Eighty-four percent of new software today is delivered as a service (SaaS). Yet, as we turn the corner toward 2019, many businesses remain ill-prepared for the unique challenges and opportunities that come with moving to a subscription model and managing a SaaS business.
The most noticeable pitfalls lie in the way SaaS businesses manage the order-to-cash-to-renewal process and capture, share and use financial metrics. Often, they take the same processes and principles used to run a traditional business and transfer them to the SaaS business, which simply doesn’t work long-term. In a traditional business, a company sells a product or service and the customer pays for it one time. Thus, the revenue is earned at that moment. SaaS customers pay as they go. In this case, revenue is recognized differently and businesses must continue to earn the trust of the customer, deliver a positive experience and build a long-term relationship in order to continue receiving payment.
These are the most common pitfalls we see.
Relying on Spreadsheets and Disconnected Systems
Quickly trying to move to a subscription model or get a new SaaS business off the ground, many SaaS businesses use spreadsheets, disconnected systems and manual processes to manage their recurring revenue business.
Most of the robust financial systems that address 100 percent of what a SaaS business needs are very expensive and simply out of reach for the majority, so the typical response is to cobble spreadsheets together with traditional accounting software to create homegrown SaaS financial operations. SaaS businesses aren’t static and the volatility you will get as your customer base grows and customers upgrade, downgrade or cancel, is impossible to track using a spreadsheet.
Spreadsheets and disconnected systems also open the door for errors. The more spreadsheets you create to supplement accounting software, the more you’ll need to manually manipulate data and the more that data is touched, the greater the risk and potential for errors. With multiple disconnected spreadsheets, an error in one calculation can have a devastating domino effect. Before you know it, you’re basing important business decisions on financial data you can’t trust. It’s easy to see why this approach won’t scale as your business grows.
Lack of Automation
In the early stages of a SaaS business, it is critically important to put a system in place that automates subscription management and provides visibility into accurate data, in real-time, that you’ll need to make smart decisions. You can’t do this by stitching together spreadsheets and using disparate tools. If you want to grow the business, you need real-time insight into its financial health and access to metrics such as monthly recurring revenue (MRR), customer lifetime value (CLV) and customer acquisition cost (CAC).
SkyWire, a provider of point-of-sale (POS), spa and workforce management SaaS solutions for the hospitality industry, experiencedwhat so many SaaS businesses encounter. When Mindy Molisee, vice president of finance, joined Skywire, the finance and accounting team was using spreadsheets to manage the company’s financial operations. As a quickly growing SaaS business, the SkyWire team was often making important business decisions and adjustments on the fly, many of which relied on accurate subscription and financial metrics.
“We were seeing too many data discrepancies and without automation, our processes were manual and thus, time consuming,” Molisee said. “After we automated subscription management with SaaSOptics, it was easy to manage the day-to-day financial operations of the business but more importantly, our sales, finance and customer success teams were all looking at the same, accurate information and using it to make smart decisions about our customers and our business.”
Failing to Work from a Single Source of Truth
As a growing SaaS business, you worked hard to acquire your customers, but holding onto them through multiple renewal cycles is really the key to subscription business success. Many SaaS businesses rely on auto-renewals, which are integral to the subscription business model, but that doesn’t mean you can kick back and relax.
It’s important your team is working from an accurate, single source of truth and can receive timely triggers for renewals, upgrades and expansion opportunities, ongoing account management dates, and other milestones, so they won’t lose important customers.
Automating and integrating SkyWire’s financial operations with the company’s CRM solution, closed the gap that often exists between sales, finance and customer success. “Having a single source of truth for all customer orders, contracts, transactions, revenues, invoices, payments and renewals, is a life saver,” Molisee said.
Planning Today Will Pay Off Tomorrow
If you’re managing your SaaS finances with spreadsheets and don’t have a system in place to automate your financial operations, it’s not too late. Managing the financial operations of a recurring revenue business isn’t easy, but it doesn’t have to be a burden. Take the time to think strategically about what you need to successfully manage the finances of your business as it grows and put processes and solutions in place that will meet your needs today and scale with your business in the days to come.
This post originally appeared on Software Business Growth by SaaSOptics.