• BMIM Cash Flow

Case Study: Subscription Finance: Accelerating business and client relationships

Updated: Mar 13, 2019



Background:


The client is a Software House (innovating software products), and selling both products and managed services to major and global FTSE companies across the financial services, utilities and retail sectors. With ambitious growth plans the business is aspiring to reach a sellable state and float on the market in 3-5 years. The business utilises a subscription business model.


The business uses traditional accounting system with metrics good enough to satisfy the requirements of the auditors but insufficient to help the executive team manage the business. Able to measure past performance but not the future success - the system could not deliver financial prediction. The CEO was unable to explain the success of the business as he needed insight into forward-looking metrics and the investors could not see and measure the risk/return relationship.


The success of the business relied on strong, long-term customer relationships but their books could not translate the value of the committed relationships. The financial system did not differentiate between one-off transactions and recurring customer relationship, therefore failing to recognise the changing needs of the people, customers and the business. The pricing structure was not clear, it was inflexible and confusing to both the team and the customers, resulting in errors, missed revenue opportunities, overstated/understated revenue.


The billing team was also confused and could not understand the billing structure, unable to answer customer queries, causing delays in the collection process.

The limitations of the system prevented the business to monetise the customer relationships successfully. When further funding was needed, banks were unable to see the full potential and therefore priced the financial deals higher to compensate for the increased risk.


The Intervention:


If the company was to grow, it needed to do something to address the issues identified above.


BMIM Cash flow was engaged to set up and implement a system to optimise relationship business management by integrating subscription finance, commerce and billing.


Our aim was to accelerate growth via building and maintaining customer relationships.


We were able to achieve this by:

Pricing - we captured and increased customer value by enabling flexible and dynamic pricing that keeps up with changing market needs, and it is competitive too. We implemented pricing framework tiered per functionality, metered per usage levels, discounted to encourage bulk purchases and optimised to reward loyalty. We first started with 2-3 pricing tiers and then monitored the customer moves to identify what adjustments are required. Before setting the prices we iterated several pricing models to maximise subscriber acquisition and market share. When we identified the desired prices we set the prices above the ideal price points to make the desired prices more attractive. We raised prices only on future customers.


Billing - we trained the billing team to increase accuracy in billing and make the invoices intuitive by providing key information to speed up collection process. We changed the layout and aligned the visuals and the content to the business branding requirements, turning the invoices into a vital branding collateral. This increased UX and significantly reduced the number of invoice disputes, reducing collection times and optimising cash collections.


Churn risk - we implemented service desk 24/7 to provide the necessary customer support, monitoring customer usage and taking proactive approach in managing churn risk.


-  Financial predictability - we were able to drive the growth of the business by optimising forward-looking revenue. To do this we used 3 key metrics: Annual Recurring Revenue (ARR), Churn (revenue that will not renew) and Annual Contract Value (ACV).


Optimising forward-looking revenue – we used 3 metrics to drive growth; Churn (revenue that will not renew), Recurring Profit Margin (recurring revenue less recurring cost such as R&D and general and admin cost) and Growth Efficiency (how much we want to grow and what will cost the business).


Customer metrics -we analysed key metrics to gain visibility into the right customer metrics: ARR, Retention Rate, Recurring Profit Margin and Growth Efficiency.


Investors revenue/return models - we created dashboards with key metrics to help investors measure how much they want to grow and what will that growth cost the business and to help executives decide how much to invest back into the business growth and how much to book in profits for the year.


Infrastructure - to enable scaling up we recommended a system that would provide integration with the commerce systems, payments and the billing system.


The Outcome:


We created a system to enable business building around long-term recurring revenue relationships. We enabled the business to use key metrics to:

-        Differentiate and start recognising and measuring value of one-off revenue v/s recurring revenue

-        Measure the business in future as well as past

-        Manage complex changes during subscription life cycle


As a result, the CEO and its executive team were also able to make better informed decision regarding how much they need to put pack into the business to achieve the desired growth rates, without worrying if they will run out of cash along the way. Investors, on the other hand were able to see the expected return on their investment.


The Future:


The company is now enjoying the fruits of subscription-based business model and fully capitalising on their strong long-term customer relationships. Our expertise in finance and operations for growing business has enabled our client to go from strength to strength with full visibility of the future and the past.



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BMIM Cash Flow is the finance business unit of BM Interim Management Ltd (BMIM), an interim and management consultancy based in London. BMIM is a team of Strategists and Implementers enabling businesses to operate efficiently and innovate creatively. We do this by designing and integrating customised programmes to fill in systems and talent gaps in your organisation. For the full list of services, visit the official website: 

BM Interim Management Ltd (BMIM)