Five considerations to achieve agility in the subscription economy

By Tom Zauli, SOFTRAX 

The pandemic caused speedy development in the subscription economy, and UBS analysts predict it is going to grow to $1.5 trillion by 2025. One group that had pre-pandemic consciousness of the significance of recurring income and the way to handle it was CFOs. A 2019 CFO Research / Salesforce survey discovered that greater than half (53 p.c) of respondents mentioned that no less than 40 p.c of their organizations’ revenues have been offered through subscription or usage-based fashions (or “recurring.”)

Recurring income was on their radar at the moment due to the steady nature of the income stream and the capability to optimize how they monetized their relationship with their purchasers.  Post-pandemic subscription fashions have turn out to be extra fashionable than ever, proper when the accounting processes underlying them have elevated in complexity, notably by way of the introduction of ASC 606 / IFRS 15. Essentially, what had been back-office issues in complicated accounting at the moment are additionally front-office considerations given the many buyer touchpoints with subscriptions. CFOs are left with compliance mandates, buyer strain, and previous ERP methods that aren’t up-to-speed with the present operations. The key to success in the subscription economy lies in discovering and sustaining agility, and this guidelines gives 5 good locations to begin:

Point 1: The elementary tenant – “Where there may be doubt, there isn’t a doubt” 

It is an previous saying, however in these easy phrases lies the secret to monetary transformation and digitization.  When income accounting is complicated, extra time could also be spent in implementing controls, reconciliations, and different duties round the core accounting, than the accounting itself.  According to Rob Banham of PWC, no less than 30% of a finance group perform is spent in reconciliations alone.  Why?  Because there may be doubt concerning the accuracy of the accounting.  Particularly now, with a retreat to spreadsheets, there are extra human touches, every of which has the potential to inject error.  Controls on prime of controls exist to guarantee accuracy.  These processes deliver inertia and diminish agility. In the case of income accounting, the aim must be to change the paradigm in order that accounting errors can’t be injected, i.e., to fully take away doubt.

Point 2: Processing structure considerations 

On-premises deployment 

In previous a long time, a degree of automation and agility might be achieved by way of on-premises set up of ERP methods comparable to Oracle or SAP.  These methods are extensive in performance, however not deep.  Gaps in performance are sometimes crammed through software program customizations to protect automation and agility.  Future enterprise adjustments are accommodated by one more customization.

There is important value with these customizations.  First, they create dependence on an IT group, whether or not inside or exterior, to write and preserve the customizations.  Second, they create vendor and model lock-in inflicting super value of possession.  Upgrades are painful as customizations should be introduced ahead and retested.  Because corporations can’t simply improve to newest variations, defects already discovered and glued in core software program should be discovered and glued through customization.  This entails extra take a look at effort towards these customizations that aren’t examined by the vendor as a part of their core QA course of making a extremely inefficient course of.  This leads to stability points as a result of customizations are examined and utilized by one firm, not like core vendor software program which positive aspects stability through broad automated regression and use by tons of and even hundreds of corporations.  Because the options are put in on-premises, the corporations themselves have been accountable for safety, backups, and different administrative facets of the software program.

Despite the extraordinary prices concerned, the strategy labored… till you had a enterprise change.  This is the drawback many corporations discover themselves in as they try to transfer purposes to the cloud and embrace subscription invoice fashions.

Single-tenant cloud 

A more recent deployment mannequin is single tenant cloud.  A single tenant deploy means transferring the software off on-premises servers to run both in a public knowledge heart or one owned by the software program supplier.  It will get the software out of the consumer knowledge heart.  It does present vital profit.  Monitoring, backup, catastrophe restoration, and safety are all dealt with by the cloud supplier, who must be skilled in every.  It doesn’t change the operational mannequin of the software program.  The software program nonetheless runs on a devoted server.  For this purpose, like an on-premises set up, customizations can and do happen and carry the similar enhance in TCO, partially due to the vendor and model lock-in that also exists as customizations are deployed.  Additional issues exist.  It shouldn’t be straightforward to help a steady launch course of in a single-tenant cloud, which suggests an influence to agility.   Single-tenant clouds wouldn’t have the benefit of compute energy on demand, impacting how the resolution handles quantity and probably additionally growing TCO.

Multi-tenant cloud 

The world is transferring to the multi-tenant type of cloud and for good purpose.   It is unlucky that each single tenant and multi-tenant cloud are referred to as simply Cloud.  The multi-tenant cloud processing structure is sort of completely different than each the on-premises and single tenant cloud fashions (that are like one another as said).  In a multi-tenant cloud deploy, all software cases deployed are the similar.  Cloud suppliers comparable to Amazon with their Elastic Compute Cloud, Microsoft with their Azure Cloud, and Google with its Cloud have turn out to be skilled in making easy the provisioning and even load balancing and auto-scaling of compute energy towards spikes in load.  They allow elastic compute the place {hardware} can mechanically be provisioned towards peak hundreds and instantly de-provisioned when spikes cross.  This gives super enhancements in worth per compute.  Multi-tenant cloud transitions monitoring, backup, catastrophe restoration, and safety to the cloud supplier simply as in the single-tenant case.

There is one seeming draw back.  Customization is both arduous or unattainable.  This would seem to influence agility.  It is a false draw back.  Good multi-tenant cloud software program is devoid of customization.  Through this, a excessive share of the enterprise logic is roofed through the automated regression take a look at carried out by the vendor.  Multi-cloud infrastructures retain agility as a result of they allow a steady launch course of the place new variations are pushed to all customers in automated, incremental updates.  As out-of-the-box software program, it stabilizes quickly as new variations are concurrently deployed to many customers.  If the vendor is open to a wanted change, it may be developed, examined, and pushed to the cloud as supported product in a small period of time.  At the time of this writing, multi-tenant cloud has emerged as the clear desire for almost all corporations in phrases of processing structure.

Point 3:  Deciding between a platform vs part technique 

With multi-tenant cloud the winner in phrases of processing structure, the subsequent determination is whether or not to remedy the income accounting drawback through a single system or by leveraging ERP as a spine and augmenting with different options.  The query has at all times existed, however the equation adjustments in the period of multi-tenant cloud.  In the previous, it was extra probably a single platform would suffice on condition that any gaps might be solved by way of customization, albeit at a price.  This is much less the case with multi-tenant cloud deploys the place it’s much less probably a single system will suffice absent the freedom to customise.

Companies with easy income accounting ought to lean towards deployment of a single, multi-tenant cloud platform to keep away from knowledge and integration points that will in any other case add issues.  There is one vital caveat.  The chosen platform should help the factors beneath, and significantly these associated to removing of doubt in the course of.

Where there may be complexity, it’s troublesome to discover a single platform that may meet the want.  Today, even the platform distributors themselves have created separate choices to help in income accounting.  In this situation, augmenting with both a devoted income accounting system or a set of level options could also be mandatory.  An benefit of the strategy is you’re not depending on a single vendor.  You additionally acquire the capability to place and substitute elements as the enterprise adjustments with out the disruption of a full platform rip and substitute.  Many corporations with complicated income accounting are selecting to choose a easy, cheaper, ERP system to function a core spine understanding they’ll require different purposes to increase it.

Point 4: Evaluate practical elements – put together for the unknown tomorrow 

All companies change over time.  In an surroundings the place customization shouldn’t be an possibility, or no less than not really useful, you may get caught.  Even in the event you discover performance that meets your want of as we speak, will it deal with the regulatory and enterprise change of tomorrow?  This is precisely the drawback many corporations discover themselves in now.  They are transitioning back-office purposes to the cloud at precisely the time when complexity is growing, and enterprise fashions are altering.  The consequence?  Without the capability to customise, performance strikes again to spreadsheets at an alarming charge.  For this purpose, it’s crucial to choose purposes which are deep in performance, versatile, and strong.  Whether a single system or a number of elements, you will need to achieve confidence they’ll deal with, not solely as we speak’s most complicated necessities, however these of tomorrow as nicely.

Point 5: Evaluate practical elements – plan for post-processing necessities 

Evaluations typically neglect the automated processing of change occasions.  These may embrace processing of credit, pause occasions, cancelations, contract modifications, or some other change occasion impacting the income accounting course of.  If change occasions happen with any frequency, it’s crucial these occasions are dealt with out-of-the-box.  Each of those actions impacts the contract for companies and the income considerations, so change occasions must be central to your planning technique.

By placing these 5 parts into your subscription billing plan, you’re permitting for the agility that’s wanted to help the entrance workplace in addition to the back-office, together with income recognition, compliance measures, and ever-changing buyer preferences.


Tom Zauli is the normal supervisor and senior vice chairman for SOFTRAX, a supplier of income administration methods. Zauli background consists of working with start-up software program corporations, together with SES, HyPerformix, Parasoft, rPath and iTKO. Prior to that, Zauli labored as an Electrical Engineer for GE Aerospace, Martin Marietta,  and Lockheed Martin. He holds a Masters of Engineering and Bachelors of Science in Electrical Engineering from Rensselaer Polytechnic Institute. In addition, Zauli holds US Patents associated to methods for automating the knowledge assortment and filtration processes supporting simulation fashions of complicated, n-tier info methods.

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