Investment in a SaaS billing platform for your company can be viewed in terms of time, energy, people, and, of course, dollars and cents.
Your leadership team is likely considering how to utilize the subscription business model, in which a customer pays recurring fees for product access rather than a one-time purchase, so the criticality of the billing platform used increases exponentially.
Yeah, it’s pretty important to know your stuff when making this decision.
Here are the critical things you need to know:
The difference between SaaS billing platform and monetization platform
If your company, like most companies, has both one-time revenue and subscription-based revenue, and additional items such as partner payments (commissions to channel partners or dealers), well, that all adds up to monetization.
SaaS Billing is about retrieving payment from a customer.
Monetization is the process of generating revenue from a service or product provided by your business.
Do you require a SaaS billing platform for a business dealing only in subscription revenue or do you need a monetization platform capable of addressing all kinds of revenue and payments? When it comes to a SaaS business model, things can become complicated in a hurry. A platform put in place must be able to accommodate recurring payments, multiple pricing plans, payments that are annual, monthly or some other variable and other add-ons, just to name a few considerations.
The most potent SaaS billing platform is one that enables large enterprises to easily calculate complex contracts and pricing models and automate their order-to-cash process.
Your company size helps indicate the best billing platform
Is your company a smaller-sized SaaS outfit under, say, $20 or $30 million in revenue or is it a larger enterprise in the $500 million to $1 billion in revenue range? Hopefully, you are aware of which category your firm falls into as this certainly plays into the platform selected.
Billing needs can be quite different for different customers, and just as different for your own organization at each stage of growth. Considering your own needs as a company is just as important as considering the varying billing needs of each of those customers. This all requires a smart billing platform able to adjust on the fly and incorporate all manner of needs. Whether your company hopes to scale from $5M to $50M or from $20M to $200M, without the proper billing platform in place that growth is virtually impossible to accomplish.
Know your ideal finance / IT architecture – general ledger or a sub-ledger system
Large enterprises handle invoicing in the ERP whereas most subscription billing vendors use a sub-ledger. In that scenario, invoicing is handled within the vendor’s own system and sales tracked on a sub-ledger, rather than sending an invoice from the ERP. Consolidated information is sent to the general ledger alongside the rest of the invoicing activity for any non-subscription revenue.
Why is this important?
Well, knowing the difference helps bring focus to the system architecture preferred by your company’s finance and IT teams. This system preference will also help shine a light on the location of your company master record.
The ERP system contains a “master customer record,” which holds basic, static information on each customer. A sub-ledger like a billing platform adds an additional customer master record. For large enterprises looking to simplify, this may not be the preferred route, given all the questions generated:
- Which is truly the master record?
- Where, when and how are records updated?
- What happens when only one of the two systems is updated?
When the customer master record is kept within the ERP, the billing platform just needs to instruct the ERP on the line items to be placed on an invoice.
In this scenario, the SaaS billing platform acts as a ‘rules engine’ overseeing all invoicing, taking in all contract details and spitting out the invoice based on each contract. The customer is billed for what they ordered, invoicing is kept within the ERP and finances within the general ledger, also within the ERP. Not only must a billing platform store this customer information for accurate monthly charges, but the solution shall manage changes such as upgrades, downgrades and discounts as well.
And, returning to the topic of customer master records, companies today are more often leveraging a customer relationship management (CRM) solution for such needs. Salesforce is offering a billing solution to go with its CRM offering it as a ‘one-stop-shop’’ solution, which may sound appealing at first glance, but when you dig deeper, you’re back to the same questions regarding your company’s customer master record.
You also should consider which repository contains the cleanest data, your CRM or your ERP. Just ask any salesperson and they will tell you – the cleanest, most reliable data, between those two, resides in the ERP.
Your general ledger is in your ERP, as is your invoicing. It’s the location auditors rely on for customer, item, invoice, payments and other details; it’s the single source of truth for financial information.
Your SaaS billing platform needs to seamlessly integrate with the ERP, given this is the source of truth for contracts. No dependencies, no workarounds and no revenue leakage. A company choosing a system unable to do this is creating a potentially incoherent situation for its finance and IT teams.
How are you handling revenue recognition?
There needs to be a balance of consideration when looking at SaaS billing vendors, as selecting a solution equipped to handle the recurring revenue management side of things is critical, especially given the new revenue standards, ASC 606 / IFRS 15. Keep in mind, subscription revenue is recognized differently than traditional revenue simply because a subscription product and/or service is delivered over time rather than all at once.
If the billing vendor you select does not also offer a platform for revenue recognition, be prepared to invest separately in that need as well. The complexity inherent in both the new revenue standards and the associated upheaval all organizations are going through to comply with them signals the need for a proper solution.
We did our best to keep that to a compact list, but each point, as you can see, comes with its own set of interwoven questions, for your consideration.
Deciphering the answers should help greatly in the decision-making process for your company.
Or, to put it in the form of another question for you to chew on, which of the following two categories does your firm fall into?
Category A) A small SaaS firm operating only in subscription sales open to the idea of running subscription invoicing on a third-party billing platform, multiple customer master records with other financial data pulled from the billing platform’s sub-ledger.
Category B) A large enterprise operating in a variety of revenue streams, preferring to maintain your invoicing on your ERP within your general ledger instead of scattered between multiple customer master records. Your business needs to operate at scale from the get-go and handle partner payments and more.
There are a variety of billing vendors on the market today, and as everyone is inundated with data points and decks on the technology available and what makes for the right fit for your company’s requirements, we know you have a lot of smaller decisions to consider. The last question is: Did you?.
RecVue offers the industry’s only suite of order-to-cash solutions purpose-built to help simplify this decision-making process for you. Built from the ground up for the complex SaaS billing needs of today, the complete suite automates all aspects of order-to-cash processes delivering billing, revenue management and channel partner compensation in a single solution.
Contact us today to learn how RecVue’s solutions can give your organization the smart monetization edge to make you future-ready.