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Bildschirmfoto 2023-10-10 um 15.44.59
Business Strategy4 min read

How to address technology overspend in subscription operations

 

When business requirements evolve

By the time most subscription businesses reach maturity it's almost inevitable that they will be overspending on their tech stack and operational processes because as businesses grow, their needs evolve. 

That cost is not purely in financial terms, which often include a six or seven figure upfront investment to get started on new projects, coupled with development costs for new user requirements. It also includes time and skill set requirements, not to mention missed opportunities. For example, it might take a year or more to launch something simple like a new pricing model with customer self-service. It’s always money being invested before validating whether an idea will actually work.

The challenge for businesses is not purely in reducing cost, but ascertaining what the most cost-effective approach is to ensure spend is not wasted and that the platforms proactively drive growth while reducing the cost to spend ratio as the business scales.

Here we talk about the three main cost areas in subscription operations and how to minimize them whilst optimizing business functionality and profitability.

Cost Area 1

Infrastructure Costs

The most significant area of overspend

Infrastructure costs are probably the most obviously significant area of overspend when it comes to the subscription businesses tech stack.

License fees

License Fees
Piecing together multiple vendors for components

When you piece together components from multiple vendors you often end up with multiple license fees that are liable to change. Once a business is reliant on those licenses, it's almost impossible to break away, even if those fees escalate at a rate the company is uncomfortable with.

Homegrown solutions

Homegrown Solutions
100% custom-built subscription platforms

If a business has developed its own tech solutions, then its own internal resources to design the subscription logic and develop the necessary requirements, will also continue to grow with the business. This can easily evolve at a rate that will perpetually impact or supersede profitability.

Customization spend

Customization Spend
Heavy development for simple requirements

With both of these solutions there will be significant customization costs, both in terms of the planning, execution, and in terms of ongoing updates, which will likely become increasingly complex.

Cost Area 2

Scalability Costs

Technical infrastructure that limits scalability

Where small and start-up organizations don't need an especially complicated set up, as they grow they begin to sacrifice their potential in favor of a limited system. They become locked in by a billing or payment solution with high license fees and significant development costs, and they also lose the ability to enhance profits. Essentially they lose out materially at both ends of the cost spectrum.

With keylight, both the infrastructure and scalability costs are lower because it’s a high quality solution providing full-access to features that enable growth. This means your ability to scale is unlimited and the proportionate cost goes down as you increase your customer base.

Cost Area 3

Stress Costs

Operational overhead for the tech stack

The third core area of cost overspend in the subscription operations comes in the form of stress. Stress generally falls into three categories in a commercial sense–technical debt, speed and risk.

Technical debt

Technical Debt
Cumulative tasks to maintain the status quo

With the cumulative density of tasks to keep up with managing the integrations between platforms and the customizations, teams can fall behind when it comes to business development, which has both an upfront and a long-term cost impacting a company’s competitive advantage. For example, some may think a custom-built subscription billing system can provide the business greater flexibility and control.

However, by building everything from scratch, businesses can lock themselves into a space where they have to maintain and update everything themselves. As they grow, this becomes an albatross around their neck as resources focus on that instead of the core business, splitting their technical expertise between their billing system and their product.

Speed

Speed
Losing the competitive edge

While the teams are busy maintaining systems, they aren't able to dedicate enough time and resources to customers and product development, which means new ideas take too long to come to fruition. Again, the upfront cost of implementing relatively simple updates becomes significant, and it either happens too slowly to be competitive and/or the upfront development costs are disproportionate to the outcome.

Risk

Risk
Upfront investment and project risks

With an ultra customized approach, which hinges on extremely high development costs, a business is always putting significant upfront investment into new initiatives without knowing whether they will deliver a good return. This makes every action much riskier than a system which intrinsically enables end-to-end subscription operations whilst also providing flexibility to configure and test new ideas.

Solution

About keylight

When businesses choose totally customized systems there's an assumption of flexibility and control. In reality, total customization means spending disproportionately on development and maintenance, making cash flow as well as business development much more challenging than it needs to be. 

With keylight, you buy approximately 95% of capabilities that are intact and ready for every task in a subscription business–knowing it’s tried, tested and seamless. Then, you have total flexibility for customization in a low-code and an API-first format that works without any friction to design what's necessary to achieve your unique business visions, not workarounds to simply get by.

Choosing an ecosystem that operates seamlessly from the customer journey to commerce, subscription management, billing, revenue management, and analytics is essential to reduce technology overspending and operational overhead for subscription businesses.