Simplifying Revenue Management for SaaS Software Vendors

If you are using Excel and QuickBooks, keeping track of billing can be difficult and time consuming, as well as prone to errors. These more manual processes can also make it hard for SaaS companies to scale to meet tax requirements and other global accounting rules.

International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) guide revenue recognition. Companies that fail to meet the standards, can be audited and face heavy fines, as well as time lost on productivity.

SaaS software providers face multiple challenges around revenue management:

• Overly complex accounting processes
• Inconsistent allocations, leading to costly audits
• Errors
• Continual exceptions due to project holds, delayed shipments and other issues that affect revenue recognition schedules
• Forecasting challenges

Revenue management can often rapidly become more complicated than the billing itself. Take selling price, for example. If you have three sub items under one package, how do you allocate the price to each of those items?

Software that automates and consolidates these functions helps you juggle the complexities of subscription revenue management, including contract value fluctuations, added products, or timeline changes.

NetSuite’s Revenue Recognition module automates revenue scheduling, allocation and reporting, and recognizes revenue based on predefined schedules in compliance with ASC 606, IFRS 15 and other standards.

NetSuite Revenue Recognition

NetSuite’s solution for SaaS software companies for revenue recognition allows you to manage the entire subscription lifecycle – from launch to renewals.

Features include:

• Allocations: Define standalone selling prices using a constant or dynamic formula, and automate the allocation of revenue across contract elements. Adapt easily when additions, changes or cancellations
• Rules & Schedules: Accurately record revenue with performance obligations, milestones and other revenue triggers built into each contract. Manage multiple revenue recognition approaches.
• Revenue Plan Management: Modify plans on their own or in bulk to save time and avoid manual errors.
• Forecasting: Real-time data fuels better forecasting, updated as actual revenue is recognized.
• Reporting: Reporting features account for deferred revenue and update contract balances based on actual billing and revenue totals. One of the most used reports is called a deferred Revenue Waterfall report. It shows the ending balance of deferred revenue on the balance sheet, liability and then how it will be recognized over time.

A solution like NetSuite’s revenue recognition module, which is fully integrated with all O2C functionality, including SuiteBilling, yields benefits including:

• Closing faster
• Improving forecasting
• Streamlining reporting
• Increasing efficiency

Tips for Getting Started

Standardize the allocations process. It’s the revenue allocation decisions that catch the attention of auditors, such as inconsistencies between contracts. These audits can lead to delays and extra costs. By standardizing the allocations process, these headaches can be avoided.

Use an advisor’s guidance as a blueprint. And then set up your system to align with those rules. Your technology partner can help you execute that.

Make sure everyone is on the same page. Revenue management should tie together finance, marketing and sales to ensure consistency and accountability in the pricing structure (while still providing flexibility for changing structures/services).

Integrate with your front-end sales processes and software. Linking your billing and revenue management systems with your front-end CRM like Salesforce will ensure consistency and efficiencies in the move from sales to billing.

Find the right partner. With a trusted partner navigating NetSuite’s revenue recognition capabilities, you can create specific recognition rules for each product or service offered and then link to individual line items in customer contracts. Also, this will automatically recognize revenue and stay in compliance with accounting standards like ASC 606 and IFRS 15.

Contact Sikich to learn more.