by Chris Becwar
In earlier blogs about the move to selling more subscription-based software and services by vendors and their resellers, I’ve mentioned the concept of ‘the rule of 78s’ — a term that helps demonstrate the intriguing aspect of moving from a business model driven by big chunks of one-time, high-margin revenue to one where the financial rewards are reaped more gradually over time.
Below is an image I grabbed from a presentation by Craig Schlagbaum, VP of indirect channel sales at Comcast Business Class, that has been helpful for me in explaining the ‘rule of 78s’ to people, and thought it might be useful for others.
After a year of selling one $1,000 dollar subscription per month, I’ve pulled in not $12,000 but $78,000.
These numbers are compelling, but require a different approach to selling; a more ‘high-velocity’ model where sellers are forced get out of their cubes and get themselves in front of more prospects every month in order to close more business per month… but the deals tend to be easier to close because they require less up-front financial investment/risk for the buyer.
This model aligns well with folks in the telecom and cable industries, who see an opportunity to use their familiarity with recurring revenue to expand their offerings into those of the traditional IT channel and build ARPU (revenue per customer). It’s still perceived as a bitter pill to many long=time IT resellers, who often still gravitate back to the high-margin but inconsistent revenue cycles they know and love.
But that party is gradually ending, and it’s time for vendors to help show them the way forward.