Controllers Council recently held a panel discussion entitled, CFO Perspective: Maximizing Growth with Recurring Revenue, sponsored by BillingPlatform.
BillingPlatform empowers businesses with innovative software solutions to optimize revenue generation through every stage of the customer lifecycle, powering growth through operational agility along with a frictionless customer experience. Our industry-leading, cloud-based platform is leveraged by global enterprises to optimize the customer journey from idea to revenue. With global customers across multiple industries, including software, finance, media, transportation, and communications, BillingPlatform processes billions of transactions and dollars every year, enabling enterprises to grow revenue, reduce costs and improve overall customer experience. To learn more, visit billingplatform.com.
Our expert panelists include Brad Sawaya and Matt Ream. Brad is the CFO at BillingPlatform for the last 5 years. Prior experience includes 3 years at EY in Palo Alto, where he focused on technology. Matt Ream is the Director of Product Marketing.
Following are key takeaways to this discussion. If you are interested in learning more, view the full webinar archive video here.
Let’s start off with the rise of recurring revenue:
- Market Growth: The global subscription economy is projected to grow from $650 billion in 2023 to over $1.5 trillion by 2027, driven by consumer demand for personalized and convenient experiences.
- Customer Preference: Over 70% of consumers prefer usage-based payment for ongoing access to products and services rather than owning outright, according to recent surveys.
- Business Impact: Companies with a recurring revenue model grow 5-10 times faster than those with traditional models due to reliable revenue streams and higher customer retention.
Why Recurring Revenue Models?
One of the key benefits of a recurring revenue model stream is higher valuations, both for public companies and private companies.
We’ve seen that for the past several years. In fact, even there could be discrepancies in recurring revenue businesses, those that are flat rate subscriptions versus a usage-based component. Those usage-based revenue companies are even getting an additional premium on top of the even normal recurring revenue. That discrepancy has come down a little bit lately, but it’s still there. So, the quality of revenue, the reasons for those higher valuations kind of go across many different categories, certainly a predictable revenue stream. Once you have recurring revenue, it’s a situation where you don’t have to execute a new transaction every single time with either an existing or new customer, but you have a continuous relationship with that customer, which yields to a more predictable revenue stream, especially for those companies that sell long-term contracts. That predictable revenue stream can in turn help you better forecast the rest of the business. So, you get a more accurate forecasting and predictability in the overall economics of the business. Also, can yield steadier cash flows as you have customers paying you on a recurring basis and you’re better able to predict those cash flows from existing contracts.
Challenges in Adopting New Models
Cultural & Team Challenges
When we think about any type of processes, especially in accounting, there’s people, processes, and systems. So, to start with people and cultural and team challenges, this can be particularly crucial for traditional companies that have been doing things in a certain way forever. Introducing recurring revenue is a completely different business model. And therefore, the change impacts almost each department. Going from selling widgets where once the sales team executes the sale, the shipping team ships the widget and the billing team bills for it and then accounts for it. It’s that ship it and forget it model that is no longer works. Now you have continuous engagement, ongoing with the customer. Other organizational adaptions could be sales and commission structures but that’s what the skills and processes are for. Training certainly can help, but change is hard.
I work to ensure that finance is not the bottleneck. This can be challenging because we have our regular cadence, our month-to-month close activities that we need to do quarterly close, annual close, getting through an audit that doesn’t really leave a lot of time on the calendar and capacity to accept and be involved in these changes.
Business Challenges
A pricing strategy is a challenge as you’re trying to think about how to go to market with a new recurring revenue stream. There are multiple different options for both consumer offerings and B2B offerings. What works best for you? How can you drive the most value to your organization? Which pricing strategy will work?
Billing complexities: if you’re back to that ship and forget it example, if that’s what your ecosystem is set up to do, which for traditional companies, that’s how it’s worked. Billing has always sat in the ERP. I was in a situation again in a prior life where we were in a traditional business model and there was a business unit who had developed a kind of a side software offering to help their customers better maintain the big machines that they had purchased through software.
Customer Churn: Now, this is one that’s kind of interesting. Certainly, recurring revenue businesses can have predictable revenue, which is fantastic. But one thing to be conscious of is churn. If the business is growing and scaling, then this is usually not an issue, assuming there’s no product problems. Customer churn can be kept at lower levels. But if the growth of the business starts to taper off, then, and as your customer base grows, the churn will grow with the customer base. And sometimes what you’ll see is some of these businesses will reach a certain point in time where the churn starts to exceed their growth, which can cause damage to the enterprise.
Modernizing Your Financial Infrastructure
As the role of the CFO, our job is to work with the senior management team of the other departments, with our board, with our investors, but we also need to make sure that our house is in order. So, we need to make sure that our own teams are not a bottleneck to changes that need to happen or skill that needs to come into place. But we’re driving value to the enterprise. As the leaders of our organization and our teams, we can drive value to the rest of the enterprise, and that is making sure that we set up this ecosystem in an agile way. It can really be strategically, a strategic differentiator compared to your competitors. If you can set this up in a way that you have the flexibility to change and adapt to your customer needs, then you and your controllership are making a direct impact on a higher valuation of your company.
Data-Driven Decision Making you’ll hear talk about all the time, certainly AI. I think it’s here to stay, not only for how your companies are using AI to better serve your customers, but how you can consume… using different AI tools to do your job better.
The point that I want to emphasize is that, again, going back to the customer data, is you and controllership have access to your customers’ usage data, that is extremely valuable. Understanding how you can feed that into AI and big language models, where you can better leverage that provide better insights to your enterprise, whether it be with AI or even just with BI tools, that can be really valuable.
Do your research, run a good process, understand what your requirements are, not only for your current requirements or potential requirements in the future, and then you can select the right technology, plan and execute it, a good implementation, which is going to take effort and time, but it will pay dividends for a long time. If you can do it, do it.
Legacy System Constraints
To view this topic and the complete webinar, download here.
ABOUT THE SPONSOR:
BillingPlatform empowers businesses with innovative software solutions to optimize revenue generation through every stage of the customer lifecycle, powering growth through operational agility along with a frictionless customer experience. Our industry-leading, cloud-based platform is leveraged by global enterprises to optimize the customer journey from idea to revenue. With global customers across multiple industries, including software, finance, media, transportation, and communications, BillingPlatform processes billions of transactions and dollars every year, enabling enterprises to grow revenue, reduce costs and improve overall customer experience. To learn more, visit billingplatform.com.
