Gearing up for Growth: Moving Beyond Spreadsheets and Desktop Accounting Software to Revenue Management

RevRec.com:
What are some of the key revenue management challenges you face as a technology company?

Al Flores:
In our business model we have time-based licenses and perpetual licenses, and we sell subscriptions to customers to allow them to run a managed service provided (MSP) model. We also have consulting services and maintenance revenue, and partners that sell our software and services. So we have a lot of different types of contracts to track through our system, each with unique billing and revenue management issues. We also need to be able to distinguish between new orders and add-on sales that are part of an existing contract.

RevRec.com:
Can you describe how your financial processes work?

Al Flores:
Initially we had a very complex spreadsheet that we were using to do all the carve outs and deferrals that our business model requires, but it was clearly not going to scale with the company. Our business doubled, and we wanted to establish better infrastructure and processes before the historical database got too big.

Now, we have a formalized booking process that includes a quote template that mirrors our price book. So when the sales reps are filling out quotes in our SFA system, they use SKUs that tie back to our accounting system. The quote template tracks discounts, etc. so when it comes into the revenue management system, finance can easily perform all the analysis before entering the information into our accounting system. It's also ties into customer support so reps can track the support status of each customer and so that they get alerts for upcoming maintenance renewals. Trying to track all the renewals with spreadsheets means you're always at risk of missing a date and losing annuity revenue.

RevRec.com:
What is so difficult about tracking different revenue streams in a spreadsheet?

Al Flores:
We literally had to input the invoices into the spreadsheet and one by one make sure we allocated revenue correctly based on the terms of the contract. We had to separate all the different component licenses, support and services. We had to determine what services were going to be take and when. But that could only happen at the end of the month after we had invoiced everything. The data grows quickly and maintaining a large spreadsheet with complex links and calculations is very difficult. And, it does not scale very well.

One of our goals was to just program Revenue Recognition when we're doing the invoicing and just forget about it. So you can spend more time doing a lot of analysis as opposed to trying to create deferred revenue schedules and revenue recognition reports.

RevRec.com:
What advantages are there for moving off the spreadsheet approach?

Al Flores:
Spreadsheets can get lost or corrupted. Maintaining and reconciling the data from a spreadsheet back to accounting system can be very time consuming. It may take the same amount of time to put in the information directly into the accounting system, but what we get out the back end is a lot more analysis. We also save a lot time because we don't have to maintain a very large spreadsheet (making sure links/calculations are correct etc.)

We're also getting huge amounts of visibility that we didn't have with the spreadsheet. As an example, now we have three different kinds of booking reports that we could never see using the spreadsheet, because we could only see the data the way we entered it into the spreadsheet. We have the luxury of using the same data and cutting it in different ways using a report writer. We can get our backlog report right from the system as opposed to having to figure it out in the spreadsheet. We can carry the straight bookings report by quarter automatically. We do deferred revenue forecasting through the system, which takes a lot of work to do with a spreadsheet.

RevRec.com:
What are some of the key success factors that should be included in the planning process?

Al Flores:
You will need to consider reporting along with what kind business model you will be using. A lot of it has to do with reporting and making sure you are capturing all the data you need to run the reports you want to see. How do you want to do your reporting? In order to track Revenue you will need to be able to breakout out the different elements of each contract before you enter it into your accounting system. Do you want to report off the invoices or the orders? If you're reporting off the orders, then you have to decide if you're going to include just the new orders for products being sold or are you going to include all the services that come in independently or Support Renewals that need to be process annually for customers. Are you going to be tracking evaluation sites? If so, how are you going to segregate the evaluations from the regular orders?

You really should understand how you want to track information and set up the installations database correctly. If you don't and you're making decisions as you go along, the tracking information is going to be inconsistent and you will lose visibility.

RevRec.com:
What recommendations do you have for other companies that may need to upgrade from desktop accounting packages to a more sophisticated solution?

Al Flores:
Start early if you wait it only increases the legacy data that you have to clean and convert. A lot of companies will use spreadsheets and desktop accounting packages until they fall apart on them. Usually by the time that happens they have so much historical information that it's really hard to do the conversion. Also, if they don't standardize their business model and they have different types of contracts coming in, it makes it really hard to configure the system. And make you think about the rules you need to apply. If you start using a revenue management system early on, it forces you to make those decisions early on.

Different terms on the contracts are going to affect how you recognize the revenue and a big percentage of that goes back to how you control the contracts underwriting. If you think about that when they're growing, that's going to help you in the long run rollout a more sophisticated solution. If you're changing the terms on every deal it's going to make it harder to get consistent pricing. If discounts are all over the map, if you give different warranty periods, offer services at different rates, it makes it very hard to get to that VSOE data at the end of the day. You have to get more disciplined about your business model. Plan how you're going to use the data and think about how you should negotiate the contracts because that's where it all starts.