In our continuing series about whom the CIO should make friends with, the next most pressured person in your company (behind the CMO) is probably the VP of Sales. There might be ways to succeed in business without really trying, but becoming VP of Sales is not one of them. Either the VP Sales brings in sales that meet or exceed expectations, or after a year or two, that person gets asked to leave.
As any VP of Sales will tell you, the most valuable customers are repeat customers because they generate the most predictable revenue year after year. So anything that will grow the base of repeat customers is always a high priority. IT can do a lot to help the VP of Sales grow that base of repeat customers.
One of the biggest ideas in the sales world right now is moving away from one-time purchase transactions with customers and moving toward on-going relationships with them over longer periods of time.
Think about the fate of Blockbuster and its one-time purchase relationship with customers who bought or rented movies on DVDs; then think about the fortunes of Netflix with its on-going relationship with customers who pay a small monthly fee to get access to a library of films they can access and view whenever they want. Think of companies like Spotify or Zipcar where customers register and pay a small monthly fee to get access to music or cars whenever they want them instead of buying a CD or a car. Think of just about every SaaS app out there. They are all using the register and small monthly fee revenue model -- that’s recurring revenue.
So how does your company create a recurring revenue business model when it has traditionally done business using the one-time purchase model? You can bet that this is a question that is always on the mind of your VP Sales.
Your company may not be selling glamorous products like movies or music or cars or the latest new cloud app. But that is not an obstacle if you make smart use of IT. Recurring revenue is all about using IT to connect with customers and providing them with continuous services that make your product more valuable and easier to use.
Every recurring revenue business model depends on data and connectivity. (Continue building on the data and connectivity capability you just built for the CMO -- see CIO: First Befriend the CMO.) Every product, no matter how humble, is mission critical to some group of customers. Those are the customers who will become your biggest customers, and they are the ones who will convert to a recurring revenue model if you show them ways to get more value from the products you sell.
I was CIO of a company that sold a humble line of products such as janitorial supplies and food service disposables. One of the things we sold a lot of was paper cups. Talk about a humble, generic product. Paper cups aren’t mission critical to many businesses, but they are to some -- like popular chains of coffee shops that use lots of paper cups with their name printed on them, and would literally have to close their stores if they ran out of paper cups on any given day.
I worked with the VP Sales to build out our website to deliver all sorts of value-added services that customers could mix and match to meet their specific needs. We made daily usage data available to them online and enabled their store managers and inventory planners and purchasing agents to better monitor and manage their inventory of paper cups and other products they bought from us. We made it easy for them to connect with us and view or download this data on demand. We put in applications that enabled our sales force and customer service people to spot trends and potential problems and alert customers and collaborate with them to solve those problems.
And because of that, we locked in multi-year recurring revenue contracts with big customers. We were even able to charge a few percentage points more for our products because a cup from us was clearly worth more when we wrapped it with our tailored blanket of customer services and usage data.
Firestone is another example. Firestone is wrapping another common product, car and truck tires, with a blanket of value-added services and thereby increasing its value and becoming the basis for a recurring revenue business model. Tires are mission critical if your company operates fleets of cars and trucks. Firestone is using IT to deliver a whole set of services to fleet managers and drivers based on the data that Firestone collects from customers. Now it is no longer just selling tires. It is delivering tire-related services and information to create an on-going value proposition.
Firestone continues to add new services based on real-time streaming of big data that comes from sensors on new cars and trucks. Firestone is taking on the job of managing all this big data for its customers, and turning it into useful information that enables customers to run more efficient fleets of vehicles.
Common products such as paper cups and truck tires can be enhanced through use of IT and big data to deliver more value. Similar ideas can be applied to any product. What ideas do you have for doing this with the products and services your company sells?
Sketch out your ideas and visit your VP of Sales. Say you want to talk about using IT to turn your biggest customers into recurring revenue customers. Your VP Sales will be very interested.