Configurable Subscription Contracts Drive Higher Revenue and Margin Growth
CHALLENGES
Our client in the hi-tech IT services industry struggled with offering subscription-based services (contract entitlements) that aligned to their business model. The client offered nine core service pillars each of which had numerous service offerings. This challenge coupled with their rapid pace of acquisitions and ever-expanding service options demanded a flexible solution that made the sales process as well as the servicing of the contracts manageable for the future.
INSIGHT
Ketch partnered with our client to define a single contract that allowed line item control of a sale, internal lease, or external lease for any regular product or configurable product or service. We also solved merging quantity and value based subscription offerings onto a single contract in SAP, minimizing the number of documents in the system and simplifying the periodic billing process. To support this contract we leveraged SAP’s SSC (Solution Sales Configurator) to deliver guided selling along with configuring the contract terms to deliver an transformative user experience.
SOLUTION
We focused on three major areas to deliver an optimized business process – the recurring revenue contract model, configurable services, and CPQ (configurable pricing and quotation) to deliver the end user experience. First, we delivered a structured, configurable service that bundled the nine pillar services options and various values to allow a platform for offering all services through a configurable user experience. SAP provides functionality to model configurable materials affording multiple options and choices to be selected during the sales process. This is utilized most often in a manufacturing industry (think of cars, air conditioning, or industrial pumps), but Ketch leveraged this capability for services. We delivered a structured (nested), configurable service that made quoting recurring services straight forward and consistent. Several proof of concept services were modeled to allow key decision makers to see the trade-offs based on each approach. Once defined the option values created in the configurable model gets mapped to the recurring service that shows up on the quote i.e., the customer wanted backup service, for a Linux server, 500GB.
Next, this service was leveraged by SAP’s SSC (Solution Sales Configurator) to deliver guided selling along with configuring the contract terms. An additional challenge to overcome was margin analysis on the quote – typically, unless services are procured at a specific cost they do not normally have a cost since your cost is actually accrued when you deliver the service by your employee posting time. To solve for this each service was analyzed for historical average costs and a statistical cost was assigned to allow a margin to be calculated at the quote stage.
The team used an agile approach to prototype process flows and screens and then transitioned to custom developed web apps to support the process. These apps were then connected to the CRM SQL database for storing and updating transactional data before it was synchronized with S/4HANA.
Finally, the recurring revenue contract was a challenge because the client wanted a single contract model to support any type of service – in some cases services were quantity based (Qty of 2 ea. Backup, Linux Server, 500 GB) and in other cases they were value based ($10,000 of on-site support). SAP provides different contract documents to handle value and quantity contracts, but Ketch was able to combine all offerings onto a single contract making servicing and maintenance of the customer much simpler over the lifecycle of the contract term.
Here is the short version:
Configurable Subscription Contracts Defined by Client’s Sales Teams and Customers
CHALLENGES
- Client's business relationships were managed via a contract that did not account for dynamic revenue accounting, costs for planned or unplanned usage of services or product supplies. It did not report accurate support activities during the administration of the contract.
- Products and services cannot be financially tracked within contracts
- Entitlements to customers are difficult to maintain and honor accurately for customers
- Inability to offer customers' choice in product configurations
SOLUTION
- Ketch designed and built an entitlement matrix of products and services, crafted with conditions and pricing within S/4 HANA using a versatile contract in SAP SD and SAP Variant Configuration modules.
RESULTS
- Transparent and manageable costs
- Improved customer experience by communicating accurate real-time data on customer account activity
- Product marketing can plan the optimal product and service bundles to ensure the highest ROI
Here is main article content:
Configurable Subscription Contracts Drive Higher Revenue and Margin Growth
CHALLENGES
Our client in the hi-tech IT services industry struggled with offering subscription-based services (contract entitlements) that aligned to their business model. The client offered nine core service pillars each of which had numerous service offerings. This challenge coupled with their rapid pace of acquisitions and ever-expanding service options demanded a flexible solution that made the sales process as well as the servicing of the contracts manageable for the future.
INSIGHT
Ketch partnered with our client to define a single contract that allowed line item control of a sale, internal lease, or external lease for any regular product or configurable product or service. We also solved merging quantity and value based subscription offerings onto a single contract in SAP, minimizing the number of documents in the system and simplifying the periodic billing process. To support this contract we leveraged SAP’s SSC (Solution Sales Configurator) to deliver guided selling along with configuring the contract terms to deliver an transformative user experience.
SOLUTION
We focused on three major areas to deliver an optimized business process – the recurring revenue contract model, configurable services, and CPQ (configurable pricing and quotation) to deliver the end user experience. First, we delivered a structured, configurable service that bundled the nine pillar services options and various values to allow a platform for offering all services through a configurable user experience. SAP provides functionality to model configurable materials affording multiple options and choices to be selected during the sales process. This is utilized most often in a manufacturing industry (think of cars, air conditioning, or industrial pumps), but Ketch leveraged this capability for services. We delivered a structured (nested), configurable service that made quoting recurring services straight forward and consistent. Several proof of concept services were modeled to allow key decision makers to see the trade-offs based on each approach. Once defined the option values created in the configurable model gets mapped to the recurring service that shows up on the quote i.e., the customer wanted backup service, for a Linux server, 500GB.
Next, this service was leveraged by SAP’s SSC (Solution Sales Configurator) to deliver guided selling along with configuring the contract terms. An additional challenge to overcome was margin analysis on the quote – typically, unless services are procured at a specific cost they do not normally have a cost since your cost is actually accrued when you deliver the service by your employee posting time. To solve for this each service was analyzed for historical average costs and a statistical cost was assigned to allow a margin to be calculated at the quote stage. The team used an agile approach to prototype process flows and screens and then transitioned to custom developed web apps to support the process. These apps were then connected to the CRM SQL database for storing and updating transactional data before it was synchronized with S/4HANA.
Finally, the recurring revenue contract was a challenge because the client wanted a single contract model to support any type of service – in some cases services were quantity based (Qty of 2 ea. Backup, Linux Server, 500 GB) and in other cases they were value based ($10,000 of on-site support). SAP provides different contract documents to handle value and quantity contracts, but Ketch was able to combine all offerings onto a single contract making servicing and maintenance of the customer much simpler over the lifecycle of the contract term.
Here is the short version:
Configurable Subscription Contracts Defined by Client’s Sales Teams and Customers
CHALLENGES
SOLUTION
RESULTS