Before software as a service (SaaS), selling a software solution was a relatively one-and-done proposition. The sales cycle was long, but the wins were significant. Once you successfully landed a customer, you brushed your hands off and started nurturing the next big prospect.
But under subscription models, the business model shifts to longer-term customer relationships. That initial sales stage is still critical, but customer retention and expansion become equally essential parts of the operation.
That’s where better understanding and using your data comes into play. From pricing strategies to churn rates and customer acquisition costs, subscription economics are complicated. CFOs and financial leaders need to understand the depth and breadth of organizational data, which requires increased agility and scalability.
To get there, investing in an upgrade to your SaaS accounting may be the best solution.
What a modern accounting system does for your SaaS model
When you have a single source of information across the subscription lifecycle — with the ability to slice and dice your data — you can make strategic recommendations that improve capital efficiency and lead to successful outcomes.
Unfortunately, this kind of capability can be hard to get if your company is using an order-centric financial system.
Legacy financial tools were created to support single-transaction, product-centered models. These tools come with a whole host of limitations, including a fragmented customer story with separate orders for sales, renewals and expansions and difficulty navigating the complexities of revenue recognition.
Financial teams may find workarounds with a complex network of spreadsheets, but these manual systems are time consuming and prone to error. Organizations relying on legacy systems are increasingly impaired by knowledge gaps and scalability issues.
A modern accounting system, on the other hand, accommodates recurring-revenue, contract-based business models. The technology allows tech firms to unify billing and SaaS revenue recognition and automate core tasks in the customer lifecycle. This accelerates the quote-to-cash cycle and creates time for strategic reporting.
How to set up a modern accounting system
To get the most functionality out of a modern accounting system, you need to carefully plan your implementation. Consider what data will help drive your decision-making and your current processes for managing that data.
When done right, tech industry CFOs can use the planning phase to find opportunities to guide strategy and optimize business in metrics that measure growth and efficiency.
To help plan for implementing your financial accounting system, CFO and financial leaders need to choose the metrics that ultimately identify a meaningful, underlying business dynamic, or MUD.
There is no one-size-fits-all approach — every business is fundamentally different, from customers to contracting, market dynamics, pricing, growth trajectories and go-to-market.
So how do you determine which metrics to use? Focus on churn and net dollar retention, while recognizing that many factors can impact your metrics:
- Type and quantity of customers (enterprise versus SMB versus mixed)? Use revenue churn versus customer churn.
- Monthly, annual or multiyear contracts? Use renewal rate versus retention rate.
- Are contracts pure subscription or transactional? Use annual recurring revenue versus recognized revenue.
- Big land and expand dynamic (e.g., percentage of completion)? Use post-first-year net retention.
- Young, high-growth or mature, low-growth? Use annual recurring revenue versus recognized revenue.
- Seasonality/intermittent usage? Use a trailing 12-months-based calculation.
5 steps to automate and scale
When identifying processes to automate, look for areas where you’re lacking efficiency or need greater visibility. Doing so helps you optimize and make data-driven decisions to help your company grow.
Here’s how automation helps your business scale in five steps:
- Step 1 is to integrate quote-to-cash (QTC): Sell and bill subscriptions in one unified system so that you don’t need to build complex integrations and you can decrease the processing time of QTC.
- Step 2 is to establish flexible, contract-based billing: With billing that’s driven from the contract master, your organization has flexibility in its pricing and billing models, without labor-intensive manual input. Plus, you gain better insight into pricing and billing models for ad hoc analysis and optimization. Coupled with integrated QTC, companies can grow revenue through new pricing models.
- Step 3 is to automate end-to-end revenue management around the customer lifecycle: Fully integrate contracts, billing, revenue recognition, collection and general ledger. Automating to a single revenue stream saves hours of calculations and reconciliations. We typically see customers reduce the time to close their books by 40-50%.
- Step 4 is to create real-time SaaS and GAAP dashboards: With more timely, accurate information, companies can make better decisions to affect the growth of their companies, such as product investments, hiring, acquisitions and churn reduction.
- Step 5 is to forecast future revenues, cash and expenses: This allows you to anticipate where the business is going and put the strategies in place to grow revenue per transaction.
How Wipfli can help
If you want to grow your business, you need to move beyond outdated tech and manual processes.
At Wipfli, our team supports you throughout the implementation process. We can help you select the software and functionality that best fits your needs, and we’ll continue to work with you on optimization.
Contact us today to learn how we can help you grow with a modern accounting system.
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