In the technology world, 2008 seems like an eternity ago. Back then the SaaS market was still maturing with the majority of software publishers offering on-premises software the old fashioned way. As cloud adoption has increased, there has been a dramatic shift away from selling perpetual licenses with annual maintenance to a recurring, consumption-based revenue model. Embedded in this shift is the ability to offer new pricing models based on usage and elasticity-of-demand.
Revenue models would be easy if software and service providers were offering products that everyone valued the same way. However, the reality is that each business is different and they offer a variety of modules, bundles, and complimentary products. Each customer with similar goals may ultimately purchase a very different product-mix from the same company resulting in a fairly complex sale. Some would consider this as a negative, however, I see this as a win-win for the provider and the customer. The provider is able to tailor their product in terms of modules, users, and consumption to craft a solution that fits the customer’s requirements, budget, and perceived value.
Perceived value in the mind of the consumer is key, because the value of a solution can significantly vary from business to business and the customer is now able to leverage non-core and complimentary products that they may not have otherwise purchased. Providers are also able to increase the value of their products, without giving away an entire suite, while the customer is able to grow in to a product that’s right for their business and budget.
Given that contracts can vary from customer to customer is where scaling and billing become complicated. The first question we often hear is, “How do I effectively price, invoice, manage, and renew these contracts?” The notion of accurately and consistently determining price on the back of a napkin goes out the window when considering combinations of users, modules, tiers, and renewals.
Having the right systems in place becomes a key factor in scaling sales processes, billing, contract management, and renewals. We find that these systems fall in to three logical areas a) CRM, b) Subscription and Billing Automation and c) Financial Management. Having a strong CRM system such as Salesforce.com allows firms to automate configurations of opportunity, products, quotes, and pricing. Implementing a Subscription and Billing Automation solution such as RecurSoft provides a seamless integration with Salesforce to manage subscriptions, usage billing, and renewals. Integrating these two systems with Intacct eliminates redundant data entry and rounds out an ideal solution for deferred revenue management, project accounting, and financial reporting.
The next logical question is, “How can I determine the health and value of the business?” The same combination of CRM, Subscription & Billing, and Financial Management systems can be used to determine recurring and non-recurring revenue pipelines, pipelines by product category, Total Contract Value (TCV), Recurring Revenue Forecasts by billing frequency (MRR, QRR and ARR), Customer Lifetime Value (CLV), Renewal Forecasts, Churn Rates, Ageing, Deferred Revenue Forecasts and profitability by project. Together these three systems consider the entire business process from “Leads to the General Ledger” to provide forward looking and historical analytics and Key Performance Indicators (KPIs).
Being able to determine how sales pipelines will impact Committed Monthly Recurring Revenue (CMRR) suddenly becomes easy. The same is true of visualizing how revenue and terminations are expanding or contracting month over month. Adding metrics such as customer, project, and renewal ratings allows firms to determine what revenue is at risk of being collected or renewed. Knowing this information provides a “forward looking” measure of why revenue may exceed or fall short of forecasted expectations.
Scaling operations for Software and Service Providers certainly has its challenges but with the right combination of front and back office systems, these challenges are certainly solvable. Most importantly firms do not need to “reinvent the wheel.” These systems provide a proven solution for a common problem.