Consumers today value convenience and speed above almost anything else. The subscription business model delivers on both, which is why it is increasingly appealing for companies.

Subscriptions aren't new, and have in fact been around longer than we might realize. Decades ago, we started paying monthly for gym memberships, newspaper deliveries, and our utilities. Then we replaced our DVD sets with Netflix logins and our in-car CD players with Sirius XM Radio. In the past couple of years, subscription boxes started to boom, delivering ready-made meals, outfits and beauty and grooming supplies to our door. Now, in the midst of a pandemic, we find ourselves surrounded by subscription-based services for every activity. Not only do we have on-demand fitness classes and regular wine deliveries; we also have the option of memberships for private air travel and home maintenance services.

A recent PwC CFO survey found that 63% of CFOs are planning changes to products or services and 41% are looking to alter pricing models. And it makes sense. Subscription pricing, which is one type of model, can help stabilize and extend a company's revenue stream while building a customer relationship and delivering on the convenience that consumers crave.

Aside from the obvious financial benefits of the subscription model, CFOs also see its value in terms of placing finance teams front-and-center in the evolution of the customer experience. Subscription models represent the end of product ownership — something that has defined the buyer and seller relationship for centuries. Rather than a seller transferring ownership rights to a buyer upon sale, subscription agreements give buyers the right to access seller-owned products, services and experiences whenever they want.

As with most good things, there are some challenges to the subscription model. Adding or migrating to a subscription model introduces the risk of complicating company financials reporting. As a result, CFOs need to balance financial discipline with strategic flexibility when making this move.

Here are three tips for CFOs to do just that:

1. Resist moving revenue recognition outside of your ERP

The main challenge with migrating to a subscription model is the degree of cultural and organizational change that is necessary. Subscription renewal cycles require as much time and attention as new sales opportunities. Sales and marketing teams have to shift their focus away from closing big deals to developing long-lasting customer relationships. Customer satisfaction is paramount, meaning product development teams are constantly rolling out new features and improvements. Now, the marketing, sales, service and finance functions are all intimately involved in customer relationships — and therefore, the revenue stream. 

To overcome these challenges, CFOs should invest in a subscription management system and integrate it with their finance system to support a move to a recurring revenue model. But instead, CFOs often decide to use their existing CRM and ERP systems because it's easier. At their core, ERP systems were designed to support traditional pricing models – not to manage the complex, dynamic and customer-facing structure of subscription models. Additionally, the lack of integration between a CRM and an ERP in the reporting process can lead to inaccurate forecasting, revenue leakage, and improper revenue recording.

A common workaround for this challenge is to implement outside subscription billing management systems, creating even more data silos. It leads to invoices being passed as a single, collapsed line item with no detail. If finance teams cannot see the invoice details at a granular, line item level, the team cannot report against the individual components of the order or understand the customer's full history. Ultimately, going outside the ERP system decreases visibility into the success of a subscription model, impacts reporting and tracking, and opens up a can of worms on compliance issues.

The best option for a company looking to implement a subscription business is to integrate a subscription management system with your existing ERP system, in order to measure the success of the pricing model and scale your business for the long term.

2. Take the long view on reporting and analytics

With subscription models, you have to play the long game. Gone are the days of "one-and-done" transactions; we're now in the age of life-long relationships with your customers. Your financial reporting needs to mirror this evolution of your business strategy.

To truly measure the success of your business, financial reports need to encompass more than just what has closed this month or quarter. Instead, they have to focus on the long view in terms of revenue health and overall company profitability. This means avoiding the temptation to add manual processes or keep information on multiple systems, which can make it difficult to manage mid-term changes and cancellations. One of the benefits of a subscription model is that revenue and cash flow become more predictable, allowing you to forecast beyond the next quarter — however, this is only true if your financial reporting keeps this in mind too. 

Measuring your progress and being able to make adjustments is critical, and defining clear KPIs and sticking to them will help keep you on track toward your business goals. But more importantly, CFOs need to determine a process to track these metrics on a continuous basis. Without a real-time, detailed, and clear view of them, finance teams will struggle to manage the transition period from traditional pricing models to mixed or full subscription models. They'll also struggle to be able to identify pivotal moments when changes need to be made.

Establishing processes to track metrics consistently and pull reports that include long-term data will help you measure and stabilize the financial health of your business.

3. Focus on the lifetime value for customer retention

In today's era of fierce competition, customer loyalty is hard-won. But the very nature of the subscription model gives you a head start in the race, as it's the foundation of a recurring customer relationship.

Customer satisfaction and retention are the new focus, and lowering subscriber churn is prioritized over acquiring new business — and subscriptions provide opportunities for ongoing upselling and cross-selling to organically grow the business. Additionally, new customers oftentimes initially come by word-of-mouth, so keeping existing customers engaged and recognizing the value of their investment is the primary factor for business growth.

To provide the most customer value in the long run, CFOs must identify which financial levers optimize the value of goods and services in the same way they do in the traditional sales model. From there, finance chiefs are better positioned to establish effective pricing strategies and contract terms, which lays the groundwork for the ultimate prize: long-lasting and mutually beneficial customer relationships.