By Tim McCormick, SaaSOptics
By 2020, more than 80 percent of software providers will change their business models from “traditional” perpetual license and maintenance to subscription-based models. A perpetual model requires customers to pay a fee upfront to purchase a license for the system or application, whereas a SaaS model requires a monthly subscription fee. While some providers, such as Dropbox, were created “as a service,” thousands of other software vendors that started out with traditional licensing models are realizing that gaining market share means embracing the preference for SaaS.
Eighty-four percent of new software today is delivered as SaaS. This percentage is expected to increase as existing providers transition to a subscription-based model. Yet, many software providers are ill prepared for the unique challenges and opportunities that come with managing customer subscriptions and transitioning to a SaaS model.
One challenge is how software providers manage their order to cash process and capture, share and use financial metrics internally. In transitioning to a SaaS model or developing a SaaS business, many utilize spreadsheets, disconnected systems and other manual processes to manage their recurring revenue business. Often, these companies take the same processes and principles used to manage a traditional software business and implement them in the SaaS business, which simply doesn’t work long-term.
If you aren’t working with a SaaS business now, the chances are high that you soon will. As an accounting professional, it is important to understand the differences in managing the operations and finances of a traditional software business versus those of a SaaS business.