All Blogs
Since the early 2000s, technology and business model innovation have grown hand in hand, and continue to do so today. Salesforce and Adobe were pioneers in Software-as-a-Service, AWS popularized cloud computing. This affects how both buyers and sellers in the market are managing their market-facing as well as their back office operations. We might be seeing a third wave of how companies transact, as B2B go-to-market strategies are changing dramatically. This is affecting the CFO office in ways we have yet to see, affecting Finance teams and organizations.
New technology and competitive pressures are making the B2B market more complex than ever. Following a flood of venture funding flowing into the market in the past decade and especially during Covid era, companies need to launch new products and services faster, as the market has become more competitive than ever. Fragmented value chains, as every piece of technology becomes available as a service, shorten product build cycles. Recent recessionary pressures are affecting buyer psychology, affecting business models and pricing. Lastly, yesterday’s sales and marketing tactics are facing major challenges, accelerating the evolution of B2B go-to-market strategies.
This has made the B2B mixed revenue stream the new norm for companies. There are three main B2B revenue streams: Sales-Led, Product-Led and Partner-Led. A few years ago, Sales-Led was king. It is the traditional high-touch approach, not different from going door to door and selling globes to households. the OG of the enterprise sales, this is where sales teams move the buyer along the sales process. Product-led sales offer buyers a self-service experience, at least at the start, where they buy, onboard and learn the product for themselves. Partner-Led is where partners help you reach or sell customers, such as referral, reseller and other partner models.
A decade ago, Sales-Led rained supreme. This has changed rapidly in recent years and is continuing to change. Product Led growth entered the market by storm in the late 20-teens, with Figma and Datadog being a couple of poster children of this strategy. PLG has grown tremendously in the past decade - according to OpenView, 29% of technology companies are product-led, and 71% are Sales Led. Lately, we’ve been seeing a growing momentum of partner-led growth. In a recessionary environment, there is a growing pressure on sales and marketing to find more capital efficient go-to-market strategies. Online advertising has become more expensive and email marketing campaigns don’t work as well as they used to. Moreover, customers are increasingly demanding a holistic customer experience and support.
The reality is that go-to-market strategies are becoming increasingly hybrid, with mixed channels activated pretty early on in a company’s growth journey.
Lastly, consumption and usage pricing have neutered the market. Once common in cloud and content delivery network platforms, over the past few years, the software industry has adopted Usage-Based Pricing at a growing rate. So much so that 61% of SaaS companies say they use Usage-based pricing or are actively testing it, according to OpenView's study on Usage pricing, a number which supposedly grew to 82% in 2023.
Finance teams are becoming more integrated with business teams. As sales and marketing change, Finance team language, systems and processes naturally evolve hand in hand. The whole revenue management process, including quote to cash, billing, and revenue recognition, to name a few, look different between Sales-Led, Product Led, and Partner-Led. As mixed revenue streams become the norm, Finance teams will have to adapt their processes, skills, and tech stack. These are five areas in which CFOs and their teams need to adapt and rethink their internal processes.
Calculating billable events used to be straight forward. Mixed revenue streams and complex pricing make things much more challenging. Usage pricing enters a heavier data element into the billing process. Specially, there is a challenge in Sales-Led and Partner-Led channels, where contract variance makes each enterprise and partner contract a unique snowflake, making a repeatable or scalable process a real challenge.
Finance teams should specifically look out for consumption data ingestion. A consistent data format is a better option, even if it means that usage format will contain many rows. Companies that sell to enterprise clients experience this, as they have little leverage in how the data format would look like, or more commonly, would not know what to ask for early on. Later, this creates a real operations and analytics problems, as sometimes you’ll find as many data formats as customers.
Sales-led invoicing used to be easy in the old SaaS world. Now, things are way more complex. Invoicing across channels means that invoices need to be configured and delivered differently. For example, billing a reseller partner, could look very different - some resellers want their invoice to include the end customers, some prefer procuts line items, or, some disclose end customers and some don’t. Another example is invoicing in the age of usage pricing - some enterprise buyer would like to get a CSV file with the usage data.
Now, this creates a huge operational burden on Finance teams, as manual processes are not repeatable and scalable. Finance teams should work closely with business units, and business operations teams, to map invoicing needs, and understand the implications of systems and processes, such as how data flows from business to finance, or ERP and Accounting system and the actual delivery to customers and partners.
Revenue recognition for SaaS companies has its own rules and dynamics, due to the intangibility nature of products and the as-a-service shift. As technology companies move into mixed revenue streams, the revenue recognition process becomes more challenging. Whether it's License, Usage, Subscription or services - recognition logic is often not that simple. Enterprise Contracts and Usage pricing has moved revenue recognition process from a relatively simple straight line into a more complex, event and trigger based recognition, which is much harder to manage, especially at scale.
We lately saw that mismanaging revenue recognition can hurt companies acquisition prospects, as it casts a shadow on company representation. Finance teams should consider what complexities they have today and tomorrow and how to properly automate for those. There is a limit to how much the intricacies of hybrid recognition or or SSP allocation could be managed over a spreadsheet.
Billing reconciliation is a crucial part of the process, as revenue streams become more complex. Think for a minute on Sales-Led and Self-Serve and how those two compare and contrast between in separate initiation points and how the data travels across the system. Discrepancies between issued invoices and actual transactions need to be identified and resolved. It ensures a healthy cash cycle, accuracy in financial records, and being audit ready. This looks very different across revenue streams. Payments coming through different financial systems and different methods need to be consolidated into a clear and reliable view.
In a world with mixed revenue streams, finance teams need to focus on cross-functional collaboration with Sales, Partners and IT, as concrete processes with multiple stakeholders invested in its success is crucial for multi-channel reconciliation.
revenue management is where Sales and Finance teams collaborate closely on performance and planning. In a mixed channel go-to-market, analytics metrics become increasingly more important as capital allocation becomes a constant question. Measuring channel performance is crucial to understand where to invest the next dollar. Being able to provide those analytics during the reporting period, and at the end of the reporting period is a new task for Finance teams, who needs to stay on top of multiple cash, billable and revenue events across systems and processes.
This new reality is putting Finance teams front stage as business advisors, on top of their back-office execution responsibilities. This gives Finance teams more influence on strategy and business transformation, and gives them an opportunity to influence where the business is going.