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.
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.
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).
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.
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.
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 with Salesforce
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.
Selling SaaS
Salesforce can help you manage and automate:
- SaaS pricing model.
- License-model.
- Subscription model.
- Payment terms.
- Automatically managing renewals (absolutely critical).
- Building new Sales Paths with guided selling to ensure your current sales teams are able to push and support the new model.
Supporting SaaS
Salesforce can help you manage and automate:
- New SaaS-specific Case flows and Knowledge base for CS agents.
- Customer-facing FAQ enriched by your agents and accessible on your Website or customer portal.
- Integrate your software or app backend so that your CS agents can view usage data and other relevant utilization information as they work to help customers.
Marketing SaaS
Salesforce can help you manage and automate:
- Segment and solicit existing customers to onboard on the new model
- Nurturing journeys that provide guidance on the new model
- Promote incentives related to the new model, such as Free Trials, Demos and Freemium plans.
Accounting & ERP for SaaS
Salesforce can help you share relevant information with your other critical systems, such as accounting and ERP to:
- Streamline sales, payment and contractual information across systems, thereby saving time and reducing the risk of errors that could impact multiple departments.
- Ensure invoicing is coherent with the chosen model, and especially avoiding large amounts of invoices for user licenses that were purchased at different dates. Understand invoices and payment must be made easy for your customers.
Self-Service for SaaS
Salesforce can help you put in place a customer portal, connected to the backend of your software or app, to streamline self-service for your customers, namely for:
- Purchasing, adding and removing licenses and users.
- Getting support and creating tickets.
- Accessing documents.
Usage Data to Personalize the Lifecycle
Once your Salesforce and software or app are connected together, usage data can be used across your front-office the deliver better and more personalized experiences to your customers, including in:
- Sales & marketing to upsell existing customers with new value-added features related to your SaaS.
- Sales & marketing to reward the most engaged customers, and re-engage the customers that seem to be underusing the software or app.
- Customer service to deliver better support with the help of usage and/or customer data shared to the CRM from the software or app.
