How To Manage Subscription Products In Salesforce
It's natural for people to assume you can easily manage subscriptions using Salesforce.
Salesforce, after all, is a subscription business.
You might believe the system has subscriptions, renewals, product bundles, volume pricing, and advanced MRR tracking as standard.
However, you likely know that unless you invest heavily in CPQ, the Salesforce system does not contain these features. That explains why companies with renewal or evergreen subscription products usually find the system does not do what they need.
Until now, that is.
The Subscription Manager by GSP has everything you need to manage SaaS apps, warranties, service contracts, and any other renewal or evergreen product or service in Salesforce.
The app also includes advanced MRR metrics, volume pricing, product bundles, subscription management, an automated renewal process, and full reporting capabilities.
But first:
Why is it so hard to manage subscription products in Salesforce?
Subscription Management Challenges In Salesforce
Subscription products don't fit naturally into Salesforce for six critical reasons.
- Product pricing. Companies often price subscription products on a per-user-per-month or similar basis. For example, the cost to the customer is $25 per user per month. The problem is the standard pricing mechanism in Salesforce doesn't accommodate this approach. You can only enter Quantity and Sales Price when adding a product to an opportunity. However, you must enter three variables with per-user pricing (number of users, price per month, number of months).
- Fixed-term products and renewals. You will need a robust renewal process if you sell fixed-term products. It's also helpful to manage price increases due at the time of renewal and track win/loss ratios on renewal contracts. Heavy-duty configuration is usually required to support these processes.
- Evergreen products. Many businesses need a method of handling evergreen products with no fixed end date. Unfortunately, there's no standard way to deal with this in Salesforce.
- Volume pricing. There's often volume-related product pricing on Subscription services. For example, the price per user or license reduces with increased volume, or salespeople sell multiple interrelated products together. However, there are no standard Salesforce features to support this.
- Product Bundles. Often, you sell multiple subscription products together as a package or bundle. Sometimes, these bundles include non-renewable products or services, such as hardware items, training, or setup fees. Again, you can't do this using standard Salesforce features.
- MRR and ARR metrics. Advanced MRR and ARR metrics like upgrade, downgrade, net new, contraction, churn, and customer lifetime measures are essential for growing subscription revenue. If you have external investors, they'll insist on seeing these vital numbers. Be that as it may, standard Salesforce can't create these sophisticated metrics.
How To Manage Subscription Products In Salesforce
The GSP Subscription Manager app contains all the essential features needed to manage subscriptions in Salesforce. The app resolves the six difficulties companies experience managing renewal and evergreen subscription products using Salesforce.
This 90-second video gives you a quick taster.
Let's dive into some more detail, starting with renewal products.
How To Manage Renewal Products In Salesforce
Renewal products are the recurring items and services you sell for a pre-defined Subscription period. Often, the customer cannot cancel part-way through the period but can renew the Subscription at the end of the term.
The Subscription Manager allows users to create originating opportunities for renewal products. When you win one of these deals, a renewal opportunity is automatically created based on the Subscription period.
The salesperson starts by creating the originating opportunity. We use the app's Product Manager to select the products.
Let's keep it simple and choose a renewal product (SaaS license) you sell on a twelve-month fixed-term basis plus a service (e.g. initial training) only needed at the outset.
In other words, we'll have two products on the originating opportunity, but the customer only needs to renew one.
The Product Manager has default values for each item. These values are established for each product by the system administrator.
You can see that the number of users and months drives the pricing on the SaaS License product.
In contrast, we base the training product price on the number of days and the daily rate (Sales Price).
Optionally, we can change these pricing parameters, but let's leave the default values for now and enter the Start Date for each product.
Click Save & Finish to add the products to the opportunity.
Now, let's fast forward and set the opportunity to Closed Won.
Several things happen. First, the app creates a renewal opportunity for the subscription product. The training service isn't included in the renewal opportunity because we only need it in the first year.
Secondly, a Subscription now exists for the renewal product; the Subscription is for the product we've just won, plus the upcoming renewal.
Of course, you might be wondering:
Why is the price of the renewal opportunity product higher than the original?
Automated renewal price increases
In many businesses, a price increase applies at the time of renewal. Of course, there may be a difference between the maximum increase permitted in the contract and the lower percentage you choose to apply.
What's more, a different percentage may apply to each product type.
The Subscription Manager app handles that through Price Change Rules.
In this case, the contract with the customer allows for a maximum 10 per cent price increase, but we've chosen to apply only 5%.
The result is the renewal opportunity product is 5% higher than the original.
How to manage evergreen products in Salesforce
Let's talk about products you sell that don't have a fixed end date.
Evergreen products are the recurring items and services you sell where the Subscription does not have an end date. That means the customer continues with the Subscription until they cancel or stop paying.
The steps for adding the product to the opportunity are the same, but this time, the default renewal type is Evergreen.
With renewal products, we know how long the customer will keep the product (the length of the Subscription). However, there's no end date for evergreen products, so how do we determine the total price? i.e. the value of the opportunity for pipeline and sales performance purposes.
We do this by setting a default number of periods on the product.
The Product Manager uses this figure to calculate the value of the opportunity product. That's why our Total Price in the example a moment ago is $4,800 ($400 per month * 12 months).
You can set the Default # Periods field to any value. For example, many businesses base the default number of periods on how the salesperson is measured. For instance, if you target the sales team based on the first year's subscription value, you set this figure to twelve. When salespeople are rewarded only for the first month's subscription value, set the default number of periods to one.
Group Products Under A Subscription
By default, the app has a one-to-one relationship between products held by the customer and subscriptions.
However, there is flexibility in changing this by creating Subscription Groups.
One Product Per Subscription
Using the standard settings within the app, customers will have three Subscriptions, for example, when they purchase three different products. The Start and End Dates on each Subscription define when the customer can access these products.
Of course, the customer may purchase the same product on multiple occasions.
For example, the customer buys ten licenses for your SaaS app today and five more licenses in six months. The additional licenses purchased by the customer are added to the same Subscription because they are for the same product.
In contrast, if the customer purchases fifteen licenses for a different app you sell, a new Subscription is created because this is another product.
Multiple Products Per Subscription
Sometimes, you need multiple products to link to the same Subscription.
For example, when you retire one product and replace it with another, you want the customer to retain the existing Subscription rather than create a new one.
Alternatively, you may have multiple components within a subscription-based product you want to combine into a single subscription. In other words, customers can only cancel all components, not individual items.
The app handles this by enabling system administrators to create connections between products. When adding a connected product to an opportunity, two or more items link to the same Subscription.
Subscription Product Pricing In Salesforce
The GSP Subscription Manager app supports three product pricing methods in Salesforce: time-period, consumption-based, and fixed-term pricing.
When you manage subscription products in Salesforce, system administrators can define the default pricing approach for each item.
The Subscription app also provides volume-based pricing and support for product bundles; more on these shortly.
Before that, let's see how the three pricing models work for salespeople when they use the Subscription app's Product Manager to add products to opportunities.
a) Time-period subscription pricing
Time-period pricing means the number of time units (e.g. weeks, months, quarters, years) determine the Total Price of the opportunity product. You can use this approach on both renewal and evergreen products. For example, your SaaS app is $100 per user per month.
Here's how that looks when salespeople add products to opportunities:
The default period is set by the system administrator. However, salespeople can modify this within the Product Manager based on the specific pricing given to the customer.
b) Consumption-based subscription pricing
In consumption-based pricing, how much of your product or service the customer uses during a period determines the Total Price. You can use this pricing method on renewal and evergreen products.
Pricing a product on the number of monthly API calls is an example of the consumption-based approach. Here's an example:
In this case, the pricing is at the Enterprise level. The Quantity defines the number of units per month.
c) Fixed Term subscription pricing
Fixed-term pricing defines a single price for the duration of the agreement. You use this pricing method only on renewal products.
Maintenance and service contracts and some SaaS apps work this way because you charge the customer, for example, $30,000 for a 24-month agreement.
The salesperson is adding a support contract in this example:
The Total Price of $20,000 is calculated automatically.
Volume Pricing For Subscription Products
Volume pricing means the quantity of product the customer expects to buy determines the unit price. The exact unit price depends on whether the business uses the bands or tiers method of volume pricing.
The GSP Subscription Manager app supports both methods of volume pricing.
a) Volume pricing using bands
Volume pricing by bands means the customer pays the same price for each unit within the total quantity.
For example, we can see that if you buy between 10 and 19 licenses, you get a 15% reduction in the List Price.
In contrast, if you purchase 25 licenses, you get a 20% discount.
b) Volume pricing using tiers
The customer pays a different price for each quantity threshold when using volume pricing by tiers.
For example, if you purchase 25,000 API calls with this model, you get a zero discount on the first 9,999 but a 5% discount on API calls between 10,000 and 19,999. You also get a 10% discount on the remaining 5,000 API calls.
Volume pricing by increments is a variant of the tiers approach. With increments, the quantity thresholds increase by one.
Manage subscription products in Salesforce
and track recurring revenue.
Product Bundles and Groups In Salesforce
Often, businesses that sell subscriptions group multiple products and services into packages.
The GSP Subscription Manager app supports two types of packages: product bundles and product groups.
The essential difference is that with product bundles, you define the price to the customer at the bundle level. This price can differ from the sum of the individual products and services within the bundle.
However, with product groups, you define the price at the individual product level. As a result, the overall cost to the customer is the sum of the products within the group.
In Salesforce, system administrators define bundles and groups using the Package Wizard.
Let's see how this plays out for salespeople.
Product Bundles In The Subscription Manager App
To add products, bundles, or groups to opportunities, salespeople start by clicking the Product Manager button on the opportunity page layout.
Clicking this button opens the product wizard page within the GSP Subscription Manager app.
In this case, the salesperson can choose several bundles besides the standalone products.
Clicking the arrow next to each bundle reveals the products that make up the package.
Each bundle has a single price, which the system administrator defines.
Optionally, the salesperson can override this price. You can, of course, create approval processes for salespeople to control price adjustments.
Product Groups In The Subscription Manager App
Salespeople follow a similar process to add product groups to opportunities.
Pricing is at the individual level for each product within the group. The overall cost to the customer is the sum of the product prices.
Of course, in some cases, the salesperson may need to add a combination of bundles, groups and individual products to an opportunity. The GSP Subscription Manager app fully supports that option.
Tracking Subscription MRR and ARR
People agree that measuring and tracking Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) is essential if you sell products on a subscription basis.
Fortunately, reports and dashboards with advanced MRR and ARR metrics are integral to the GSP Subscription Manager app.
We've created a dedicated blog post on this critical topic:
How To Track MRR and ARR in Salesforce contains full details of these critical features.
In summary, the MRR metrics tracked by the Subscription app include New, Upgrade, Expansion, Downgrade, Cancellation, and Churn.
We also measure Net New MRR, Uplift, Contraction, Customer Lifetime Value and Subscription Lifetime Value. And by the way, all metrics apply to renewal and evergreen products.
For example, this dashboard chart shows the Net New MRR for the last twelve months.
In addition to the dedicated blog post, you'll find full details explaining all the MRR and ARR metrics in this knowledge base article: How MRR Schedules Work.
What to do next
You might be wondering:
These features sound great, but how do I test whether the app really will let me manage my subscription products in Salesforce?
Here are the steps we suggest.
First, contact us for a web meeting. We'll ask you to explain a little about your business and walk you through the app. We'll also explain the pricing structure. You'll be able to ask any questions you want.
Second, take a proof-of-concept. We'll guide you through the steps and help you set up the most relevant sandbox trial for your business. We'll also facilitate sessions to answer questions from you or your colleagues during the proof-of-concept process.
Third, if you're happy with everything, we'll send you a formal quote and order form. But that can wait. Start with the first step by getting in touch today.
Speak soon.
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