By David Appel, Sage Intacct
The cloud financials market has flipped. It all comes down to one simple reason: to build a recurring-revenue business, finance teams are rapidly transitioning from processing orders to managing subscriptions.
Based on the many customer interviews we've conducted, it's apparent that a pattern has emerged showing this shift from orders to subscriptions and the underlying differences between the two models.
For early software and SaaS companies, financial systems for order-based were invaluable. These companies sold discrete products-core editions, users licenses, and additional modules. To renew, you simply sold another order. Everything was separate and you managed revenue recognition through vendor-specific objective evidence (VSOE) to satisfy auditors.
The subscription economy is about lifetime customer value
The new subscription paradigm changes all of that. In the subscription world, you must understand the lifetime relationship with the customer - all the upsells and renewals and how they all build on one another. You also must understand the revenue, billings, and cash derived from those-again, over the entire lifetime of the customer relationship.