Update on “Service as a Subscription” Model

Many partners have been asking, and I promised to keep you updated on our new “Service as a Subscription” model. It has been exactly one year since we signed our first customer up for “The Works from Forceworks“. Here’s a recap of what we have learned.

Why

Like most Business Applications services partners, we had operated on an “hours-based” model for many years. A year and a half ago, we felt that the low code/no code motion had reached a point where the need for code development had been significantly reduced or eliminated for most customers. This was the trigger for us to launch an entirely different model for deployments, customizations, training, and support for Dynamics 365 CE and the Microsoft Power Platform. An All-inclusive, Unlimited subscription for a fixed monthly fee. This completely eliminated scope and hours from the equation.

What’s wrong with the old scope and hours-based models? I wasn’t entirely sure when we started down this path, but now looking back… everything. One thing I did know before we embarked was that customers focused on a clock were never going to reach the potential value that was available to them in these products… period, never going to happen.

Evolution

What we are offering today is significantly evolved from what we launched with a year ago. It seemed like each month we were learning something new. Either adjusting features to add more customer value or tweaking things to protect our downside.

The components in a subscription become levers you can adjust over time to get it dialed in. In our case, there is a base monthly cost plus a cost per user. To this, a customer can optionally add premium add-ons, like Dynamics 365 Marketing, for example. We have played around with these levers quite a bit. For example, the base monthly cost now covers the entire Power Platform, whereas previously Power BI and Power Pages were add-ons. Conversely, we moved D365 Sales and D365 Service into the add-ons category. Another lever we fiddled with was users, introducing two tiers of pricing since the math was not making sense for larger customers. We also introduced a concept of Service Classes, ensuring that those paying more got more attention than those paying less. Lastly, we created an automated quote generator where anyone could go on our site and create an accurate quote without having to talk to anybody first.

I am aware that there are some other subscription models that have been around, but the ones I have seen had too many limitations and were more focused on support, and were all very “safe” for the providers. I have not yet seen any that included deployments and unlimited customizations or many of the 14 services we bundled into The Works.

Another area that has evolved is how we provide services. In an hours-based model, while you might make suggestions, the client makes the decisions, and you are reactive to that. It’s their hours, after all. So, if in the course of working with a customer, we came up with an idea they could benefit from, we would need their permission to pursue it, even for a POC. We don’t need their permission now as cost is no longer a factor. We can unilaterally build a POC for something that we think is valuable for them and just present it. Why would we spend the time? After all, it may not cost the client anything more, but it does cost us.

Subscriptions are different in many ways, but one of those is the business model. Our subscription has an annual term. If a customer cancels after the first term, was it really a subscription or just a financing mechanism? In the subscription world, “Churn” is death. So why would a customer renew? Only one reason… they looked back over the past term and saw unquestionable value. This led us to create a new internal metric that my partner Vlad coined: “Impacts”. Nobody is going to renew just because you reacted well to their requests. You need to be proactive, finding unique ways to solve their problems, even problems they were not aware of. Introducing ideas they had not even thought about or didn’t know existed. These are “Impacts”, and everyone on the team is measured by them, directly influencing their compensation, bonuses, and promotions.

Next

What’s next? Well, I feel like we got the kinks worked out pretty well. Customers are over-the-moon happy, which was hard to accomplish in the naturally antagonistic hours-based models. We have transitioned from a transactional model to a recurring revenue model, which is great for us and our valuation.

What’s missing? Competition. I believe that free-market enterprise and competition will make us even better. Also, today we are competing against apples with an orange, and some larger customers struggle to reconcile the two. While scaling faster than expected, we could scale even faster if there were more oranges in the mix.

I am happy to chat and share with any partners who are serious about it.

Add your thoughts below, just don’t pimp your stuff on my blog 🙂

2 Comments

  1. Justin Bown

    Hi Steve,

    Really sound like this was a bold move but a necessary one. If you are open to discussing I would really like to understand how you decided on pricing and if smaller or
    Larger clients make a difference to the approach?

    Reply
    • Steve Mordue MVP

      emailed link

      Reply

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