The speed and complexity of modern subscription deals have simply outpaced the traditional quote-to-cash tools that the software industry grew up with. Given the almost limitless combinations of contracts involving various products, terms, entitlements, and revenue recognition schedules, complications often arise as to when revenue can be recognized. Recognizing SaaS revenue is even trickier under rapidly changing market conditions and is particularly complicated when contracts get updated over the course of their term.
Most SaaS businesses offer a variety of subscription plans, pricing models, and associated performance obligations such as minimum commitments, usage-based, hybrid billing, one-time billing, or a combination of various models. However, billing and recognizing revenue from these pricing models and deal structures is often complex and error prone. It becomes a balancing act in how to recognize revenue timely, completely, and accurately, while complying with ASC 606. Revenue recognition is highly dependent on how sales constructs and negotiates deals (e.g. custom terms, discounting, etc.) and billing (e.g. what and when to invoice).
That’s where a unified approach to quoting, billing, and revenue recognition is necessary for SaaS businesses. Access to all relevant data in one place provides you with the ultimate source of truth. An agile yet streamlined system not only helps you recognize revenue more efficiently, even in the most complicated billing scenarios, but also removes obstacles that hinder you from capturing more revenue.
Quoting and Deal Velocity
Let’s be frank, outdated quoting systems seep into your deal velocity. Something as straightforward as launching a trial for your product can require making manual changes across the quoting and billing systems and hard-coding a configuration to capture the revenue, which can take months and delay the launch. Ultimately, this is a lose-lose situation that stymies growth for your company.
Here’s what the quoting side of an adaptive end-to-end revenue process should look like:
- Flexible. If you can sell it, you should be able to quote it, no matter how complex the deal is.
- Reliable and consistent. Complicated quotes should generate the same numbers across billing and revenue systems without requiring that someone manually check the invoice.
- Easy to use on day one. Weeks spent onboarding new employees to the quoting process are months of productivity lost. A quote-to-revenue system should be as easy for the sales team to use as a consumer app.
- Stable and resilient. Making changes shouldn’t break billing and revenue at the end of the process. If you want to update a pricing model, you should be able to do that while still working in the software, instead of having to manually quote for that product as you wait for the system to catch up.
Billing Visibility and Invoicing
Blind spots in your billing process impact cash flow, metrics, customer satisfaction, and ultimately, revenue recognition. For example, ramp quotes are often lost by siloed billing systems because they can’t intake sophisticated deal structures. SaaS companies usually struggle with billing visibility in the following areas:
- When to invoice. Finance professionals that don’t have an integrated quote-to-revenue system rely on calendar invites to generate invoices on time, which can lead to billing blindness, especially when managing complex, multi-year deals where the invoice amount varies.
- What to invoice. Incorrect and inaccurate numbers due to siloed quoting and billing systems can be detrimental to your business, impacting credibility with customers or catching the attention of your auditors or board.
- Who to invoice. Weeks and months pass and major collection problems arise when organizational changes happen, and the invoice is sent to the wrong customer contact.
A unified quote-to-revenue system delivers:
- Consistency and accuracy. A quote-to-billing-to-revenue system not only eliminates the need to manually bill ramp deals or manually reconstruct them in the billing system but also removes error-prone processes that can wreak havoc on your financial results and audits.
- Deal velocity. A unified billing and quoting system bolsters revenue growth by enabling you to launch products faster and create dynamic deals that you can quote to bill seamlessly.
Recognizing Revenue in Real Time
Under ASC 606, you can’t begin to recognize revenue until you’ve delivered the service per agreed-upon terms. In a SaaS world, this typically means that your revenue will be recognized over time based on the start and end dates of your contract. Of course, nuances exist such as customers who cancel subscriptions during a trial period or further still, with consumption-based pricing models, which can create discrepancies in how much a customer has used a product. Traditional revenue recognition software struggles to track such nuances which can cause revenue to be inadvertently claimed before the services have been fully rendered.
A revenue recognition system within a unified platform can help you easily achieve compliance by offering:
- A single view of transactions: Compliance problems crop up when data gets copied from one system to another, producing different views across the systems. Keeping finance and sales aligned begins with ensuring that they are seeing the same data.
- Centralized view into the factors impacting revenue: Integrated systems offer complete, real-time quality assurance because they don’t move data across applications. Quotes become contracts, contracts become orders, and orders become invoices, all while consuming the same data and using the same records in a central repository.
Gone are the days of simple one-time fees or per-user-per-month deals. We’ve changed the way we price, package, and deliver products, so it’s only natural that we’ve changed the way we sell software. Dynamic deals do complicate quoting and billing operations, but they don’t have to result in lost revenue and delayed cash flow.
Using an integrated, end-to-end quote-to-revenue system makes complex billing effortless, helping SaaS companies get to market faster, save operational resources, and increase top-line growth.