I
recently attended Software 2006 conference put on by M.R. Rangaswami of the
Sand Hill Group that brought together a great venue of industry leaders,
breakout sessions and interesting conversations as to where software is heading
in the future.
I
found the CFO Panel discussion hosted by Jack Jenkins-Stark, CFO of SVB
Financial Group, with Ken Goldman former CFO of Siebel Systems, Christine
Russell of OuterBay Technologies, Inc. and Tom Berquist of Ingres Corporation
very informative.
As
we all know the changing roles of the CFO today has gone from focusing on
Return On Investment to Reducing Odds of Incarceration (ROI), having to manage
strict regulatory requirements, financial performance, cost reductions,
improving asset utilization while ensuring revenue recognition and sales
commissions are structured accordingly in either a Software as Service (SaaS)
model or traditional premised based software model.
The
former Siebel CFO commented that in a SaaS model a transition period occurs in
how you recognize revenue and compensate sales but sometimes you end up double
comping reps to move from one model to the other. Tom Berquist-CFO at Ingres
stated that a SaaS model provides a nice predictable recurring revenue stream
while minimizing commission payouts over the life of the customer. Having sold
and managed sales teams with both approaches, I find the SaaS subscription
model provides the ability to quickly close deals (beach heads), minimal
service implementation with instant-on, system-wide upgrades, ease of
maintenance support and that nice annuity stream with the opportunity to up
sell into other lines of business.
With
both models, companies need to ensure their financial process accurately
captures, tracks, and manages bookings, backlogs, billing, and revenue
recognition. Companies need to compare revenue growth of SaaS vs. Premise
Software (average deal size in SaaS is much lower) and analyze annual renewal
rates (Win-Loss). In addition, compare operational and commission
expenses against booked revenue and ensure how revenue is recognized or
deferred over time.
As
the proven SaaS model is ideal, offering customers choices gives them the
ability to acquire your products and services easily from operating or capital
budgets depending on their constraints. Flexible offerings is key to
earning your customers business. Isn’t that what it’s all about?
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