motivator (even if they say it is).
TWO Sometimes your perceived enemy can be your greatest ally as shown in our movement from direct to channel.
THREE Staff will churn as you change. Whether you like it or not, be prepared for it.
FOUR Customers don’t need educating about subscription pricing. They’ve been doing it for ages and like it.
FIVE Automating systems makes them more efficient but less personal.
SIX Most customers like the personal touch if it delivers results.
SEVEN Reaching profitable annuity totally changes the valuation of your business and helps you sleep at night as a business owner knowing the dollars will be there next month.
Nick Beaugeard is managing director of HubOne, the world’s first cloud integrator