Subscription-based billing models are thriving. In a recent CFO research survey, 71 percent of CFOs reported that more than half of their revenue already comes from subscription-billed services. In 2018, pressure on the finance team to successfully support and scale the renewals-driven business will only continue to grow.
As CFO, while adapting to more sophisticated billing scenarios and evolving revenue recognition standards, you must also exhibit a deeper understanding of the customer experience and path to success. Doing so requires understanding the unique needs of your most important stakeholders. Here are your four most important stakeholders—and tips on how to keep them happy.
1. Your customers expect accurate, timely billing with a detailed breakdown of products and services. Nothing new there, but legacy systems built for linear, order-to-cash transactions simply don’t provide sufficient support for contracts that blend a wide variety of revenue streams (e.g. subscriptions, legacy fees, managed services, and project billing). Tracking different revenue streams in different systems, like subscriptions in one system and consultant time elsewhere slows down processes, increases errors in bill preparation, and leads to redundant bills. Modern cloud ERP solutions eliminate these obstacles while also meeting additional customer expectations, including self-service access to billing, payment history, and online dispute resolution.
2. Your auditors require adherence to ever-evolving and increasingly complex financial regulations, including ASC 606 and IFRS 15, which demand clear visibility into revenue contracts, performance obligations, and the events that trigger revenue recognition. Pulling everything together into a single database will help you build a trusted, single version of the truth that enables high levels of automation and eliminates fragile data synchronization. Your auditors will love it.
3. Your investors will increasingly expect more and more metrics to track and forecast business performance:
- Cost of new customer acquisition with revenue and cash forecasts
- Customer retention rates
- Net expansion rates, a key indicator of product adoption and usage by existing customers
- Performance against customer reference goals and other advocacy indicators
- Service margins at customer, project, and product level
Metrics around customer churn, product adoption, and customer success are key for subscription-based businesses because they each contribute to a more accurate forecast of recurring revenue. For private companies looking for that next round of funding or even an initial public offering (IPO), it’s also worth noting that these data points will be the same growth metrics investors look to when analyzing the health and future potential of your business.
4. Your employees need intelligent and easy-to-use financial reporting to support their daily workflows. In order to make the decisions that will best support your business, employees must have quick access to up-to-date data that allows them to drill down into the business issues most pertinent to their day-to-day tasks.
Though these audiences may not be new to your stakeholder list, in the new services economy they have an elevated importance. To learn more insights and strategies for thriving in this new era, download our info-packed guide to the new services economy.