The subscription business model is how media and entertainment organizations have transitioned to provide their digital services to gain a more regular, predictable income stream. However, the subscription model poses challenges, primarily in efficiently handling accounting and billing for subscriptions. Our benchmark research on recurring revenue finds that only one-quarter of organizations that have finance and accounting roles, and fewer than one-half overall, are satisfied with their subscription invoicing process. As for complaints about the process, over three-quarters of organizations said it requires too much effort.
Simple subscriptions (such as for a monthly magazine) are handled easily by any financial system. However, especially for media and entertainment organizations, today’s subscription business models are complicated by billing methods such as usage-based charges, promotions, new series and managing subscriber periods. Our research finds that a majority of media and entertainment companies use billing cycles that vary from monthly to quarterly or annually with activation dates that can be daily. Accounting for these variations can be further complicated because the data specifying the details of the subscription may be kept in multiple systems.
Complexity notwithstanding, mistakes in activation can diminish customer satisfaction while underbilling them creates margin leakage. To keep the billing details straight, accounting and operations typically resort to creating data systems to support it.
There is a solution to the complexity problem: software that automates the billing process from activation to collection. This single system of record connects all the steps from subscription (and its contracting and subscription software) through finance and accounting (and their ERP systems). Such a billing system automates the movement of data through each step to save time. Because users enter information just once, the data at every step of the process is also accurate, up-to-date, consistent and controlled for subscription management. In our research, the vast majority of organizations using dedicated subscription billing software said they are satisfied with their system, compared to only one-half of organizations that use spreadsheets.
Software that automates subscription billing resolves tensions that can arise between revenue, marketing and operations teams on one side and finance and accounting departments on the other. The former want to be able to offer promotions and subscription structures that are responsive to customer and market requirements, but finance and accounting departments resist complexity because it creates unsustainable workloads in spreadsheet-based invoicing systems. A system that manages the subscription billing process from end to end, from contract to collection, eliminates the need for accountants to check and reconcile bills because invoices are created from the system that houses the sole version of the relevant data.
Revenue recognition accounting is another reason for companies that sell even moderately complex subscriptions to use dedicated software. Revenue recognition standards ASC 606 and IFRS 15 have made accounting for subscriptions is more complicated, especially when a subscription contract contains multiple elements that may be recognized at different times. A well-designed system will automate the revenue recognition process and ensure its reliability. A dedicated subscription billing system ensures that the accounting and billing are always consistent and enables individuals to drill down from revenue to billed and unbilled transactions to see the underlying details.
Not all subscription management software is the same, so detailed scrutiny is appropriate. Configurability is an attribute important for buyers to consider in selecting such a system. One that offers a high degree of flexibility in defining the scope, wording, terms and conditions of a subscription agreement will provide sales and marketing departments with flexibility in creating and negotiating offers and setting terms and conditions, which sales people should have within limits set by management. At the same time, because the system tightly manages the process from end to end and creates a reliable link to revenue recognition, it can provide greater control, greater accuracy and increased visibility to finance and accounting departments.
The subscription revenue model has been growing in popularity in recent years because it aligns well with market demands. It’s likely to grow even more because technology is making it possible for media and entertainment organizations to streamline these ongoing, dependable revenue streams. Subscription services for digital products in today’s market often don’t incorporate the intelligence and design needed to handle even slightly complex subscriber billing relationships. It’s time to investigate alternatives that will allow you to streamline the subscription model and your systems for subscriber billing without creating a large workload for the operations and accounting team or putting the brakes on your sales and marketing teams.