Tech companies move fast. That often leaves revenue behind.
Companies race to design, develop and market new products and features, but sometimes they don’t have billing in mind — or their billing might not be able to keep up.
“Often, the technologies aren't even built to properly collect information regarding instances of use, or volumes of use, because the engineers and designers are so focused on the race to get to market quickly.”
“Often, new technologies aren't even built to properly collect information regarding instances of use, or volumes of use, because the engineers and designers are so focused on the race to get to market quickly,” said Grant Thornton CFO Advisory Managing Director Ronald Gothelf.
Revenue gaps can also open up in sales and billing, especially if sellers agree to custom contracts that bill for the number of users, number of instances, volume of use or other factors. Customers might request these contracts based on their expectations from other products, which is fair — but often, sellers don’t confirm whether their product and billing system can capture those metrics, or automatically track them over time.
Revenue gaps can emerge throughout the product lifecycle, and sometimes they can linger for years. So, how can tech companies find and close their gaps?
Design and development
Most tech companies are investing to develop new products and features.
But those investments won’t pay off unless they’re designed to.
Product designers and developers get excited about bringing new capabilities to market, but they often give little thought to how the company will bill for the capabilities. “Their eagerness to get the product to market can interfere with the ability to actually make money from the product,” Gothelf said. “The design itself has to consider how the company is going to bill for the usage of the tool. That means training engineers to appreciate that billing is a critical design requirement.”
“This is where you need a cultural change, to make sure that all of the product design and development considers billing, not just the functionality,” Gothelf said. “It needs to be embedded into the designers that you have to be able to bill for what they're providing. Otherwise, you can develop a wonderful product that doesn’t really have the potential to be monetized.”
The same concepts apply for initial product releases and subsequent versions — and there are unique considerations for AI-driven enhancements.
“Monetizing the incorporation of AI is increasingly challenging. Investment in AI needs to be considered carefully, since the cost of some AI investments can increase very quickly.”
As many tech companies look for ways to enhance their products with AI, they need to keep money in mind. “Monetizing the incorporation of AI is increasingly challenging,” Gothelf said. “Investment in AI needs to be considered carefully, since the cost of some AI investments can increase very quickly. For example, training a large language model can be a very costly process. So, it's a matter of cautiously determining where you want to incorporate AI such that it produces a monetizable return.”
Many products incorporate AI or other capabilities from third-party products, which can add an important risk to the revenue equation. Third-party vendor contracts might require you to pay vendors based on the number of users, volume of use, or other factors that you haven’t tracked in your product — but you’ll need to do so now. “If you aren't able to adequately measure the usage, you aren't able to adequately pay for the licenses of other tools,” Gothelf said. That can be a limiter for your third-party relationships and the new product capabilities they would enable.
Even when tech companies have a handle on billing for their current product design, they can lose that grip as products and customer relationships change.
Sales and billing
“In some cases, the desire for closer customer relationships has led tech companies to give away a high volume of services — and that’s not always transparent to management,” Gothelf said. “For example, if a client paid for one month of a monitoring tool, or had a temporary need for it, sometimes the tool is just left on. The client continues to receive the benefit without paying any incremental fees for the service.”
In other cases, the billing system fails to keep up with the product. “In the rush to evolve, especially in highly competitive technology areas, the billing systems frequently fall behind the various products and services that are offered,” Gothelf said. “If they’re not true consumer SKU products, but rather contract-based sales, those contracts capture various elements. Often, companies don’t have the internal systems in place to track the actual delivery, volume of delivery and other elements in their various contracts. There are two sides to it: Tracking what the entitlements are, and tracking what's actually occurring.”
When contracts aren’t aligned with the standard billing system, companies usually try to accommodate with manual intervention. “Manual intervention makes the billing process very prone to errors,” Gothelf said. Those billing errors can add up to big losses on big accounts. Large enterprise accounts often have custom contracts with tiers that depend on the number of users or usage volume. If those calculations aren’t designed into the product reporting and billing system, and nobody manually compiles those numbers, the company can generate a legacy of billing errors for years.
“There needs to be a mechanism for the customer to validate the metrics that are used in the billing.”
It's important for your product billing to be automated and transparent to both you and the customer. “There needs to be a mechanism for the customer to validate the metrics used in the billing,” Gothelf said. “Otherwise, we run into billing conflicts and can spend a huge amount of time validating the billing.” Business customers might have management oversight or accounting processes that require them to validate itemized bills against their contracts.
Transparent billing can build customer trust and even differentiate your product. “When you allow the customer to do their own validation of the amount being billed, you reduce challenges over the invoice numbers. There’s an intuitive trust in the billing as a result of that ongoing transparency. It can be a differentiator for you, especially in a market where there are competing products,” Gothelf said.
Customer care
Customer support can be another source of revenue loss, especially if support agents are authorized to give customers credits or discounted rates to resolve complaints. These credits and discounts can be an important tool, but many companies do not have oversight or review for the volume or justifications involved.
There are other places where customer care might lack certain metrics. For instance, a company might decide to limit the number of service calls for low-tier customers. However, if the company traditionally allowed unlimited calls, it might lack the capability, process, or training to consistently count and limit the number of calls — or to bill clients for extra calls when necessary.
Companies that provide software as a service (SaaS) can struggle to track their contract conditions across software, support and professional services. For instance, the professional services associated with an implementation might fail to fully capture billable hours, travel, or other expenses. Tech companies might not even have sufficient infrastructure or training for employees to track these allocations and expenses, especially since many companies have added new offerings through M&A.
To close your revenue gaps, it's important to start with revenue awareness across your product lifecycle, and then reinforce your revenue assurance.
Revenue assurance (RA)
An RA function can help find and resolve lost revenue. The function can monitor development, sales, billing and support, with a direct line to the CFO. Gothelf said that an RA function “sometimes needs the type of detective review that is done by an audit.”
The RA function needs to have visibility into each stage of the product lifecycle, so it can find and help to close any revenue gaps.
The RA function needs to be an ongoing effort as new initiatives continue to move through the product lifecycle.
Continual pressure for change
Tech companies face continual pressure to evolve new products, features and ways to serve their customers. Often, companies also need to manage their revenue against external factors like increased supply costs.
“I have clients that had well-established product costs, but their material price variance became so significant that now they need to update their pricing much more often,” Gothelf said. “They might’ve been doing an annual evaluation of standard costs, but in today’s world, where supply chains cause spikes in material and delivery costs, the evaluation needs to be done on a quarterly or even monthly basis.”
Any cost changes can quickly lead to challenges, and your RA function can help ensure that you have answers ready. “You have customers on one side who are challenging their bills, and then you have vendors on the other side who are challenging how they’re being paid. Without properly measuring product usage, along with the mechanisms and measurements that drive billing, your receivables are wrong and so are your payables,” Gothelf said. Detailed revenue numbers are also an important factor in optimizing your cash forecasting and tax planning.
All of the factors that feed into your revenue are becoming more dynamic. To strengthen your revenue, balance your customer relationships, optimize your strategies and align your innovations with real returns, you need to find and secure the revenue you’re missing.
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