An enterprise software vendor with an analytics application was trying to land a major new client that would give a meaningful boost to the latest sales figures. To win the deal, the sales team agreed to a deep discount—despite also committing to provide extra help during implementation and a higher-than-standard level of ongoing support. Two months into implementation, it became apparent that the combination of a lower-than-usual fee with a higher-than-usual servicing cost would result in a loss. Adding to the pain, a year later the customer opted not to renew the contract, citing poor service.
Sound familiar? Although the example is fiction, the situation is all too real for as-a-service businesses, whether they’re in software or other industries. Standard offerings get customized for individual customers to give them a compelling reason to buy. But diverging from the norm makes it more complex and expensive to deliver what’s promised. And implementing and supporting bespoke solutions in a way that fits with a company’s existing processes is often impossible.
Companies have had decades to perfect the systems, costs, and quality issues associated with selling and delivering traditional products. But best practices for selling and delivering as-a-service products are still developing. The path from initial quote to final payment—the “quote-to-cash journey”—is incredibly complex for as-a-service sales. It requires collaboration from sales, legal, operations, finance, product, IT, customer support, professional services, and other functions. Tension points can bubble up anywhere, from prospecting a lead to negotiating the deal to collecting on an invoice or renewing a contract.
Analyzing the experiences of as-a-service providers shows that the most successful smooth out the quote-to-cash tension points. Moreover, these companies take an integrated approach across four areas: the product portfolio, the internal processes needed to create and deliver the products, the systems for delivering those processes, and the people involved.
Tackling all four can translate into tangible improvements in internal processes and customer service. Some of the typical impacts include 50 percent reductions in the time that sales representatives spend on back-office tasks, 10 percent increases in deal margins, and customer-satisfaction improvement of up to 15 points out of 100.
What makes as-a-service different—and difficult
As-a-service companies typically divide the customer journey into four key stages and may repeat the cycle multiple times over a contract’s lifespan if a customer opts to expand, reduce or add to what’s covered or switches to a different tier of services or support (Exhibit 1).
Yet as-service companies face challenges that are specific to the relatively young business model. Unlike companies that sell a product for a set fee, as-a-service companies bundle products and related operational and professional services into a single offering to sell as a subscription or based on usage or outcomes. Compared to one-time-only sales, as-a-service providers need a different relationship with customers, one where they act more as trusted business partners than product vendors. It puts the onus on the provider to have the right processes, systems, and people to deliver on promised value and ROI to keep customers satisfied and minimize churn. And with as-a-service sales emerging as a more powerful source of competitive advantage, these capabilities have become increasingly critical for companies’ long-term strategic positioning as well.
That said, it’s common for tension points to flare up at certain points along a contract’s lifespan:
Offers are too complex. In their eagerness to win new business, sales teams may offer extras that are disproportionate to a deal’s size or value. A company may have too many products, which by volume alone can complicate processes and add to costs. Problems may crop up during delivery or billing. Complicated deals may be too much for providers with a one-size-fits-all approach to take on. And sales teams may sell contracts with unique requirements but neglect to communicate that to the operations team that has to put them into effect.
The delivery model doesn’t match the customer segment. Pain points materialize when there’s a disconnect between a deal’s value and the distribution channel. If a product is sold directly—as a downloadable app, for example—but must be tailored to each customer, any efficiency gained from a direct sale could be negated by the extra hand-holding required to deliver it. Direct sales also could lead to tensions if a provider doesn’t have mechanisms for flagging deals that may be unprofitable or questionable for some other reason.
Margins shrink during delivery. Deals that may seem attractive at the outset could end up earning less than expected because of unanticipated costs anywhere along the way. In some instances, a deal may be predicated on shortsighted assumptions about the provider’s ability to deliver. The sales team at one large company negotiated a price for a major contract that it assumed would yield a single-digit profit margin. But the pricing wasn’t calculated properly and delivery requirements were unclear. After several years, the delivery cost exceeded the agreed-upon price, resulting in a loss. In other instances, the sales team can’t calculate a deal’s true delivery cost because they don’t know what other departments need to provide the service being sold. Or as a contract progresses, a provider may not manage change requests effectively.
Financial or operational performance data are missing or unknown. As the saying goes, what you don’t know can hurt you. New deals, renewals, or opportunities to cross-sell or upsell can go awry if the team putting together a quote doesn’t use financial or operational data from current customers to craft contract terms that benefit both the provider and customer. Or a provider may not track the hours that personnel spend servicing an account, which makes it impossible to calculate the margin.
To fix quote-to-cash, update practices in four areas
The experiences of several large as-a-service providers demonstrate that organizations can streamline their processes, provided they focus on four areas at once.
Simplify the portfolio
Companies confuse customers when they have too many offerings, aren’t clear about what a service covers, or sell overlapping services. One way to clear up confusion is to segment customer needs into a limited number of use cases and develop a core set of services around each. The scope and service-level agreements (SLAs) for each should be defined down to the smallest detail, with custom services offered only as add-ons.
One information-services provider had a portfolio with more than 400 products, which befuddled customers and sales reps and led to lower-than-expected margins for multiple offerings. After the company reduced its portfolio by more than a third, non-strategic products costs associated with complexity dropped substantially—without reducing revenue.
Providers that streamline their portfolios can apply more resources to meeting the needs of top customers while continuing to offer an acceptable baseline service for others. One technology vendor maintains a rapid-response “SWAT” team to fulfill strategic customers’ requests for customization and provide other white-glove services. For the rest of its base, off-the-shelf products, set prices, and stricter exception guidelines protect margins.
Providers can get a head start on simplifying their portfolio by building quote-to-cash structures and serviceability into new products. Even basic tools such as checklists can help ensure that when new products launch, they’re accompanied by standard terms, price lists, and discount guidelines.
When providers minimize exceptions and special cases, they improve effectiveness and eliminate complexities that can add cost without value. Consistent processes can also make it easier for a provider to expand into new territories, otherwise it could become difficult to deliver agreed-upon efficiencies or consolidations. Standardizing could mean making approvals more uniform, for example, or eliminating unnecessary approval loops, or using a single source of data.
One company rethought its deal processes after discovering that a single customer segment accounted for 85 percent of deal volume—but only 15 percent of revenue. That realization led the company to evaluate common customer types, products, deal sizes, and documentation requirements. The redesigned system assigns deals to one of three pathways. Simple deals involving standard products, pricing, contract terms, transition timelines, and invoicing—and that require minimal input from other departments—get a green light to move through the fastest quote-to-cash pathway. Slightly more complicated deals are handled by a deal-desk team, a cross-functional team that shepherds deals through all required processes (and is sometimes known as a bid desk). The deal-desk team is authorized to add custom services to the scope of work and make other changes that won’t affect margins. Large, complex deals, or those involving high-value customers, move through a third pathway where the deal-desk team plays quarterback, collaborating with other company functions for input, review, and approvals.
Standardizing contract terms can minimize the time spent on changes or legal review that can add to costs. To minimize such costs, an equipment-services company created a library of standardized statements of work for its core services. Each one spells out the underlying activities associated with the service, including detailed descriptions, SLAs, and penalties. The company trained its sales teams to discuss a deal’s statement of work early in the process instead of waiting until the end of negotiations to bring it up. That helped them avoid the last-minute holdups that can happen when the legal team reviews a contract and realizes the customer was promised terms that the company can’t deliver.
Automate simple processes
As a rule of thumb, the vast majority of deals—about 80 percent—can follow the simplest path. This is where as-a-service providers can typically benefit most from streamlining processes and then automating them using standardized systems. And automating simple deals frees up provider personnel to take a more customized, high-touch approach to higher-value deals.
Yet automation alone isn’t enough: without streamlining first, providers could end up automating processes that are too complex, leaving much of the potential value on the table. In practice, businesses can iterate their process-design changes. After an initial round of process streamlining, a round of automation may unlock more opportunities for simplification that could lead to additional automation potential.
As part of automating, housing all the data for pending or signed deals in a central database can minimize errors, remove redundancies, and let different business functions know where a deal is in the quote-to-cash journey. One as-a-service provider uses an existing customer-relationship management (CRM) platform as the central repository for critical deal information, including a hierarchy of accounts and customer contact information. The company customized the CRM to track a deal’s status, including which business functions were reviewing or had approved it, and any changes that they made. All deal documentation also is housed in the CRM to make it easy to find.
Bring the right people together
A deal desk doesn’t just help manage complexity. Using a deal desk ensures that no aspect of the customer-acquisition journey is overlooked.
Budgets for deal-desk teams can come from multiple functions, such as commercial contracts, order management, and accounts receivable and managing assets. Staffing a deal desk may sound like a luxury, but the long-term benefits can outweigh the costs.
In some cases, deal-desk teams can be funded by shifting personnel to them from other functions. The order-management department at one provider had trouble manually processing deal orders because the order-entry team wasn’t familiar with the details. The company downsized the team to free up resources for a larger deal-desk staff, which took over processing the orders and ultimately helped the provider handle a higher volume of business. To support the expansion, the company centralized and automated standard processes, and used outsourcing and nearshoring for additional manpower.
How to get started
Transforming the quote-to-cash journey is no small feat. Simplifying product offerings, upgrading systems and making other changes could take upwards of 18 months. But the outcomes are worth the wait. We estimate that improving the as-a-service quote-to-cash process could help trim end-to-end costs by 15 to 20 percent, and provide a wide range of other important benefits (Exhibit 2).
The following approach can serve as a starting point:
Assemble a transformation team. Select people from a cross-section of functions to work on a transformation effort. Everyone involved should understand what they’re being asked to do and why. Participants need to buy into the belief that a streamlined process and systems are good for what they do.
Create a problem-based mission statement. Have the team analyze trouble spots to come up with a mission statement that describes the problems they’re trying to solve. Urge them to look below surface issues to get to root problems. A surface issue could be too many errors in contract terms, which is caused by the root problem of not having standardized contract terms, leading to a mission statement to streamline contract processes to eliminate complexities.
Agree on tradeoffs. Change means doing things differently, and that could be especially hard if it means switching from how things have always been done, for example, letting sales reps offer nonstandard deal terms to book an end-of-the-quarter sale. Head off such situation by deciding in advance—with support from leadership—which tradeoffs are acceptable and which you’ll walk away from.
The remedy for tension points in as-a-service deals is constructing an offer and pricing that reflect the desired economics for the transaction. That makes understanding and managing the details of a contract’s product and delivery requirements absolutely crucial—as are streamlined product portfolios, better processes and systems, and dedicated staff. With as-a-service selling spreading from technology to other industries, an improved quote-to-cash process is becoming more valuable than ever.