In our SaaS world, everybody is driving towards profitability — whether you’re in the earliest stages or post-IPO. So the question is: How can sales and finance teams collaborate together toward that drive, rather than operating in silos?
The answer lies upstream. That means finance has to be involved and invested in the business’s CPQ — and that sales and finance have to partner together across the entire quote-to-revenue process.
Let’s take a closer look at how to create finance and sales alignment upstream, the impact of CPQs on finance teams, and how and why finance should play an active role in the CPQ selection process.
CPQ – not just for sales
If you research CPQ (Configure, Price, Quote) systems, you’re likely to find an inaccuracy: CPQs are often defined as a “sales tool.”
Of course, this is true in a sense. CPQs do help sales teams generate quotes — quickly, accurately, and consistently. But your CPQ isn’t just a GTM system; it’s a finance system too.
Finance teams may not be the intended (and daily) “users” of CPQs, but they are greatly affected by what’s happening in the CPQ system, how it’s being used, and the data coming out of it.
In a lot of cases, sales drives the quoting process, and then finance comes in after the fact. But that’s too late. Revenue needs to drive the quoting process. If a salesperson is trying to give a customer net 90 on a one year contract, finance needs to approve that. This means finance needs to have some operational control over the sales cycle.
Sales teams often worry that approvals and other formal processes will slow down the sale, but the right technology — starting with your CPQ — can enable teams to move fast, with the right controls in place.
Revenue recognition in the new quote-to-revenue world
In short, the job of a SaaS finance team is to figure out what the heck your company has sold!
There used to be a focus on the quote-to-cash process. This was a sales process — you make the quote, close the deal, and flip it over to finance to do whatever they do in the back office.
But when ASC-606 came into effect, everyone had to get in line with compliance. All of a sudden there were new rules and new regulations which meant that revenue recognition could no longer be siloed at the end of the process. SaaS businesses came to realize that how you recognize revenue is dependent on how the contract is constructed.
This is when we experienced a paradigm shift: quote-to-cash became an end-to-end quote-to-revenue mindset and process.
With this shift, finance teams with an eye to revenue recognition are getting involved further upstream — which includes getting involved with CPQs, selecting and implementing tools that can show exactly what is sold and how a sales order connects to recognizing revenue for that order.
Pricing and packaging to meet finance needs
All too often, pricing and packaging strategies are defined by product marketing and the GTM team without the input or blessing of finance — which means that when it comes time to recognize that revenue, there’s a problem.
At the end of the day, if you’re not able to provision a product and collect the money for what has been purchased, that’s obviously going to impact your profitability.
That’s why it’s so important that finance be involved with how you price and package — how you structure contracts, line items, SKUs, and product IDs. Finance can create structure so that sales can be invoiced and revenue can be recognized.
When a finance team gets involved earlier in the quote-to-revenue process and is a CPQ stakeholder, they can help build out pricing to take into consideration what the customer wants to consume, measure that against how the service gets delivered and turned on, and then factor that into revenue recognition.
If you work at a smaller company, there should be a pricing committee to make decisions about pricing and packaging — and finance should have a seat on that committee. With bigger companies, more than one person from finance should be involved: someone from the revenue side, order management, and FP&A, because all of them will be impacted by what happens with pricing.
CPQ: The source of all data
Many SaaS companies rely on multiple sources for data, leading to confusion, inaccuracies, and inefficiencies. SaaS sales and finance teams both share a need for structured data from a single source of truth — upstream and down. CPQ can be that source of all data.
With the right CPQ, finance won’t have to reinvent and redefine data housed in an ERP.
Audit-proof controls
For unified processes, control, and compliance, you need a unified system all the way from quoting to revenue recognition. If you're planning on going public, you’ll be way ahead of the game by having the right CPQ system. You'll need the standardization and controls of the CPQ to ensure compliance.
Your approvals and controls need to be structured to meet audit needs. If you have a discrepancy in how you do your revenue vs. what's on the contract, you're going to have a tough audit.
influencing the CPQ purchase — what to look for
As stakeholders, finance has a unique perspective to bring to the CPQ selection and implementation process.
To gain the most benefits from your CPQ system, there are a number of CPQ evaluation questions that finance leaders should ask.
Here are four capabilities to especially look out for. If your prospective system can’t do these, look elsewhere:
- Connection between CPQ and billing system. The first thing to confirm is that you can natively connect the CPQ to your billing system. Quote lines and invoice lines need to match up. If that doesn’t happen, then finance can’t do their jobs efficiently.
- Revenue schedules across products. A CPQ should be able to show how different revenue schedules can be applied across various products. If you have product A with one configuration and product B with another, you need the ability to apply revenue rules against these different products and show revenue recognition. If you don’t have that level of trust that this is happening, then everything has to go under a microscope with the finance team looking through line by line to make sure everything matches from building the quote through invoicing. If you have 10K customers each with 5 products, that’s 50K lines to review just to make sure it’s all working. Your CPQ should spare you from this exponential manual work.
- SaaS metrics. Since your CPQ should be your single source of truth, what metrics are readily accessible? Make sure you have access to essential SaaS metrics like ARR, ACV, and TCV.
- Upsell/Cross-sell. With any existing customer purchasing a new product via upsell or cross-sell, there are complexities. Revenue schedules have to change based on these additions, and all of these changes need to be accounted for. Is it easy to make changes to finalized quotes (e.g., upsells, downsells, renewals)?
Sales and finance alignment
We’ve all heard (or experienced firsthand) a salesperson selling a product that doesn’t exist — and leaving finance to discover this nightmare at the revenue recognition stage. When finance is invested in a company’s CPQ, they can ensure that revenue will be able to be recognized, and that sales aren’t incentivized by something that goes against the business’s financial goals.
Many SaaS finance professionals bear the battle scars from prior painful implementations of systems that don’t do what they need and want them to do. But CPQs are a system finance teams should really care about and depend on as equal partners with sales.
With the right CPQ system, you can better integrate your front and back office, giving finance more control over pricing and revenue recognition and ensuring greater accuracy in reporting and financial forecasting.
Looking for a CPQ that your finance team will love? Check out Subskribe CPQ.
