5 Barriers to Subscription Revenue Growth and How to Remove Them

The traditional sales framework for managed service providers is overdue for an update. In the age of digital everything, many customers are more interested in subscription-based models, and it behooves the agile MSP to adapt to what the digital marketplace wants, or risk getting left behind.

Even though subscription-based models gaining momentum, every MSP knows you don’t put all your business eggs in one basket. But how should an MSP begin to sift through the noise? Start with a solid foundation of research, preparation and thoughtful decisions, because what you don’t know might hurt your business. During a recent session at ChannelCon 2022, George Mellor, founder and CEO of KloudReadiness, walked through five common barriers to revenue growth and offered tips to ensure a successful journey to implementing and monetizing a subscription business framework.

1. A Convoluted Go-to-Market Approach

Crossing your fingers and hoping for the best is not a sound business model. There can be a lot of unexpected obstacles—customers force a premature release, for example—but you don’t want to make a change to your business model without anything in place to prep for the marketplace debut. Your strategy should be easy to market, sell, explain and deliver.

TIP: Keep your go-to-market strategy clear and concise. To develop a clear and concise strategy, start with the basics—what do you want to accomplish and how will you get there? Then fold in your targeted audience as specifically as you can. Pinpoint the issues these customers are having and how your company can meet those needs. Finally, define the actionable ways to reach these prospective customers with a subscription-based model.  

“For me, an appropriate go-to market strategy consists of four things: outbound, inbound, strategic partnerships, and then most importantly, pricing and packaging. Are you pricing effectively, especially from a subscription model perspective? Where are your opportunities to upsell and cross-sell? Where are you adding value? Messaging is key,” says Nisha Parikh, principal consultant at Alveo. “Start there then channel that down into sales, marketing, and strategic partnerships within the marketplaces.”

She also encourages making connections to different kinds of people and companies in the channel. “Riding the coattails of someone else's brand sometimes really helps community building, social selling, influencership, and your outbound and inbound marketing,” says Parikh.

2. A Non-Existent Growth Marketing Engine

One fatal flaw for MSPs to gain momentum in subscriptions can be not enough marketing muscle. What does it matter if your service solutions are the best fit for a prospective customer if they can’t find you? Or if they don’t understand your message? Or if your branding is confusing? When it comes to areas you can control, a robust online presence and attentive customer outreach are significant advantages.

TIP: Develop and build a lead production marketing engine. According to George Mellor, founder and CEO of KloudReadiness, one of the biggest factors in floundering subscription models is that MSPs don’t give enough lead time for marketing to do what is needed to build the customer and knowledge base.  Even if your company has a solid marketing strategy, is it ready for the kind of growth that comes with a subscription-based model? Can it handle if your pipeline doubles, triples or quadruples?

“It could take eight to 10 months to build the subscription pipeline in a way that will adequately, successfully and effectively grow the business,” said Mellor. “There are no 90-day wonders. Subscription will grow your revenue and you have to be prepared for that.”

3. Misaligned Sales Compensation

Subscription-based models don’t use the same math as traditional (i.e., transactional) pricing because the added value is not factored in a way that meets the customer’s needs. If a customer doesn’t understand how the value of a subscription or automatic renewal system works for their company, they could interpret your pricing structure as inconvenient, confusing and maybe worst case, as a “nickel-and-diming” approach, which no one feels good about.

TIP: Map sales compensation and model to strategy and objectives. Planning is everything. Without a clear objective in place, sales compensation seldom reflects what you’re trying to do. In fact, it could backfire. The panelists suggest making a small group of your sales team into a targeted subscription sales group, focused only on growing the subscription services package so that your team can focus on subscription growth without worrying about chasing a quota.

“People want to walk into a situation and not pushed into it. Altering sales comp plans is disruptive to your team and your customers if it’s not handled well,” Mellor said.

MSPs need to make sure that they can speak to that value-add and the economic impact that a partner can have, Ryan Walsh, COO and channel chief for Pax8, said.

“How are you going to make money on this? Through advisory, through training, through connecting customers into your technology stack,” Walsh said. “You need more than a product; you need a multi-tenant management portal. It behooves vendors to be very prescriptive about exactly how the value-add compensation looks in a subscription model.”

4. No Defined Obstacles or Strategy

Once you have the groundwork in place, what is the next step to your company’s plan with a subscription-based model? How will you continue to build, grow and entice current and prospective clients? If a customer doesn’t feel they can continue to grow with your company, the drop-off will not only be severe—in customers, production and expected revenue—but it could also damage your professional relationships.

TIP: Clearly state your objectives and strategy in one page. When it comes to mapping strategies, the panelists encouraged all MSPs to keep it simple and straightforward. The same way you built a go-to-market plan, you want to build a “next steps” strategy, including potential obstacles or barriers. Also, ask your team members for input and actionable tasks to maintain and grow forward in your solutions and services. You want to lay a framework that fosters your revenue goals and company mission, as well as supports your services, products, personnel and long-term business goals.

“MSPs need to ask, ‘What problem should I be answering? What questions should I be asking? What are the issues I should think about?—not just, here’s the product for a solution,’” said John Harden, founder and head of business operations for Saaslio. “You don’t want to be one-hit wonder when you could look at what business problems your customers have and figure out which tools and solutions will work at different pain points. That way of thinking differentiates you and that’s really important.”

5. Lack of Commitment to the Subscription-Based Model

Making a change to your business model should take thorough consideration. You don’t want to waste the time, energy, resources, personnel or client’s time if you’re not fully committed to your own process. Involve all necessary parties—sales, marketing, channel account managers, IT development—so that everyone is on board and collaborating on the strategy and implementation rollout.

TIP: Commit to building an impactful subscription business. When it comes to the subscription-based business model, the things that matter are consistency of revenue, month-over-month growth and client concentration. The panelists agreed: if you show subscriptions growing month over month over time, the numbers don’t have to be that large to be impactful.

“Dig deep on strategy, a core component, because that stickiness will grow the amount of revenue you're actually getting per client. If you’re hearing business problems, then you're solving them,” says Harden. “My big takeaway: Talk to your customers about business problems first, as much as they'll let you. Don't just be their vendor, be their advisor. That’s where the trust is.”

“It can seem very daunting to put together a go-to market plan and then execute it on top of that. Keep it simple. Start somewhere to get your name out there,” advises Parikh. “Dig into the data, dig into what you have to help tell your story and to home in on your niche. Don't give up and give it time.”

Every change to your business model should be thoroughly considered for maximum return (on all fronts) with minimal disruption to customer experience, sales and marketing efforts and product responsiveness. Bottom line: Thinking through all the obstacles and outcomes will allow your company to better forecast long-term growth with a subscription-based business model.

“If you show subscriptions growing month over month over time, the numbers don’t have to be that large to be impactful,” said Mellor. “Your business will be much more valuable than the traditional methods of the past.”