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The Subscription Business for Manufacturing is Here to Stay

A shift in buying preference is happening in real-time 

In the past decade alone, manufacturers have seen dramatic shifts in how they do business. In a response to Industry 4.0 and the Internet of Things (IoT), many businesses have expanded how they use data to transform their operations. The advancement of data usage was also seen in how manufacturers use analytics to better understand customers. These transformative efforts were then intensified by the COVID-19 pandemic. Investing time into new digital, customer-centric strategies has lead many manufacturers to subscription service models.  

Subscription business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue, and these models have caught the eye of many manufacturers. Just how much consideration have manufacturers put into subscription models?  

According to the Business Innovation Observatory of European Commission, more than 70% of manufactures consider services to be a key differentiator. Manufacturers who shifted towards service-based models have seen 5% to 10% annual business growth with services generating 50% of that revenue.  

It’s clear that subscription models are an exciting way to drive recurring revenue while using the same data to understand customer needs and experiences better. Knowing what the customer wants, and when can help create a sense of loyalty and help them predict their costs in advance. Just think about how many subscriptions you have for your everyday life; with autopay, your customers will have a predictable expense every month.  Let’s look at how the shift from ownership to access, customer experience are impacting the need for subscription pricing for manufacturers and what’s really holding back manufacturers from entering the subscription economy. 

The shift from ownership to access has started.  

In heavy manufacturing, a substantial portion of your revenue and profit comes from one-time transactions of your highly customizable products. A prospective buyer comes in, the sales process ensues, they buy the product, and that’s the last time you hear from them. This business model has led to you losing touch with your customers whether through direct or partners for the lifecycle of the product. This means you’re missing add-ons, replacement parts, repairs, and opening yourself up to lose a re-order. This is where an opportunity lies to move towards a subscription model of selling. Whether this is bundling services or transitioning to an outcome-based model, you can begin focusing on access over ownership. 

By transitioning to include subscriptions into your business model, it becomes possible to stop relying on one time-sales and begin ensuring a predictable recurring revenue stream that has caught the eye of many companies. The ability to get closer to your customers and offer them the services they need to keep up and running will ensure you build brand loyalty and create lifetime customers. 

Manufacturers are focusing on a better customer experience, subscriptions help that focus

The COVID-19 pandemic has made many manufacturers rethink how they interact not only internally, but with customers as well with a renewed focus on digital transformation. When we asked C-level, vice presidents, and directors of manufacturing operations about the most important strategic areas to remain competitive and bolster economic growth, the customer experience was an important aspect.  

When asked, “Most important strategic areas to remain competitive and bolster economic growth”.

With 49% of respondents noting the importance of customer experience it’s time manufacturers begin taking a deep look at how to improve this aspect of their digital transformation. Driving sales and revenue is directly impacted by the customer experience. That’s why subscriptions are so important to a great customer experience.   

With subscription business models now appearing in over 70% of companies across industries (Gartner), it’s time to create a strong, and loyal subscription customer base. This is a little different than the one-time sale manufacturers are accustom to. The one-time sale may be large, but having a customer for years can quickly eclipse the one-time sale. That’s why making a seamless subscription is so important to the customer experience. Instead of only one sale manufacturers must make it easy to buy, and upgrade products because customers can cancel a subscription at any time.

What’s holding manufacturers back from subscriptions?   

Today many manufacturers are struggling with selling capital equipment together with bundles and services.  As margins on product sales are declining, leading manufacturers extend their offering into service sales. These promise higher margins than one-time sales and offer a predictable, recurring revenue stream – which is particularly of interest in times of economic volatility. But many manufacturers are held back by a few familiar challenges.  

Inefficient quoting process  

Configuring, pricing, and quoting complex industrial equipment and service subscriptions in the same quote is challenging. If these sound familiar it may be time to consider innovative solutions: 

  • Multiple software needed to configure equipment and services  
  • Disjointed, inefficient processes with duplicate data  
  • Limited possibilities to optimize service contracts on input from the product configuration 
  • Lack of support for including one-time charges, recurring and usage-based pricing in the same quote  
  • Lack of support for including ramps and discounts in the quote 
  • Slow sales cycle and high sales cost due to alignment needs 

It’s time to configure the optimal deal 

Creating a subscription economy in manufacturing isn’t an easy undertaking. Subscriptions can create customers for life, so making that experience as smooth, and streamlined as possible needs to be a main priority of manufacturers entering the subscription space. Configure, Price, Quote (CPQ) software complete with subscription pricing is where companies can begin to see how exciting, and profitable subscriptions can beConfiguring a complete solution, including complex industrial equipment, accessories, and subscription-based services is possible, all in one product model.  

CPQ also enables users to combine one-time, recurring, and usage-based charges to optimize pricing structures. This is especially important for manufacturers who sell based on usages such as mileage, services, and more. It’s even possible to forecast the monthly recurring revenue (MRR) and annual recurring revenue (ARR) using CPQ.  

Interested in learning more? Schedule your demo today! Or read more on subscriptions in our eBook: The Future of Manufacturing Subscription Models

Author: Michael Brassea