Technology company value creation through optimized quote-to-cash

Successfully scaling your business via integration and automation

May 05, 2019

In today’s competitive marketplace, speed, efficiency and automation are the keys to driving a successful organization. For growing technology companies, this is especially true whether your goal is to improve revenues and profitability or you’re eyeing an eventual exit. In fact, according to multiple studies across major research institutes and private equity firms, operational improvements that drive efficiencies contribute to nearly half of the value creation in private equity multiples.

For many emerging technology companies, these improvements and value creation can come from the implementation of an integrated and automated end-to-end process known as quote-to-cash. The critical success factor in leveraging this platform, however, boils down to actually designing the right quote-to-cash process that best fits your specific organization’s needs and growth goals. Let’s explore a little more on two types of quote-to-cash processes and their benefits.

Direct-sell and partner channel

From startup to high growth, most technology companies build their business on engineering a great product and enabling sales reps to storm the market to drive sales. This strategy works well to propel the organization from the startup phase into the high-growth phase. However, this strategy starts to show its faults once the high-growth phase generates significant sales volumes. The business practices that once led to market penetration and revenue growth quickly become a key cause of significant overhead, cost inefficiencies and back-end fixes to unstandardized processes. Couple this with very complex accounting and revenue recognition rules within the industry, and technology companies face significant hurdles to scale operations in a manageable, sustainable way.

The single most challenging process in technology organizations is the quote-to-cash process because it marries the sales function, which is incentivized to close deals through whatever creative means are available to them, and the finance function, which requires standardization to ensure appropriate accounting and compliance. Organizations that optimally design a direct-sell quote-to-cash process empower their sales reps to work within boundaries that can be accounted for on the backend, while enabling flexibility to negotiate with customers on the front-end. For customers, an efficient direct-sell quote-to-cash process will foster transparency in the customer-client interaction leading to improved renewal rates and cross-sell opportunities. For organizations themselves, an optimized process will enable quicker access to key reporting metrics such as sales forecasting, renewal forecasting, churn, recurring revenue and bookings, in turn fostering better management decision-making.

In addition to the direct-sell quote-to-cash process, technology companies have the added challenge of determining whether growth will continue to be driven by direct sales or if it will need to consider a partner channel to expand more quickly. For companies that choose to sell through partners, there are additional considerations that need to be evaluated within the quote-to-cash process. This includes determining how to track the end user, supporting deal registration to ensure there is no overlap between sales reps and partners, appropriately tracking partner level discounting, defining the billing model, and reporting on partner growth. Companies that successfully sell through the partner channel with an optimized quote-to-cash process are able to understand their end-user base and overall market penetration, while also enabling partners, rewarding high-performing partners and holding poor-performing partners accountable.

Quote-to-cash best practices

Some key best practices for designing the direct-sell quote-to-cash process to achieve efficiencies and create value for the business include:

  • Shift as much into the quoting process as possible. This includes customer quotes, payment terms, invoice schedules and renewal information. There should be minimal changes downstream in finance that haven’t been driven from the sales process or else your information and data will be out of sync.
  • Define your contract terms well. Be clear on what the start and end dates are, what your cancellation policy is and how customers can or will be required to renew.
  • Be transparent about invoicing. Let customers know what they are ordering, when they will be invoiced and for what amounts.
  • Automate tiered pricing structures through technology. Use configure price quote (CPQ) and pricebook functionality to automate rules around tiered pricing structures based on different factors.
  • Institute deal approval policies and automate with workflow. Define levels of authority for approvals for discounting, business terms and legal terms. Build this into a system with workflow to enable easy approvals.
  • Co-term your contracts when possible to streamline your renewals process. If a customer adds onto their purchase mid-contract cycle, co-term the arrangement to the existing contract so the balance due is prorated and the purchases renew on the same contract
  • Use technology that can separate billing from revenue recognition. Automate billing schedules while also automating revenue recognition schedules so each follow separate paths.
  • Define standard price increase methodology and automate price increases through technology.

In addition, key best practices for designing a partner channel quote-to-cash process include:

  • Design a separate partner flow that accounts for different approval levels and steps in the process instead of trying to make it fit into the direct-sell process.
  • Institute a deal registration policy to eliminate conflict between sales reps and partners and build this into the contract. Leverage technology to track deal registration and manage territory assignments.
  • Develop standardized partner levels with associated discounting thresholds. Consider utilizing separate partner price books and contract-based pricing functionality for significant partners.
  • Develop a plan to know who the end user will be. This could include quoting directly to the end user or developing a monthly report.
  • Set up a customer hierarchy to assign accounts to partners and track the multilevel relationship.

Business-first approach

Overall, there is significant return on investment to be gained from implementing an optimized direct sell or partner channel quote-to-cash process; however, this transformation will require a significant investment in enterprise technology platforms in order to automate across the business. This includes evaluating key platforms such as customer relationship management, CPQ, enterprise resource planning, accounting and business analytics, learning management systems, corporate performance management, and others. In order to ensure this level of investment is utilized appropriately, it is critical to approach this undertaking from a business-first approach. Too often, organizations jump right into the technology solution, only to find themselves spending just as much money unwinding bad processes later. Organizations should expect to have a four- to eight-month planning, selection and design period in order to drive clearly defined and well-executed implementation cycles. As an organization, it will be important to approach this systematically by first developing a comprehensive plan that includes an evaluation of the current state, the future state business strategy and goals, the ideal future state business processes based on best practices, and a road map to execute, including investment estimates, dependencies, resource requirements and timelines.

Designing the right quote-to-cash process will be the single most critical process your technology company faces as it encompasses negotiating customer deals and contracting to billing, revenue recognition and collections. The outcome, if done properly, will result in improved controls, better customer relationships and retention, improved utilization of talent, higher valuations, reduced diligence risk, and better collection rates.

RSM contributors

  • Kim Susko
    Technology Consulting Leader

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