Enabling Advanced Monetization

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Digital Billing Transformation to Support
Mixed Revenue Models

Digitally Native Revenue Models

Digitally native organizations are those that have existed from their inception primarily in the digital world, and that typically engage with customers and deliver their products or services via a digital interaction. Well-known examples include Netflix in the consumer market or Salesforce in the business arena, but no matter the end customer, a key attribute of these businesses is that they predominately generate revenue via subscriptions. And notably, the difference between traditional subscription models like magazines or the old Colombia House music service and modern subscription models is that the product or service offering can be expanded, cancelled, extended or modified on demand and is priced as part of a digital engagement.

VR_2021_Subscription_Management_Assertion_3_SquareDigitally native organizations have demonstrated the advantages of these revenue models. For instance, they provide a more predictable revenue stream, since existing subscribers provide a forecastable baseline, and they enable continuous engagement with the customer to ensure adoption and usage as well as providing opportunities to cross-sell, up-sell and recruit new customers through referrals. Accordingly, many traditional businesses are now examining ways to incorporate subscription mechanisms into their revenue mix. We assert that by 2025, over one-fifth of organizations will have part of their business conducted via subscriptions and recurring revenue rather than one-time sales as companies adjust business models to remain competitive.

Subscriptions can be set up in multiple ways, including flat fee and usage-based, which is priced at the time of billing and calculates the price based on a formula using attributes such as cumulative volume, location of consumption or time of the year. As organizations begin introducing these models, they can shift incrementally, perhaps by testing with certain product lines or within certain geographies, and this can include transitioning existing products that are sold via one-time sales models to subscription models.

The billing system needs of organizations with mixed revenue can be very different from those with traditional revenue approaches. For example, a purchased product or service could be bundled with different items that have individual bill lines, and these individual lines could be priced using a mixture of one-time, subscription or usage-based pricing. Or these items can be utilized at different times since the initial physical good may be accompanied by transaction-based usage fees and a monthly service fee.

We now examine the attributes of a billing system that are needed and the potential challenges facing traditional companies as they move part or all of their business to a subscription model.

Characteristics of Mixed Revenue Billing Systems


As traditional companies have already invested in ERP and back-office systems, any new subscription management system will need to co-exist with existing systems.

To facilitate mixed revenue models, a billing platform must include several key characteristics. First, it must have the ability to bill mixed products and services on a single invoice. The typical customer does not want multiple invoices from the same company, and this preference includes products that are billed via different pricing models. If an organization operates in B2B channels, this requirement that the billing system be able to handle mixed products extends to individually negotiated contracts typical in B2B markets that feature unique pricing and terms per customer. And when any of the organization’s products or services are sold via usage-based business models, the billing platform must include the ability to handle the further complexities of these models. Pricing models can include multi-attribute, tiered, formula-based, and time-, event-, or demand-based pricing, and the billing platform must be able to accommodate these types of variables and pricing logic.

As traditional companies have already invested in ERP and back-office systems, any new subscription management system will need to co-exist with existing systems (initially not a “rip and replace” approach). This is a key requirement, since for many organizations, their existing ERP systems already handle invoicing, presentment, payment and collections and they will not want a second, parallel system. Customer and vendor master details will also typically be managed and maintained centrally, thus requiring dynamic syncing between the billing platform and these systems. Similarly, integration with third-party Contract Lifecycle Management is important to ensure terms and pricing are synced, and that any contract amendments flow through automatically. For instance, these amendments need to flow through to ongoing billing statements and any pro-ration for contract or order changes must be calculated based on business needs.

Over time, as traditional business models give way to subscription models, organizations will reach a tipping point when re-evaluation of the existing systems will be appropriate. This review should cover existing systems across the complete end-to-end lifecycle of the subscription customer experience, including integration with digital commerce portals (whether B2B, B2B2C or B2C) and Configure, Price and Quote (CPQ) systems.

For organizations, that have amassed different billing systems through acquisition, internal efficiencies and an enhanced customer experience can be achieved through a consolidation of the data that drives the individual billing events across systems. Customers do not want a separate billing experience for each of a seller’s business units and they do not care that the issue is caused by acquisition of companies with existing systems. This means that consolidation can be a key to an improved customer experience. The data that drives the computation of a bill, especially for usage-based systems, will need to be collected, transformed, normalized and aggregated to enable a consolidated bill for the customer. This data mediation must scale as an organization shifts more business through these subscription and usage models.

Finally, given the potential pivotal nature of subscription management and billing for the overall organization, business process orchestration and automation is required to ensure that approval and other event-driven processes are automated for the best experience. Smart error handling and automated processes should support a touchless and straight-through process that requires minimum human intervention.

Plan for the Future


Organizations should adopt a subscription management platform that supports the needs of today and tomorrow.

Ad-hoc spreadsheets, point solutions or in-house IT-led projects may appear to be low-cost and low-risk options for organizations that are diversifying their pricing models, but these approaches are not easily modified or extended as subscription business models extend beyond pilot programs into existing product and service lines or to new regions and geographies. Given this reality, organizations should adopt a subscription management platform that supports the needs of today and tomorrow. As they become more experienced and culturally comfortable with mixed revenue models, many organizations will require more advanced and complex pricing capabilities to provide flexibility and competitiveness, so any organization-specific process configurations should be able to be easily changed and adapted by domain experts who are not reliant on technical resources for making the changes. And as the platform’s reach extends to more of an organizations products and services, pre-built integrations and connectors will be crucial to ensure prompt and error-free connections to back-office (ERP, revenue recognition, tax and compliance) and front-office systems (orders, digital commerce and CRM).

Subscription pricing is increasingly seen by buyers and customers as a way to link delivery of value to payment, and it can reduce the outlay and risk of a new product or service. Organizations using traditional one-time sales models are increasingly moving toward this pricing model, even if it is only in smaller test product segments or markets. As they do this, a billing platform that can handle the specific requirements of subscription selling will be a key enabler of the model. Even if the organization is only making small incremental steps to begin, leaders must consider that as the company becomes more experienced with this type of pricing, it will likely want to develop different and more advanced pricing models for competitive and customer experience reasons. This can include using different attributes such as where and when the product is used, tiering discounts based on cumulative usage or incorporating precedent rules when usage satisfies more than one price formula. Technology should not prevent the adoption of the right business model, now and in the future, as organizations seek ways to respond to the market and remain competitive with their pricing. Adoption of a subscription and usage management platform, even at an early stage, will allow for lessons learned to be incorporated and re-used as organizations expand the subscription model to ever larger portions of their overall business.

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