9 Steps to How “One Subscription System of Record" Helped Create a Unicorn
“Billionaire Robert F. Smith’s Vista Equity Partners has agreed to acquire a majority stake in Acquia Inc. in a transaction valuing the enterprise software company at close to $1 billion, including debt, according to people with knowledge of the matter.”
What did Acquia, the leading provider of cloud-based, digital experience management solutions, do on the financial front to gain this kind of attention?
Let’s go back in time several years. They were expanding internationally with a land-and-expand billing model, and every day the finance team was manually managing the complex MEA transactions with siloed billing, revenue in spreadsheets, and cash-based accounting. Until one day, they had to deploy ASC 606 at the same time as they managed over 1,600 customer contracts. In order to scale, they decided to deploy Sage Intacct to be the single source of financial truth for subscription billing and revenue management that automates forecasting on billings, cash, and revenue.
Since that day, with a single subscription system of record, they natively integrated the order from Salesforce directly to subscription billing in Sage Intacct, cutting order to bill processing time by 50%. This led to reducing DSO by 20% and reducing their deferred AR balance by one third. All of this led to an operational cash flow increase of tens of millions of dollars.
To better inform decisions on directing this cash, they automated financial processes to the point that they reduced the financial close from 10 days to three days. They were able to able to deliver budget to actuals to the business leaders 11 days after the month close and reduce their cash forecasting variance by 80%. They did all of this while adopting the strict reporting requirements of ASC 606.
These critical process improvements allowed them to drive big business value. For example, they now had the data, cash-flow, forecasting, and confidence to accelerate investment in hiring for a new product line that would further support their customers’ digital experience goals. The new product line outflanked a competitor that had attempted to establish a niche in their customer base and resulted in increased CLTV per customer and reduced churn.
The moral of the story is you can now have the confidence and cash flow to accelerate the growth of your subscription billing model with “one subscription system of record” from Sage Intacct. It is best captured by Emily Drahzal, Head of Revenue Operations at Acquia, who said, “We have brought predictability to our revenue.”
What steps led to that success?
From talks with 87 companies, a global survey of 500+ SaaS firms, feedback from industry analysts, and insights with the world’s top technology investors, an obvious pattern has emerged: having one master view of the customer subscription lifecycle increases cash-flow, reduces churn, produces better forecasts, and enables teams to work better together.
I am going to share this in our Software Industry Keynote during our annual customer conference, Sage Intacct Advantage 2019. For those not able to attend, here is a brief synopsis of how we are uniquely deliver the value of “one subscription system of record from quote through financial forecast”.
Companies of all industries and sizes are shifting their customer relationships from transactional to longer-term subscriptions. The benefits are proven—attract more customers, create more predictability in revenue, and achieve higher customer lifetime value. Subscriptions require new capabilities beyond traditional enterprise resource planning (ERP) that legacy order-based financial systems can’t support.
This shift requires the finance and revenue teams to work together and more efficiently on the key processes that deliver value for the company. These teams and their various roles include:
- Sales ops—Create and book opportunities that adhere to sales policies
- Revenue operation—Shift from data entry to revenue analysis with automated billing, revenue, and item catalog sync
- Controller—Eliminate the need to manually validate orders and expenses to close faster
- FP&A—Get budget vs. actuals sooner, without reconciling systems
- CFO—Lead strategic planning with forecasts and visibility into growth levers
Sage Intacct’s unique and game-changing “one system of record” technology and approach delivers on nine big benefits for subscription companies.
1. Automate everything from quote to financial forecast
Starting from the initial sale all the way to the board and investors, Sage Intacct help companies save hours of time and reduce errors by providing:
- Prebuilt Salesforce integration to eliminate rekeying of sales contracts.
- Support for a variety of billing and revenue models, including subscription, services, perpetual, and usage billing.
- ASC 606 and IFRS-15 compliant revenue recognition.
- Fully integrated, intelligent general ledger.
- Out-of-box, real-time GAAP and SaaS metrics dashboard.
- Instant forecasting for revenue, billing, and cash.
Real-time, bi-directional synchronization between Salesforce Sales Cloud and Salesforce CPQ with Sage Intacct ensures Sales and Finance are always in sync and data is accurate whether you are looking at product pricing, customer invoices, or contact address information. This automates answering key questions for Sales such as how contract items are being billed (fixed price, usage, project time, and material) and what the billing and payment histories are for their customers. As sales closes their deals, billing and revenue schedules are automatically generated for finance, and contracts are immediately available for billing.
The Sage Intacct implementation utility automates the rebuilding of historical activity into your subledger to set balances and enable billing and revenue recognition going forward. The utility can save weeks in your implementation, delivers retrospective reporting and insights at go-live, and speeds onboarding of future acquired companies.
4. Adopt a modern, continuous close model
While order-based solutions require old record-to-report models that require month-end processes like reclassification, we support a continuous close model, providing:
- Automated expense amortization, including commissions, over the life of the contract. No journal entries required to adjust.
- Real-time reclassification of MEA on save, so your numbers are always up to date.
- Fully automated, real-time forecasting based on actuals.
- Fully automated, real-time SaaS metrics by dimension.
5. Reduce the exceptions that consume your time
Not only do we automate your routine revenue recognition and billing schedules across the customer lifecycle, we’ve added deep automation to eliminate the manual effort required for the less routine activities, including:
- Backing out revenue and billing for cancellations.
- Pausing revenue, MEA, and billing schedules for contract holds.
- Recalculating revenue, MEA, and billing schedules after a contract amendment or resume after hold.
- Handling debooks and credits.
- Calculating and forecasting renewals.
As they grow, subscription companies often expand offerings to attract new customers, increase average sales price, and retain existing customers. Sage Intacct supports unified billing across subscription pricing, usage billing, professional services, and perpetual licensing, giving our customers the flexibility to handle a variety of billing models.
7. Generate real-time forecasting
With connections across CRM, CPQ, and financials via one subscription system of record, automatically generate forecasts, as well as re-forecast, in real-time. Sage Intacct provides one view of your customers (vs. disparate orders) across billing, revenue recognition (including unbilled), and cash over the contract term.
Our customers implement the governance, reporting, and forecasting needed for a successful IPO by tracking successes instantly across metrics such as:
- Cash flow (increasing up to 20%).
- Customer lifetime value (increasing up to 2X).
- Net dollar retention (increasing up to 120%).
- Cash forecast variance (reduced up to 80%).
- EBITDA (increasing up to 20%).
9. Build on foundations for AI-based predictive billing
The Sage Intacct Intelligent GL, coupled with the subscription contract and historical data, will soon enable companies to predict future renewal and churn rates—offering the first step towards predicting cash inflow and driving smarter business decisions. Business executives can proactively act—for example, creating an active engagement plan for the top at-risk accounts by knowing the at-risk accounts based on predictive data, not just gut feel.
Acquia is an amazing story and one of many we have seen our customers create for their companies and their investors. To reiterate, having one master view of the customer subscription lifecycle increases cash-flow, reduces churn, produces better forecasts, and enables teams to work better together. We couldn’t be more excited to share this announcement and to help you gain these benefits for your company. Click through to our SaaS and Subscription page to take that first step in your journey.
David Appel is the Head of Software & SaaS at Sage Intacct, and is passionate about creating great B2B SAAS companies. Over time he has developed a series of SMB, Mid-Market, and Enterprise customer-lifecycle playbooks that focus on creating value for customers, increasing return for shareholders, and building great teams, that have generated over $1.1B in market capitalization for his clients.