In the 14th century, a cathedral builder was hustling down the dirt road in medieval France and passed three people stacking bricks.
He asked the first one, "What are you doing?" The worker replied, "I am stacking bricks."
He asked the second worker, "What are you doing?" The worker replied, "I am stacking bricks in order to build a wall."
He passed the third worker and asked, "What are you doing?" This worker replied, "I’m stacking bricks to build a wall, in order to learn how to build the cathedral one day."
Fast forward into the future and the first person had passed away, the second one was barely scraping by, and guess what the third worker was doing... Building a cathedral.
At Sage Intacct, we help SaaS finance teams prove out and scale their subscription models. We help automate financial processes, such as quote-to-cash, that is “stacking the bricks.” We then help build out subscription billing models, that is “building the wall.”
But my favorite part of our work comes from empowering SaaS CFOs, their controllers, and their revenue operations teams to become business model architects by being able to forecast their future billings, revenue, and cash. That is “building their cathedrals” alongside them, and we are in a unique position of being the only cloud financials provider able to automate that complete subscription contract lifecycle from quote-to-financial forecast.
It all starts with a native integration with Salesforce.com and Salesforce CPQ. This allows you to seamlessly pass account and order information, with real-time synching on the account master and product catalog.
You are able to automate subscription billing across a wide variety of use cases – by user, module, product, type of sale, etc. to price your products based on the value you bring and the recurring use by your clients.
Having the billing line items integrated and automated allows you to do automated revenue recognition, with tracking the performance obligations and variable considerations over the term of the contract, in both ASC 605 and ASC 606, so you can understand the impact to revenue recognition and expense amortization, particularly with commissions. Automated subscription billing means automated invoicing which reduces DSO and increases cash flow.
One contract master means automated renewal management and upsells being posted back to the original contract so that you can know the discount and payment terms, incorporating those performance obligations.
When all of this upstream work is automated, it allows you to post to the general ledger with an unlimited number of dimensions, incorporating both GAAP and SaaS data from statistical accounts. This in turn supplies the data for real-time SaaS dashboards, so that finance give the P/L leaders the information they need on the 5 Cs and other SaaS metrics, such as unit economics, CLTV, net and gross churn, and CAC. All of which leads to the nirvana: because you have the contract master record and because you can manage all the renewals and upsells tied back to the original contract, you can forecast out the billing, cash, and revenue in your FP&A budget and planning. This gives confidence to making big business decisions on hiring, new product launches, fund raising, acquisitions, and kicking your competitor to the curve.
This approach is very different from subscription-billing-only solutions that don’t let you forecast billings, revenue, and cash. It’s also set apart from other cloud financials providers that are order-based and have built complex revenue arrangements, without native integrations to Salesforce.com, that complicate the data model and force manual reporting and forecasting.
All of this is captured in the story of Peter Benevides and his team at Olo.com, a subscription company disrupting the restaurant industry, based in the heart of Silicon Alley in New York City:
Once upon a time…. Olo, the on-demand interface for the restaurant industry, powering digital ordering and delivery for over 250 restaurant brands across over 50,000 locations, was in a perfect position to ride the transition from diners eating in restaurant to ordering online,
…and every day… the finance team hand-entered in monthly orders between their home-grown billing system and Quickbooks,
…until one day… they reached 8,000 monthly invoices to their restaurant customers and knew they had to automate in order to scale to the next level of growth,
…and because of that… they reviewed solutions, and chose Sage Intacct, over Oracle NetSuite, for its native subscription billing, its more intuitive user interface, and its ability to integrate into other systems as the best of breed financial system of record,
…and since that day… through a combination of people, process, and technology
- They have automated subscription billing
- Integrating order detail from their Salesforce CRM and Redshift database into an automated subscription billing workflow
- That bills each customer in arrears, leveraging automated EFT to minimize DSO and maximize cash-flow
…until finally…they have dealt with growth, risk, and cost
- They have grown their volume of monthly invoices growing +6x, from 8,000 to 50,000+ restaurant locations
- As their customers, such as Five Guys, have grown from 400 to 2,000 locations
- As the retail restaurant industry has had in-store purchases be flat year-over-year, but had a +40% increase in online ordering
- They had the flexibility to iterate and introduce new subscription billing models
- To introduce new products with different pricing models
- That led to a new variable pricing offering that increased revenue per location while reducing their end-customer cost per transaction
- As complexity grew in their multi-tiered billing model with contracting franchisors, but invoicing both individual franchisees and franchisee groups,
- They have reduced the financial close by -3X from 21 days to 7 days, accelerating getting a monthly reporting package out to executives and the Board to drive important decision making, such as hiring, pricing, and fund-raising,
- They have had ability to manage predictable and forecast-able cash flow to have the confidence to invest in their Customer Success team, focused on improving NPS, and leading to <0% net negative churn in their business model
- Raising a $40M round of private equity funding to invest in growth,
- All with the addition of only 1 person to the accounting and billing team, while the company grew +2x from 149 to 311 employees,
…and the moral of the story is…
“As a finance team, we have the ability and insights to predictably and profitably scale the company, without simply throwing bodies at the problem.” - Peter Benevides, SVP of Finance
To learn five key steps to ensuring predictable revenue, don't miss this eBook by Sage Intacct.