What is a flexible consumption model?
Flexible Consumption Model (FCM) is a way for a business to buy and pay for technology, ensuring that the money they spend matches how much they use it.
Based on how their business needs change, this plan lets companies increase or decrease their IT resources on the fly.
FCMs, also known as Everything-as-a-Service (XaaS), use different subscription business models to let customers receive services, apps, and products based on how much they use (i.e., consumption-based pricing).
They can change how much they use it as needed without worrying about the high costs of owning these goods.
There are many types of usage models, each offering a different level of flexibility.
- Pay-Per-Use: Companies pay for the exact amount of services, product features, storage, or other resources they use.
- Pay-as-You-Go Model: A service that allows users to pay for usage hourly or monthly.
- On-Demand Subscription: Companies can access services and pay for them as needed.
- Multi-Year Commitment Model: Companies commit to using the services over multiple years with the option to buy additional resources as needed.
- Usage-Based Pricing: Companies pay based on how much they use or consume a service.
The idea arose because of the rising need for cloud-based services and the growing complexity of products (i.e., digital change).
With an FCM, businesses can quickly and easily change the number of IT tools and services they offer without buying many new hardware or software licenses.
That’s the main difference between a standard business model and flexible consumption: flexible consumption is based on what the customer wants and the opportunity, not on vendor lock-in and the product life cycle.
Synonyms
- Flexible Consumption Business Model: This business model allows customers to access services, applications, and products based on their usage.
- FCM is The abbreviation for “flexible consumption model.”
- Everything-as-a-Service: A business model allowing customers to access services, applications, and products based on usage.
- XaaS: The abbreviation for “Everything-as-a-Service.”
- Pay-Per-Use Model: A flexible consumption business model that allows customers to pay only for the services they use rather than a significant upfront investment in software or hardware.
Flexible consumption business models have a lot of benefits.
Different types of flexible usage models are software-as-a-service (SaaS), platform-as-a-service (PaaS), and infrastructure-as-a-service (IaaS).
Businesses can use the newest technologies with these cloud-based services without paying a lot of money upfront or waiting a long time to spend.
It’s not just the tech industry that uses flexible consumption, though. This way of buying has spread to many other fields, from shopping and cars to telecom.
Businesses using flexible consumption models can save money, increase, and make complicated processes more accessible.
Agility in Business
By selling products based on consumption, companies can easily and quickly get IT resources when needed and use their apps and services as needed.
This lets companies react faster to what their customers want and the market needs without paying too much upfront for both the company and the user.
Easily expandable
If a company thinks it will need more resources or services, it can quickly and easily increase its use without making significant investments.
This keeps companies from being stuck with an investment they don’t fully benefit from and gives them the freedom to grow or shrink as their needs change quickly.
Spend less on IT.
More than 90% of businesses are already using multi-cloud systems.
A flexible consumption approach lets a business access infrastructure, apps, and services while paying for only the resources and features it needs. This cuts down on IT costs by a significant amount.
Make things easier to do
When a company switches to an FCM, its pricing system can become more easily understood. An FCM also eliminates the need to keep track of multiple accounts and contracts for services that often need to be changed or updated.
This makes it easy for customers to understand services and buy them, making the experience better.
Take care of complicated products.
No two people are the same when it comes to cloud services. FCMs let businesses adapt their resources and services to meet their customers’ needs without dealing with the complexity of their products.
Long-term contracts aren’t needed as much, and customers have more choice over how they use the service. It also ensures that every customer gets the most out of their money.
Flexible consumption models have some problems.
Even though flexible purchasing models have many benefits, there are also some problems to consider.
How hard is it to Predicting income?
It’s easy to predict revenue with a fixed-price model. With a recurring revenue model, businesses can guess how much money they will make over time.
It’s harder to make predictions with an FCM because it’s hard to tell how much will be used over time and because each customer has a different sales cycle.
Lack of Long-Term Contracts: FCMs may not be suitable for businesses that depend on long-term contracts since users only pay for the services they need in the short term.
It is hard to keep people over time and lock them into long-term deals.
Customers can limit how much they use.
With a variable consumption model, the customer keeps track of how much they use and decides if the value they get is worth the price. This is much easier to do with a fixed-price model.
This could make customers less likely to use the services, which would mean less money for the business and missed chances. And if a paid customer stops buying from the business for a few months, it means a significant drop in sales.
The cost of use may surprise customers.
If sales and training reps aren’t completely honest with customers about costs, or if customers don’t closely track how much they use the product, higher-than-expected bills may make customers less satisfied and less confident.
For a Flexible Consumption Model (FCM) to be worth it, businesses must focus on keeping customers interested.
Also, they need to let their customers know how vital capacity planning is so there are no shocks at the end of the month.
Customers that the Flexible Consumption Model (FCM) expect
The people who can benefit most from flexible buying are those who:
- Businesses that need different amounts of resources and use them in unpredictable ways, like those in retail, manufacturing, media, games, and other fields.
- Businesses that need to handle a lot of users or resources regularly but don’t want to sign long-term contracts or pay a lot of money upfront.
- Companies whose needs change over time and want to be able to tailor solutions to their needs.
A fixed-rate subscription plan could be better for a business if:
- The customer’s needs and use cases are clear and consistent;
- The customer is willing to pay upfront or sign a long-term contract;
- The customer would rather pay a set amount for services over time.
Putting in place flexible consumption models
A company must set up the proper procedures to ensure that a flexible consumption model is used correctly if they decide it is the best option for their business.
Essential Things to Think About When Putting FCMs in Place
For businesses to successfully adopt an FCM, they should think about the things below:
A new operating model is needed for customer-centric models.
Compared to traditional models focusing on goods, the Flexible Consumption Model (FCM) pays attention to its clients.
This main difference makes the business do different things, like being quicker and more adaptable with prices and products to meet customers’ wants.
For a business that usually focuses on products to adopt an FCM successfully, it needs to completely change its capabilities to meet the unique needs of this model, such as recurring billing and revenue recognition.
It is tough to change the working model.
Switching to a customer-centric working model is problematic because it significantly changes the company’s central systems and processes.
It also means hiring people who don’t have the same skills as people on regular sales and service teams.
Businesses will have to decide whether to:
- Eat the costs and deal with the growing pains associated with shifting to an FCM, understanding that it is a necessary step to enter the world of flexible consumption.
- I was being careful by giving customers the choice between a fixed-price model or a flexible usage model.
- They are being measured by weighing implementation costs and implementing significant changes.
Regardless of their method, businesses must spend money on a comprehensive strategy to implement an FCM successfully.
Sometimes, FCMs aren’t the best choice for a business.
Many tech companies want to use FCMs as their primary business plan. Before switching to an FCM, a company needs to think carefully about whether it’s the best choice for its needs.
They can start by taking these three things into account:
- Who do they want to sell to? For a new business plan to work, it needs to attract the right customers.
- How are they going to sell? The go-to-market plan needs to be rethought entirely because of significant changes in sales engagement, such as new roles for internal sales and channel partners.
- How will they make money? Stakeholders can tell if the switch is worth it by figuring out how the XaaS model will help the business meet customer needs and make the most money.
They were making sure of success after implementation. Companies that use flexible consumption models have trouble controlling prices and usage. For an FCM to work well, companies need to do the following:
- Set up a system to track customer usage. Businesses should have a way to keep an eye on how their customers use their services so they can figure out which ones are being used the most and change their price plan to reflect that.
- Set up payment systems that are automated. Businesses will find it easier to keep track of costs and usage levels if they automate the payment process.
- Set up a way to track customer satisfaction. Brands should regularly check customer satisfaction to ensure they get the value they expect from the service.
- Get new customers and make the sales process go faster: Businesses can keep customers and make them happier by making the buying process as easy and quick as possible.
Technology to Help an FCM
The technology that makes flexible consumption possible is essential to any such plan.
Businesses should look at the tools and platforms out there to ensure they have the right ones for their needs.
ERP
Enterprise resource planning (ERP) software is used to keep track of all of an organization’s financial and operational tasks. They bring together information from different business processes, like managing customers, keeping track of inventory, and managing finances.
CPQ
CPQ software, which stands for “configure, price, quote,” helps companies give their customers correct quotes. CPQ solutions use rules-based logic to set up, price, and quote customer orders quickly and correctly. FCMs have specific needs, such as dynamic pricing.
CPQ automation also allows you to change prices quickly and deals for different groups of customers.
This way, companies can try different pricing structures without handling each sale individually.
CRM
In an FCM setting, CRM software keeps real-time records of customers and simplifies sales processes.
Businesses can figure out how well their buyer engagement efforts and the new business model asrk when they keep all of their sales and customer engagement data in one place.
They can also use CRM software to keep in touch with customers and keep stressing how valuable their service is—an essential step for keeping customers loyal to these models.
