In blog one of our “Preparing to Commercialize a Connected Solution” blog series, we outlined key questions for you to consider as you look to automate the manufacturing, provisioning, and claiming of connected devices on a large scale. Here in blog two, we’ll discuss items that are near and dear to your accountant’s heart: how you will monetize, price, and bill for your connected solution.
Up to this point you’ve likely been focused on the technical aspects of your solution—what hardware you need, how everything will connect, and what you’ll do with the data you collect. Although it may not feel like it, that is often the easy part, as there are hard and fast answers around technical considerations.
In our experience, customers often struggle most with getting the monetary side of the house in order. Below, we’ll address considerations to help you determine the value your solution will provide, what you’ll charge customers for that value, how to structure subscription models, and how you’ll actually implement recurring billing.
Monetization strategies for connected products are centered on creating value from the data that is collected. What that value is—and who will pay for it—varies dramatically based on your company, product, and users. Thinking this through will help you determine if you have a business case to generate a return on your investment or if a connected product is just a neat idea that isn’t financially sustainable on a large scale.
In order to identify the key value of a new connected solution—and the key stakeholders who will benefit from that value—consider the following questions:
Those pursuing the adoption of IoT point to its improved efficiency, cost savings and safety — as well as its better decision making and potential for new products and services as reasons to embrace it. A common pitfall that companies run into is to collect as many streams of data as possible and at high resolution from equipment without asking “Do we really need this?”.
Acquiring the data, sending the data and storing the data can not only be costly when cloud services are involved but can be overwhelming. IoT data generation can be multiplied quickly as it’s collected from many devices, 24 hours a day, 7 days a week. There is the potential to generate a gigantic amount of data, which will generate increasing costs for processing, delivery, and storage that will impact Total Cost of Ownership.
The vast majority of the data generated from most sensors is not important — but the tendency will be to move it all through a business process because it’s easier at the beginning. Planning early can reduce costs, complexity, and overall provide a better experience. Here are our recommendations:
Based on your answers to the questions above, you should have a good understanding of why your organization is building a connected product, what value it provides, and whether it will primarily be a tool for your customers or an internal tool for your organization. As a result, you’ll be able to select a pricing model that more accurately aligns with the value-creation goals of your connected solution deployment, a decision that plays an integral role in its success.
If your connected product will primarily be used as an internal tool, there won’t be a “price” you charge, per say. But it’s time to put pen to paper to understand the true economic impact of the solution. Having real numbers around this value will help you gain internal buy-in and understand what your company can bear when it comes to the cost of your connected solution. For example:
If your connected product will primarily provide value to your customers, it’s important to get early market feedback—typically during your proof-of-concept phase—to see what they are willing to pay for a solution like yours. From there, you generally have two options when it comes to pricing:
Once you determine what people will pay, it’s time to consider how you will enable customers to pay. One of the major benefits of adding a software component to hardware is the new opportunity to generate consistent, recurring revenue rather than a one-time hardware sale. Below are a few examples of the common subscription model patterns we see.
Again, the key to selecting an appropriate subscription model is understanding your customers and developing payment options that easily fit with their organizational needs or expectations. If recurring fees for a solution are a new concept to your customers, you may need to offer flexible pricing and payment terms to encourage adoption as they get used to the idea.
Finally, once you’ve determined what customers will pay and which subscription model you will use, you must consider how you will actually bill customers. Although this may sound simple, it can be challenging for organizations who have not supported recurring billing before.
For most of our customers, their ERP systems are set up to accommodate one-time sales, not recurring fees. If your situation is similar, you’ll need to work with your accounting team (and potentially the technical support team for your ERP system) to understand the mechanics of recurring billing, what capabilities must be added within your ERP system, and how to handle the internal ramifications.
Monetization strategies, pricing, and billing all start with an understanding of value—what value your solution creates, who benefits from it, and what people are willing to pay for it. Our customers who have had the most success understanding the value of their solution (and subsequently using that knowledge to develop a monetization and pricing strategy that worked for them) had a solid roadmap:
If this still feels a little overwhelming, we can help. Exosite’s team has supported hundreds of businesses as they built and deployed connected solutions that delivered value and provided real business results. Get more in-depth information in our Monetization Strategies white paper or learn about the business and technical support we offer to help you navigate this process.
Up next in our series: Commercialization Series - Onboarding End Users.
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Still in the early phases of your connectivity journey? Check out our blog on becoming a full solution company. You’ll find helpful tips about how to prepare your organization to add software to an existing hardware product, overcome challenges, and set yourself up for success.
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