Order-to-Cash Lifecycle in Subscription Economy #IFOFusion2015

Order-‐to-‐Cash Lifecycle in a Subscrip8on Economy

Mike Murphy, Chief Business Officer, goTransverse

O2C Lifecycle in Subs Economy

•  What is “Subscrip8on Economy”? •  Bookings are Bull •  Know thy process; Know thy business •  Ar8cula8ng revenue •  Automa8on & Customer reten8on •  Repor8ng & Metrics: 5 C’s of Cloud Finance

THE SUBSCRIPTION ECONOMY What does “pay-‐as-‐you-‐go” mean?

What is the Subscrip8on Economy? In the 80’s: Fixed contracts, complicated invoices

SubscripHon Economy: Don’t buy all at once, pay as you go

photos by WA DOT & antjeverena on flickr

Why Adopt This Business Model?

ShiRing Customer Expecta8ons

photo by Lars Ploughmann on flickr

BOOKINGS ARE BULL Bookings are misleading if you can’t recognize revenue for 12 months

Bookings are Bull

•  Bookings today are indicator of future cash

•  Cash is the lifeblood of biz

•  Develop stringent booking policy

photo by Carol Von Canon on flickr

What’s included in a Booking?

Subs product only?

Services too?

Very different revenue recogni8on cycles & valua8on

rules

The Truth of the “Dual Sales” Cycle

Pro Tip: Mo8vate customers to have a financial “skin” in the the implementa8on “game” by having payments begin at signing.

You can’t automate what you don’t understand. Vendors can work with the requirements they are given, but if you don’t understand your

business, outsiders can’t do it for you.

KNOW THY PROCESS KNOW THY BUSINESS

#1 Prerequisite for automa8on:

Garbage In | Garbage Out

photo by Ed Yourdon on flickr

•  Strong quote conversion process needed for CRM data to be reliable, so oRen excluded

•  Build products and offerings thoughbully, considering scalability

•  Keep data & processes: –  Accurate –  Up-‐to-‐date –  Consistent –  Controlled

Automated Order-‐to-‐Cash Solves a Lot of Problems

Sell Process Order Contract Provision Renew/

Upsell Invoice/Bill Accoun8ng Collect

Process Challenges

• Put it into useful format for invoice

• Show usage over 8me

• Ex: text alerts for data plans

• Gather info • Metering & en8tlements

• Integra8ons easy • But fall down in billing systems

Bring systems together

Unified invoicing

Reduced billing

inquiries

High customer

expecta8ons

Pro Story: Surprise! Interna8onal traveler gets $8k phone bill.

Congratula8ons! You’ve gojen this far! Now the invoices have gone out.

ARTICULATING REVENUE Then the auditors come in and write these crazy rev rec rules…

More Usage = More Complexity

Defer services revenue separate from subscrip8on revenue, etc.

Need logical structure in billing system to be successful

Ar8cula8ng revenue accurately is key to conquering revenue recogni8on

Why Did Revenue Fall/Rise?

•  Understand true reasons for revenue fluctua8ons: –  Churn –  Usage –  Errors –  Unan8cipated impact of contract structure (and lack of visibility into that)

AUTOMATION & CUSTOMER RETENTION

How does automated order-‐to-‐cash process relate to churn?

What does “churn” mean?

•  Define churn in your organiza8on

•  Lots of ways to measure churn

•  “Nega8ve” churn

photo by Duane Keys on flickr

Manage Churn through Discussions with Customers

Touch customers 1x per quarter minimum

What’s changed for them?

Make sure they understand who you are and what you can do for them

What to do when your key sponsor/champion at that customer moves on from their role

Example: Salesforce

Role of Customer Service Reps

photo by CWCS Managed HosIng on flickr

REPORTING & METRICS 5 C’s of Cloud Finance

Bessemer’s 5 C’s of Cloud Finance

CMRR, ARR & ARRR Commijed Monthly Recurring Revenue

Annual Recurring Revenue Annual Run Rate

Cash Flow Gross Burn Rate, Net Burn Rate, Free Cash Flow

CAC Customer Acquisi8on Cost Payback Period

CLV or CLTV Customer Life8me Value

Churn Rate Renewal Rate (opposite of Churn)

photos by Leo Reynolds on flickr

Understand True CLTV

How much should you be willing to spend to

acquire and/or maintain them?

How much is your customer really worth

to you?

Customer Acquisi8on & Churn

Key Takeaways

•  Moving to subscrip8on/“pay-‐as-‐you-‐go” is investment in your business model

•  Might spend almost 2x to acquire than ini8al booking value, but if customer life8me value is posi8ve (if your solu8on is “s8cky”) then it is worthwhile

Tie metrics to WHEN you expect to get paid

photo by Norbert Lov on flickr

Plan for as long a runway as needed

THANK YOU!

[email protected]

Order-to-Cash Lifecycle in Subscription Economy #IFOFusion2015

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