OT: Subscription billing

lesmar96

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OT Question here:
As an solutions provider to our customers, we are getting more and more into the IOT world with remote monitoring. We have various requests for custom control panels with monitoring capabilities included, such as municipal lift stations or machine OEMs.

Our question here is how do other folks typically bill this to the customer? Using a cloud based system, we have subscription costs to our vendors. Most of these are going cellular so there are cellular charges as well. So the question is about these ongoing charges.

Do you bill this monthly or yearly to the customer?

Do you keep profit very low on the initial install/setup and set the subscription rate high enough to make your profit over the next couple years? This is what it seems like some people are doing because it is easier to get a small initial figure approved.

In the past (just a few setups), we made good profit on the initial install, then set the monthly subscription at enough to cover our own subscription costs plus enough to cover the time to do the paperwork etc.

We have an OEM that could likely be doing 100 units/yr. We are looking for advice on the best way to manage it so that these ongoing subscription costs do not become a nuisance.
 
Do you keep profit very low on the initial install/setup and set the subscription rate high enough to make your profit over the next couple years? This is what it seems like some people are doing because it is easier to get a small initial figure approved.




Yes, that is the becoming the business model of choice for almost everything (cell phones, streaming service, Xbox gold, Amazon Prime, etc.).


I call it the heroin dealer business model.
 
OT Question here:
As an solutions provider to our customers, we are getting more and more into the IOT world with remote monitoring. We have various requests for custom control panels with monitoring capabilities included, such as municipal lift stations or machine OEMs.

Our question here is how do other folks typically bill this to the customer? Using a cloud based system, we have subscription costs to our vendors. Most of these are going cellular so there are cellular charges as well. So the question is about these ongoing charges.

Do you bill this monthly or yearly to the customer?

Do you keep profit very low on the initial install/setup and set the subscription rate high enough to make your profit over the next couple years? This is what it seems like some people are doing because it is easier to get a small initial figure approved.

In the past (just a few setups), we made good profit on the initial install, then set the monthly subscription at enough to cover our own subscription costs plus enough to cover the time to do the paperwork etc.

We have an OEM that could likely be doing 100 units/yr. We are looking for advice on the best way to manage it so that these ongoing subscription costs do not become a nuisance.


you could always 3rd party the monitoring out to someone that has the infrastructure in place and has perfected the system, but still make a markup;););)

I can tell you this, any business plan setup to break even is destined to fail or never be improved upon at the very least.
 
Yes, that is the becoming the business model of choice for almost everything (cell phones, streaming service, Xbox gold, Amazon Prime, etc.).


I call it the heroin dealer business model.

This is what I expected to hear. I expect to receive some pushback from the bosses because it will be a new curve to the profitability reports. But the fact is these systems will typically stay installed for years and we have all that subscription time to make profit on the install.

you could always 3rd party the monitoring out to someone that has the infrastructure in place and has perfected the system, but still make a markup;););)

I can tell you this, any business plan setup to break even is destined to fail or never be improved upon at the very least.

In this case we are not personally taking time to monitor the equipment (at least in most applications). I am thinking here of the basic costs, like cloud storage subscriptions and cell data, that need to be passed on to the customer.
 
We haven't yet gone as far as charging anyone.

I'm assuming you send data via MQTT or similar and I'm interested to know what you do or don't like about the various cloud options out there.

Nick
 
Thanks for your replies so far.


So you swallow the subscription costs yourself?


Could you please explain a bit what made what a deal breaker?

Sure, when we spec a project it must be paid for in full to be completed. If we have to pay a monthly service it’s almost like leasing the software or project instead of owning it, which puts us at risk. If there are on going cost for let’s say cellular or internet service, we will handle that. On the flip side, we will pay for a “support” contract, but this is usually a long term commitment not a pay by month. This is only for support and not monthly expenses associated with the project or software.

Now we do realize the shift in the industry and have made exceptions, but they have still been long term contracts. Now IÂ’m sure they are just wrapping up the monthly costs into this 1 or 3 year bill, but it takes the risk off us. We are willing to pay for it upfront. This kind of falls into your yearly subscription, but just donÂ’t call it a subscription.

HereÂ’s an example, we purchase a software package. The project is paid for, if you guys go out of business we can still use and own the software. Now we are willing to make an extended contract with you to pay for your support of the software. In this support contract if you need to pay VPN subscription or any licensure, this is where it would fall.
 
I also understand this is extremely difficult to accomplish when using cloud services. I’m in the middle of our first cloud project and this is a hurdle we are not sure of.

My advice is have a few different options available for the customers. Some will be turned off by a monthly subscription, but some maybe ok with a yearly contract. Yearly contracts are usually more expensive because you have to build in a cushion to protect yourself from increasing costs that may or may not happen. When those can be corrected on a monthly subscription when they occur.
 
So you swallow the subscription costs yourself?

I have yet to set up any subscriptions (apart from e W o n), I've only set stuff up on our local network at this point. I have an eclipse MQTT server running in the office and I'm experimenting with using Node-red to read the data and present a dashboard. My next step is to migrate the solution to a cloud service which is why I was particularly interested in your thoughts/experience.

We are an OEM so my thinking is to include the cost of year 1 with the equipment and then a subscription model thereafter.

Nick
 
I’m in the middle of our first cloud project and this is a hurdle we are not sure of.
Sounds like we are in the same shoes ;)

We are an OEM so my thinking is to include the cost of year 1 with the equipment and then a subscription model thereafter.
Nick

We are a control panel shop and not a machine OEM, but our goal is similar to yours.
 
I have yet to set up any subscriptions (apart from e W o n), I've only set stuff up on our local network at this point. I have an eclipse MQTT server running in the office and I'm experimenting with using Node-red to read the data and present a dashboard. My next step is to migrate the solution to a cloud service which is why I was particularly interested in your thoughts/experience.

We are an OEM so my thinking is to include the cost of year 1 with the equipment and then a subscription model thereafter.

Nick

Nick,
We have outsourced the dashboard and cloud storage work for various reasons. So, while I know the basics of how it works, I do not have a lot of experience with it. We have chosen this because we have enough to do already we leave it up to them to maintain/improve the dashboard and make sure it is always up and running.
We are partnered with this company https://www.ramsalert.com/ and they are very nice to work with. They will customize a dashboard just like you want. PM me if you would like their contact info.

On the hardware side, if we aren't using wireless sensors/gateways, we plan on using the Opto22 Groov RIO device. This product is just launching so I haven't had one in my hands yet. We have Node-Red code tested that will shove data from the RIO to a cloud database, where the dashboard will pull from.

This is what we are thinking. You might well have more experience than me. Speak up if you have any advice for me!! Thanks.
 
Also I should say we are also a motor/pump repair company (i am in the automation dept). We are expecting most of the revenue will come from repairing the equipment we have installed monitoring on. Eventually we are hoping to offer monitoring service to customers so that we can call them and tell them to check out a motor because we noticed that the vibration is getting excessive (for example). Most times the customer will not take the motor to your competitor then.

So while we do not want to break even, we do not feel that we have to make a lot of profit on the subscription. Of course, our OEM customers where we are simply selling a monitoring package to them (they install the monitoring control equipment on each machine and take care of monitoring them). In these cases we will probably run a little higher subscription rate because the machines are going worldwide and we do not have the same revenue potential as monitoring & repairing the motors in the local factories.

Does that sound about right?
 
My dad worked at GE Large Steam Turbine (Building 273 in Schenectady, NY, "Biggest job shop in the world") in the 1950s and 1960s. The Installation and Service Engineering (I&SE) department provided support free to customers that purchased turbines. So I&SE lost money, but the actual phrase used at the time was "Service to sell product," and it worked as long as Large Steam Turbine was generating a ridiculously high percentage of GE revenue dollars at the time. That changed by the end of the 1970s or early 1980s, during the oil crises.



Those days are long gone.
 

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