CFOs, be prepared to succeed in transitioning your business to subscription and usage-based business model.

CFOs be successful in the "as-a-service" economy

JUSTINE JACQUOT

Approx. reading : about 11 min

As more businesses adopt recurring revenue models, CFOs need to adapt their process and IT by planning for change as best they can

More and more industries are deciding to develop an “as-a-service” business model, i.e. a hybrid model consisting of both recurring subscriptions and usage-based billing. These models supplement or even supplant the historical transactional model (build/sale).

The “Recurring Revenue Rising” survey conducted by CFO Research shows how recurring business models are growing and becoming mainstream for a growing number of companies. In this study, more than 53% of CFOs surveyed confirm that their company has planned to switch to a subscription or usage-based model.

graph adoption subscription, as service economy

Source : “Recurring Revenue Rising” survey – CFO research

And nearly 45% of them say that their leaders are making the transition to “as-a-service” models (combined subscription and usage) a strategic priority for the company.

Among these, 17% declare that their executive committee plans the transition in the very short term.

CFOs have a central role to play as they are revenue gatekeepers and must make the decisions that will facilitate this transition to “as-a-service” business models. Their challenge is to ensure that this transition will maintain and then increase the company’s profitability.

Transition to "as-a-service" business model : Many obstacles to overcome

The transition to a recurring or usage-based model cannot be improvised. As attractive as the company’s value proposition is, the organization may face powerful operational hurdles internally. Among companies that have embarked on a recurring revenue model, nearly two-thirds (65%) of respondents experienced operational issues in the implementation.

The problems arose in many areas – from the unpreparedness of the teams to the specificities of the model, to the absence of adapted tools which generates an increased workload, through the changes induced in terms of commercial policy or follow-up. statistics (specific Kpis impossible to calculate); the whole company is under pressure.

The most essential tasks such as calculating and managing prices can become much more complex, as prices can vary depending on subscription levels, durations and product or service bundles. Renewing customer contracts, for example, can be a headache. The difficulty in following and anticipating deadlines for a recurring customer can limit renewal opportunities or even create termination (see our post: 12 tactics that works to limit CHURN).

Top 10 CFOs subscription as service economy

Source : “Recurring Revenue Rising” survey – CFO research

In addition, commercial bundles becoming more and more flexible, following-up on them often adds to the operational challenges leading to manual processes downstream to align invoicing with the quotations and the expected payment.

CFO Research reports that nearly half (48%) of companies with a recurring business model struggle with the accounting and reporting challenges created by the dynamics of the subscription contract lifecycle.  Accounting standards (ASC 606 and IFRS 15 for example – see our post about IFRS in the SaaS business) which stipulate that revenues should be recognized when they are realized and earned, complicate the task of CFOs.

If their revenue tracking is not properly managed, it can lead to compliance issues in the event of an audit.

A transition to a fully comprehensive “as-a-service” model may also require IT changes.

Traditional systems, for example, struggle with “as-a-service” business model flexibility. Typically, companies moving to a recurring revenue model use their existing CRM and ERP systems. 

Since most ERP systems are designed for transactional approaches, it can be difficult for them to manage sales that span multiple periods. When revenues begin to exceed $30-40 million per year, the limitations caused by legacy systems become insurmontable. Thus, nearly two-thirds (67%) of survey respondents have actively explored new processes or systems to effectively manage their recurring billing as-a-service.

dotsha streamlines order-to-revenue workflow:

Quotes and Plans

Billing automation

Cash collection

KPIs and reporting

The main problem for CFOs : the obligation of constant attention

CFOs testify to this very widely; what is most difficult is to maintain constant attention on subscription and service contracts to avoid errors and ensure compliance, as much with customer commitments as with company processes and regulation.

And the more the company grows, the more this requirement becomes impossible to meet without the right software and processes. On this point, the CFOs anticipate high benefits and have high expectations of return. A majority (57%) of finance executives surveyed indicated that fixing trade-invoicing mismatch issues would reduce finance and business costs by at least 5%. 

A similar majority (55%) also thought it would increase business revenue by at least 5%. And nearly three-quarters of respondents (73%) said a software solution tailored to recurring contracts would enable sales and finance to make productivity gains that would significantly improve their organization’s profitability.

Source : “Recurring Revenue Rising” survey – CFO research

Thus, better coordination between the commercial and financial teams is the key to success. Two-thirds (67%) of finance leaders said finance leadership should better align with business leadership to improve forecasting and maximize revenue growth. More than eight in 10 (81%) said sales and finance would benefit from better collaboration and communication about customers and contracts.

Companies are taking advantage of the benefits offered by new subscription models, particularly on revenue predictability. For CFOs, it also means better cash management. But when launching new recurring revenue offerings, CFOs need to keep their eyes wide open. Operational, technical or cultural complications can hinder the realization of even the most promising market opportunities.

dotsha: a complete and integrated BUSINESS MANAGEMENT SOLUTION from quote (at sales) to cash (at finance)

A top class order-to-revenue platform built to power every "as-a-service" business.

dotsha is the management platform made to manage As-a-Service business model. The platform is specifically designed to simplify the management of recurring or usage-based business models. It covers the entire “Quote + Invoice + Payment” cycle. 

Unlike traditional solutions (ERPs in particular), the DNA of dotsha is the dynamic management of recurring/usage-based billing. Everything has been designed to manage smoothly the constant changes of the contracts.

With dotsha, our billing costs have decreased by 45% and the processing time for renewals of our SaaS contracts has decreased by 80%!

P. PIPOIE – Abigael technologies

With dotsha, the attention effort is reduced, quotes and invoices are synchronized, payment can be triggered as soon as invoicing is made, with on top of it the possibility for the platform to deliver appropriate business indicators in real time, without intermediate calculations (MRR, ARR, CHURN etc….).

Solution

To learn more about dotsha and understand how we can help you successfully transition to subscription-based and usage-based “as-a-service” models, contact our customer support team for a product demo.

ELIOTT STERNE

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