John Phillips, General Manager EMEA at Zuora   

If the events of the past few years have taught us anything, it’s that businesses need to be prepared for all scenarios. Finance leaders, in particular, must build resilience into their long-term strategies. It is only then that they can defend revenue, jobs and reputation during times of hardship.

As the global economic landscape becomes more volatile, with inflation rising and a recession looming, recurring revenue models continue to be resilient. In fact, the latest Subscription Economy Index  showed that, in H1 last year, revenue growth for companies using this type of model was 9% greater than for S&P 500 companies. Churn rates continue to be lower than pre-pandemic levels, with more and more customers refraining from cancelling their subscriptions.

One reason for this – and one of the most beneficial aspects of utilising subscription models – could be the ongoing access to customer feedback and data. Finance leaders can use this to help forecast future trends, predict shifts in revenue and inform long-term strategy development. It enables them to replace speculation with valuable insights. By employing recurring revenue models, businesses and their CFOs are arming themselves with the best tools to continue providing value for their customers, even when purse strings are being tightened.

Knowing your audience 

Even in economically challenging times, customers often continue to pay for subscription services which they deem to be valuable. Those that fall outside this bracket are at risk of being cut. This is why the customer data produced through recurring revenue models is so important. Businesses can use it to provide tailored offerings to their customers, making sure that they put the right offers, in front of the right people, at the right time.

By continuing to provide value, businesses are able to build strong customer loyalty, which is crucial when it comes to minimising the risk of churn and lost revenue. An interesting case study in customer retention is the so-called “streaming wars”. Strong competition between the streaming giants has resulted in these companies exploring creative ways to keep churn low and customer satisfaction high.

With Disney+ bundling with Hulu and ESPN+ and Netflix announcing their lower priced ad-supported tiers, each platform is adapting their offerings in an attempt to retain customers. These moves have been successful and streaming platforms have some of the lowest churn rates across subscription models. By being flexible with their new offerings and listening to feedback, they have proved their value to customers.

Another great example is the vacuum maker, iRobot. After launching their subscription offering around maintenance, the team received customer feedback highlighting that there was interest in subscribing the vacuum itself. iRobot took this feedback on board, and created a monthly plan that includes a robot vacuum, automatic delivery of accessories, a protection plan, a dedicated support team, and a new vacuum every three years. This new offering has enabled iRobot to expand into new markets with a versatile revenue stream.

Recurring revenue models allow business to continue to add value by strengthening customer loyalty. This is crucial when it comes to minimising both churn rates and lost revenue. For CFOs operating in today’s climate, it is crucial. However, it is also just one benefit of many when it comes to subscription models.

Predictability is key 

What sets recurring revenue models apart from traditional sales models, is that they are not tied to single transactions. This new model helps provide businesses with a predictable cash flow, with customers billed on a monthly, quarterly or yearly basis – every CFO’s dream.  

The future long-term growth of the subscription economy relies on this predictability. Keeping hold of existing customers is much easier than hunting for new ones. By reviewing customer data, businesses can monitor which behaviours can lead to lifetime members, which customers are best to upsell, and which customers are most at risk of churn.  

Playing the long game 

Recurring revenue models come into their own when CFOs are able to balance creating long-term business strategies, while preparing for possible market turbulence. Loyal customers provide businesses with a regular cushion of financial support, whilst existing customer data provides the best opportunities to upsell. Moreover, CFOs have the ability to scale quickly, while management teams can focus on long-term and lifetime customer value, even during times of economic and market uncertainty.

With the threat of a recession on the horizon and margins smaller than ever, businesses are under constant pressure to provide true value for their customers and the pressure on finance teams has never been greater. With recurring revenue models, CFOs can arm themselves with the tools needed to develop long-term business strategies that promote customer loyalty. By playing the long game, CFOs can protect the wider business’s long-term vision, even when the going gets tough.

Scott Goodwin, COO and Co-Founder, DigitalXRAID

Cyber insurance has become a huge issue for businesses. Cyberattacks continue to increase year-on-year, with criminals identifying new ways of exploiting an organisation and breaching its most sensitive data. In fact, in 2022, £4bn was stolen by cybercriminals and fraudsters in the UK – a 63% increase over 2021. It is therefore more important than ever for organisations to obtain insurance to protect against financial ruin in case the worst happens. We’re also seeing cyber insurance becoming a more common requirement as part of the tendering process for new business, as an essential pre-requisite for mergers and acquisitions, and a crucial expectation across the supply chain. In essence, it’s now harder to operate as a business without it.

Yet the precarity of risk transference from organisations to insurance companies in the current cyber and political climate is driving an astronomical rise in insurance premiums. Recent studies found that the average year-on-year cyber cover renewal rates jumped by 70% in March 2022, and the vast majority of organisations face a premium increase of over 20%. In some ways, this dramatic increase in cyber insurance premiums could be argued to be driving better security practices to reduce insurance costs. But it’s crucial businesses understand exactly what they need to do to comply with insurer expectations and defend against criminals.

An evolving market

The cyber insurance market has evolved dramatically in the last few years. As a result of rising premiums, many insurers are seeking to stabilise the market. Cyber insurers have now started to reduce what they cover; Lloyds of London made an announcement that its policies would no longer cover losses resulting from certain nation-state attacks. More recently, multiple firms have announced catastrophe bonds which essentially allow greater coverage for their customers because it transfers risk onto investors and ILS (insurance-linked securities) markets.

Scott Goodwin

Insurers now also recognise that they need to get a clear and reliable understanding of their customer’s risk appetite, which is why many turn to external security consultants. These professionals are supporting insurers with questionnaire modifications in order to gather the most relevant risk data on all their customers, and in turn protect their own business. And the same goes for companies that are insured. It can be a huge challenge for enterprises that don’t necessarily have the technical knowledge in house to understand their risk posture and communicate this with their insurers. Many Managed Security Service Providers (MSSPs) and external security partners will now regularly support their customers with not only achieving a solid foundational cybersecurity, but also working to lower their insurance premiums, joining all discussions with insurers and offering the necessary technical insight.

What do insurers want to know?

To get cyber insurance, a business will typically need to fill-in lengthy questionnaires and join discussions on where their biggest risks lie, where their most sensitive data exists and what the financial consequences of losing that data would be. Which is why it’s helpful for technical, cybersecurity professionals to be involved – either in-house experts for those that have the budget and resource for larger teams, or external security partners who will have a wealth of experience in this area.

As a baseline, the NCSC’s 10 Steps to Cybersecurity should be considered before even approaching an insurer. These guidelines present a good foundation for even small businesses, and without following these steps, insurance becomes impossible to secure. Insurers also put a big emphasis on identity management controls, multi-factor authentication and the encryption of data. While adopting one of these elements alone cannot guarantee the security of an organisation, the depth of defence if all are in place will generate that all important confidence from insurers. Other areas that will likely form the basis of discussions include:

• Incident response and business continuity planning – What playbooks and processes do you have in place in case your network is breached? How familiar is your team with these?
• Security monitoring – Does the security team have the capability to monitor, identify and mitigate attacks, 24/7/365?
• Protection measures – Which tools and controls are in place to stop a cybercriminal if one area fails, e.g., if an employee falls victim to a social engineering attack or clicks on a malicious link?
• Network architecture – What does the network infrastructure look like, where is data stored and how easy it is for threat actors to move laterally once they have breached the system?

Could rising premiums be a good thing?

It is possible that insurance has previously bred complicity, even laziness, of organisation’s cybersecurity. Insurance policies used to be seen as a ‘get out of jail free’ card, with teams relying on their cyber insurance policies as their entire security strategy, rather than engaging more proactive measures. Today, this is certainly not the case. To protect their networks and reduce their risk appetite and therefore premiums, businesses are needing to implement cybersecurity measures such as penetration testing or a Security Operations Centre (SOC), which help to thwart the risk of cyberattack. In this way, rising premiums could be seen as a positive move that will encourage better security.

The challenging world of cybercrime demands more proactive security from organisations. This doesn’t have to break the bank – by outsourcing a SOC, security monitoring and advanced threat detection are possible at a fraction of the cost of building the same capability in-house. With purse strings tightening ahead of a predicted recession, businesses need to improve their security posture efficiently and effectively in order to reduce the cost of insurance and better protect their data, their teams and their customers.