Full Automation vs Enterprise Resource Planning

5th May 2021

Automating your front-office and back-office processes may be top of mind if you’re doing one of the following:

  • Planning to IPO and need to decrease human error.
  • If you are public and trying to decrease audit time and costs.
  • You are just trying to retain good talent by automating the more mundane tasks that we typically see in the back office.

These tasks can involve anything from the CPQ process (configure, price, quote) down to the revenue recognition process (think ASC 606 and IFRS 15). We often call this our Order to Revenue, or Lead to Revenue processes.

Historically, we have relied on our ERP (enterprise resource planning) systems to handle these tasks and in the past, we’ve been happy with those results from both an end user and an audit perspective. The trend we have seen over the last several years, however, is that ERP systems have limitations that have been brought to the surface because of new monetization trends and the resulting complexity accounting for those transactions.

Example

Here is a quick example. Let’s say my company, like many others, is making the shift from Perpetual license sales to more SaaS offerings. Everyone else is generating recurring revenue, why shouldn’t we - right?

Well now you need to figure out how to bill for those recurring charges and how to recognize revenue on those recurring charges. You need to accommodate for customers who wish to make changes to those offerings mid-contract.

Here are some questions to ask in this situation:

  • Are you selling those SaaS offerings with other offerings, like hardware, training, and other services?
  • Are you diving into the consumption-based trend and have a usage-based model in there as well?
  • How are those deals structured?

Standalone Selling Price Allocations

If you are allowing your sales reps to create different discounts within your customer contracts, you may know what I’m getting at: Standalone Selling Price Allocations. If you work in the front office, you may not know what this is or why it matters. If you work in the back office and you don’t have a purpose-built solution to deal with these allocations, you’re already shaking your head and quite possibly, your fists.

Standalone Selling Price (SSP) Allocations are when your finance team needs to rebucket revenue from one offering in the customer contract to another based on its relative value within the contract. This is something that traditional ERP systems don’t do very well, however, they often have add-on modules that you can implement that do typically solve for this particular pain point.

SSP Allocations Challenges

The tricky part of all of this links back to our earlier discussion around the shift to SaaS offerings. When I offer subscriptions, I’m also inclined to let my customers modify those subscriptions. A flexible offering creates a happy customer. That’s all well and good for the front-office but again, our back-office finance folks are now dealing with what’s called contract modification reallocations, which ERP add-ons simply cannot handle. And trust me – as much as I love a good excel workbook, this is not a fun exercise to hammer out manually.

In short, ERP systems are great at handling the old model of pricing and packaging, and transactional, one-time purchases. When you start dabbling in subscriptions and needing to understand the customer lifecycle, as well as deal with the resulting revenue recognition complexities, we would recommend a purpose built Quote-to-Revenue tool to avoid living in a “half automation” world as your company scales and grows.

Want to learn more? Reach out to Neocol today.

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