Revenue Recognition Presents Challenge to Modern Software Pricing and Practices

Enterprise buyers of high-tech products and services increasingly expect software companies to cater to their individual requirements in very important ways. These buyers want enterprise software functionality that can be customized to their needs, and to upgrade or downgrade features and capabilities as their requirements evolve. They also want the software vendor to support multiple pricing models to provide flexibility in meeting budgets affordably. Midway into a contract, a business may decide to increase seats, scale down storage capacity, add a mobile access module, upgrade its storage capacity, or change any of a hundred other details that meet their company's specific industry needs and budgets. 

Catering to this granularity in market demand is crucial to attracting and retaining customers, as well as in maximizing revenues. After all, the more your company can re-bundle existing products and services, the more sales it reaps without increasing costs. It's the most cost effective way of expanding your markets without taking on additional risks.

That's great when it comes to driving additional revenue. The challenge here is incorporating the changes into your company’s billing and revenue recognition processes. For most software companies, accounting for these constantly changing contracts with discounts, upgraded services, downgraded services and different pricing models can turn into a financial nightmare. Or at the very least, a major headache involving non-integrated sales, billing, and revenue recognition software, manually created spreadsheets, and time-consuming data corrections.

In order to adapt to the ever-changing requirements of tech buyers, a flexible, more integrated system for revenue recognition is needed.  The first major step in that direction is adopting a cloud-based software platform that integrates the front- and back-office applications and can more easily enable the flow of billing data across applications and financial processes--without requiring staff to reconcile, recalculate or re-enter data in the system.

Besides a cloud framework, however, there are three other criteria that should be present in integrated enterprise systems.  

End-to-end record keeping.  Accurate revenue recognition requires end-to-end logs of everything from the sales order to general ledger. This ensures that any changes to individual steps in the process will be traceable and errors will also be more quickly identified.

Central data repository. Having a traceable record of all parts of the transaction also means having a single repository for all of the data. To have control over the sales and revenue recognition processes, a company needs that often talked-about holy grail: "one version of the truth.” It is critical for software companies to have one set of data in a standard format, accessible by all of its systems.

Visibility into real-time data. A completely integrated solution provides visibility into every aspect of the transaction, from the customer account to billing data to finance. In addition, the solution must provide not only historical data, but also real-time information. Real-time data makes it possible to understand the impact of changes on customer accounts, long-term revenues and profitability.

Keeping pace with changing customer needs, while maintaining accurate and up-to-date billing and financial records, is an ongoing challenge. Cloud-based platforms that provide integrated sales, financials, CRM, and Ecommerce systems offer the best approach for achieving flexibility in pricing with the financial visibility and operational efficiency that software companies need.

To learn additional best practices for revenue recognition, join the upcoming Proformative webinar on 11/5/13 at 11:00 a.m. PT titled “Taming Revenue Recognition: Best Practices to Ensure Compliance”. Register here: http://bit.ly/1aNHL4f.

-Dan Miller, General Manager of Software Vertical at NetSuite

comments powered by Disqus