Mastering the Complexity of Revenue Management

By Heather Roukoski | August 30, 2021 |

Revenue management is among the top challenges with loosely defined regulations, evolving revenue recognition rules under Accounting Standards Codification (ASC) 606, and stiff penalties for noncompliance. It can often overmatch the resources and expertise of many finance teams. Faced with these hurdles, companies must automate revenue management processes to gain efficiency, strengthen compliance, and improve visibility.

The two-pronged strategy for successful revenue management emphasizes top-down processes and deploys technology that streamlines, centralizes, and automates the revenue management process. Using multiple spreadsheets to manage revenue recognition tasks from an ever-increasing variety of sources is simply ineffective.

Sage Intacct Revenue Management automates and optimizes the financial processes associated with complex revenue recognition. Sage Intacct is the cloud-based technology that allows your finance team to connect systems, automate processes, and analyze the business. This solution frees your staff from the intricacies and headaches of managing revenue with manual processes and complicated spreadsheets while keeping current with the latest accounting standards allowing greater insight into the health of your business.

The Challenges of Revenue Management

Regulatory Compliance - Regulations are challenging to interpret and apply consistently, and guidance from the American Institute of Certified Public Accountants (AICPA), the Securities Exchange Commission (SEC), and the Financial Accounting Standards Board (FASB) can make revenue managers feel like they're trying to hit a moving target blindfolded.

Internal Controls – Revenue is inherently risky and frequently probed by auditors if internal controls are foregone in place of management judgment in recognizing revenue.

Forecast Visibility – Does sales or finance owns the revenue forecasting? Do income statements distinguish between one-time and recurring revenue? What is the impact of deferred revenue? Confusion is more lack of predictability—it also represents tremendous potential for lost opportunities in renewals, upsells, and cross-sells.

Staff Productivity - Sophisticated spreadsheets and manual calculations lead to wasted time spent investigating discrepancies and material financial reporting errors in the worst cases. Complex revenue recognition spreadsheets are a chief cause of monthly close delays and revenue leakage. What's more, they lack the easy audibility and robust security required for such a heavily regulated function.

Start with a Better Process

Companies faced with these hurdles are looking to automate revenue management to achieve better compliance, improve visibility, and lower costs. Somewhat counter-intuitive, automating the process doesn't start with technology. Since revenue management touches virtually every organizational area, streamlining starts with thoughtful strategies designed from the top down based on input from senior executives across multiple disciplines and functions.

Define the revenue recognition foundation. Executives across the organization must play central roles in defining revenue management and revenue recognition policies. Without their involvement, ambiguities can make it more difficult for finance to implement consistent and defensible procedures and rules. Get auditors involved in these process designs and policy definitions. Their agreement will pay huge dividends during audit time.
Use standard contracts with defined terms. These contracts must be flexible enough to adapt to your business needs but standardized enough to prevent revenue management variances that create problems down the road. While exceptions and one-offs will always be a factor, standard contracts enable revenue managers to apply rules, document, track consistently, and defend the exceptions granted to specific customers.

The Technology for Revenue Management: Key Criteria

To streamline and centralize revenue management, businesses must deploy technology that allows the finance team to connect systems, automate processes, and efficiently analyze performance.

1. Connect Systems

The best accounting systems connect to critical business systems within the organization, such as CRM, services management, and subscription management, to create a complete ecosystem for revenue management. Stakeholders throughout the company have access to the latest customer data when and where they need it. Modern software, especially cloud-based software, is built with open application programming interfaces (APIs) as a central part of its architecture, making it a simple and straightforward task to create integrations among disparate software products.

2. Automate Processes

Each company's revenue recognition process varies according to its unique business model, products, and markets. To automate this complex process, revenue managers need to codify the applicable rules through flexible templates and schedules that reflect the nuances of their business. The process must drive the automated calculation of recognized and deferred revenue schedules and forecasts based on contract terms, subscription length, project milestones and integrate them with the general ledger. Automation of the revenue recognition process can provide a single point of audit and reconciliation.

Billing

The best financial systems let you separate billing schedules from revenue recognition schedules. For instance, a company may bill quarterly for a one-year contract but recognize monthly revenue as the service is delivered. Flexibility frees the firm up to negotiate billing and payment terms with customers decoupled from revenue recognition requirements. You can ensure all appropriate revenue is captured by automating the process for more accurate customer billing.

Subsequent Modifications

These are events that affect your deferred revenue schedule midstream. For instance, suppose a customer with a standard 12-month contract unexpectedly delays its implementation by two months. You can't simply tack on two months in the end. It would be best to make a subsequent modification that recalculates your revenue schedule to recognize the remaining deferred revenue over the extended period. As the frequency of subsequent modifications grows, they become a nightmare to manually enter, calculate, and audit in a simple spreadsheet. Automation delivers enormous benefits in efficiency and accuracy.

Add-ons

Suppose you sell software to 10 users for one year. But six months later, that customer adds five more users for a year–users whose term expires six months after the original order. The right solution lets you adjust and "co-terminate" so that all users end their current terms simultaneously. Flexible, simple add-ons and co-terminations streamline the renewal process for you and your customers, drive additional revenue, increase long-term customer satisfaction, improve accuracy and consistency, and increase efficiency.

Renewals

The best revenue management solutions use reporting tools that automatically forecast upcoming renewals and include scheduled price markups or discounts. With this clearer visibility into contracts and expirations, finance can automatically alert sales reps to proactively cross-sell and upsell customers with additional products and services in a timely and appropriate fashion, reducing customer churn. More consistent subscription renewals increase profitability because it costs less to retain a customer than to find a new one.

3. Analyze the Business

Leading revenue management systems provide more than connections and automation. They provide a solid picture of current and deferred revenue by showing a real-time view of future revenues, projected renewals, and total deferred revenue stretching months or years into the future. Furthermore, they allow you to analyze the impact that changes to products and pricing can have on revenue, improving forecast accuracy. The best financial systems let finance teams dig deeper to understand the actual dynamics of their business, operating data, and metrics, leading to better long-term, strategic decisions.

Case Study: SevOne Streamlines Revenue Management with Sage Intacct

SevOne helps hundreds of companies manage the performance of their critical IT infrastructures. In addition to multi-entity and multi-currency management, SevOne needs to maintain fair value pricing for deferring revenue in multi-element arrangements. Sage Intacct's ability to define specific templates, rules, and schedules helps SevOne determine fair value for perpetual licenses and annual maintenance, simplifying its deferred revenue forecasts and reducing human error.

Sage Intacct for Revenue Management

Sage Intacct Revenue Management automates and optimizes the financial processes associated with complex contractual relationships. The solution eliminates complicated spreadsheets that inevitably lead to errors, lost revenue, and compliance risks.

With Sage Intacct Revenue Management, you can maximize billing and collections, automate revenue deferral and recognition, and optimize contract renewals. Sage Intacct Revenue Management includes many built-in reports to help forecast deferred and recognized revenue and ensure compliance with the SEC, FASB, and Sarbanes-Oxley.

As your business grows and adds complexity, Sage Intacct can meet your needs. Sage Intacct's flexible architecture was built for the cloud and is infinitely scalable and adaptable to meet your needs whether you add products and services, increase revenue, acquire a partner, expand internationally, or go public. Sage Intacct allows your finance team to connect systems, automate processes, and analyze the business to achieve superior revenue management.

Connect with CRM—Sage Intacct offers a preconfigured cloud connector to Salesforce CRM that ensures the two systems automatically share information. That means both systems are always up to date with product and price lists, customer data, and more. Integration optimizes the revenue recognition process by automatically triggering invoicing and revenue recognition when a sale is completed in Salesforce. Sage Intacct also lets you configure transactional flows to meet unique quote-to-cash process needs typically predefined and customized with code in other systems.

Connect with Subscription Management—Built on the Salesforce1 Platform and fully integrated with Sage Intacct financials, Sage Intacct Subscription Billing leverages Sage Intacct revenue management capabilities. Automate billing, subscription changes, and revenue recognition to instantly boost the efficiency of accounting and sales teams. Use flexible pricing and accurate billing to attract new customers and retain current ones more easily.

Connect with Project Management—Sage Intacct Project Accounting is fully integrated with Sage Intacct's financials, ensuring all financial data is contained in the financial system of record and providing cohesive, streamlined financial management. Only Sage Intacct connects project accounting to revenue recognition, using timesheets and milestones to recognize revenue while maintaining a separate billing schedule automatically.

Automate Revenue Deferral and Revenue Recognition—Sage Intacct Revenue Management allows you to set up revenue recognition rules for different types of products and services. It enables revenue posting automatically, based on flexible revenue recognition schedules. You can set up complex fair value allocation rules which give you even greater control over re-allocation and timing of revenue to reduce potential errors and revenue leakage, accelerating the closing process with accurate, auditable revenue recognition journal entries.

Automate Billing—Sage Intacct Revenue Management automatically generates billing for accurate, timely, and justifiable bills. The system is unique because it consolidates multiple billing types into a single, customized invoice.

Automate Subsequent Modifications—Sage Intacct Revenue Management automatically calculates deferred revenue and recognized revenue without tedious manual workarounds so you can control changes as they occur: hold and resume scheduled entries and project milestones, manage subscription upgrades and downgrades, cancel further revenue recognition for an item, or edit the posting date or amount of a transaction.

Automate Add-Ons—Sage Intacct Revenue Management allows for flexible subscription and license add-ons and co-terminations that streamline the renewal process for you and your customers.

Automate Renewals—Sage Intacct Revenue Management streamlines the contract renewal process and increases renewal revenue by automatically scheduling, managing, and providing visibility into contract renewals. The system automatically notifies customers or salespeople before renewal dates, reducing the risk of churn.

Sage Intacct Revenue Management allows you to forecast quickly and easily deferred, recognized, and renewal revenue, so you have instant access to reliable, accurate business information.

Case Study: Evariant Deploys Sage Intacct’s Best-in-Class Cloud Financial Management System to Improve Business Operation

Evariant is a SaaS company that brings cloud-based data and analytics to healthcare providers. Evariant migrated its Excel-based revenue recognition models to Sage Intacct. It now powers one unified, automated revenue management process from sales orders through ongoing billing, forecasting, and renewals. Today, the finance team provides each department with revenue by customer, which brings greater visibility into the entire organization.

“Sage Intacct delivered flexibility to integrate with our application ecosystem, and timesaving revenue recognition capabilities—such as complete transparency between Salesforce bookings information, as well as revenue activity down to a SKU-level.”

Said James

Orsillo, Chief Financial Officer

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