subscribed nyc 2017: aligning pricing and revenue – two sides of a very valuable coin

Aligning Pricing And Revenue :

Two Sides Of A Very Valuable Coin

Monika Saha

VP/GM, Finance Product Line,

Zuora

Jennifer Meehan

Senior Manager, Technical Accounting,

Zuora

NEW RULES. BROAD

CONSEQUENCES.

TIMING OF REVENUE

Microsoft’s revenue could be higher than previously

stated

REVENUE ELEMENTS

Uber’s revenues may be lower under new accounting

rules

TREATMENT OF COSTS

Cloud companies could benefit by deferring more

costs

Pricing And Packaging Decisions

Impact Revenue Recognition

PRICING TEAMS REVENUE TEAMS

Often unaware of the revenue impacts their

decisions will have

Often unfairly seen as “blockers”

or “Dr. No”

In revenue, it is NOT easier to ask for forgiveness than permission. Chances are that revenue teams will

Have a solution for you that works for both sales/pricing and the company’s revenue recognition policies

It helps to get your business partners aligned on these topics

page

06

01 contract structuresSome pull in revenue sooner than others.

03 Bundling and

discountingParsing becomes just as important as

bundling.

02standalone selling priceWhy it matters and why your business

partners should care

04 usage pricingEstimation and true-ups are the name of the

game

THE CHALLENGE WITH DIFFERENT

CONTRACT STRUCTURES

Pricing, billing and revenue amounts don’t always align within

periods

Non-standard one-off contracts increase revenue recognition

complexity

Some contract structures have a more positive impact on

revenue than others

Revenue teams are not always involved in designing the

contracts

1

2

3

4

Example : Managing Ramp Contracts

EQUIPPED TO CALCULATE EFFECTIVE

REVENUE PRICE …. AT SCALE

COMMUNICATING WHAT CRITICAL DATA YOU NEED YOUR

SALES TEAMS OR ORDER MANAGEMENT TEAMS TO

CAPTURE

EQUIPPED TO AUTOMATE THE PROCESS OF

EVALUATING HOW EXISTING OPEN CONTRACTS

MIGHT HAVE DIFFERENT REVENUE TREATMENTS

UNDER THE NEW GUIDANCE VS THE OLD GUIDANCE

MAKE SURE YOU ARE:

USE CASE

A bundled deal with unit ramp

This is a view of the Revenue Contract captured

in RevPro:

• The 3 year ramp deal is captured in a single

contract. You case see each ramp-up in

quantity here.

• Since RevPro decouples billing from revenue,

you can use revenue triggers here to properly

account for revenue each period, independent

from invoicing.

• The total amount billed to date for this contract

is $18,000 while the total revenue to date is

$4,942.


page

010


03Bundling and


bundling.



04usage pricingEstimation and true-ups are the name of the

game

THE CHALLENGE WITH DETERMINING

STANDALONE SELLING PRICE

It doesn’t always map to list price

The effort is often time consuming and inefficient

The quality of historical pricing data does not lend itself to easy

analysis

1

2

3

Determining Standalone Selling Price

AUTOMATICALLY COLLECT, ANALYZE

AND APPLY HISTORICAL DATA TO

FUTURE CONTRACTS

AUTOMATE THE PROCESS OF DETERMING PRICING

COMPLIANCE RATES AND BANDS AND SHARE

RESULTS WITH YOUR BUSINESS PARTNERS

AUTOMATE THE PROCESS OF APPLYING RULES

BASED FORMULAS TO CALCULATE SSP FOR

DIFFERENT ELEMENTS IN DIFFERENT SCENARIOS

MAKE SURE YOU CAN:

Ext Price SSP % Of Total Price Allocation

PRODUCT A $1,100 $1,200$1,200/$2,160 =

56%$1,900 * 56% - $1,055

PRODUCT B $700 $800 $1800/$2,160 = 37% $1,900 * 37% - $705

PRODUCT C $100 $160 $160/$2,160 = 7% $1,900 * 7% - $140

TOTALS $1,900 $2,160 100% $1,900

USE CASE

Calculating Standalone Selling Price

This is a view of the complete Revenue

Contract collected and grouped in RevPro:

• All transaction lines are automatically

grouped together and assigned to a

Performance Obligation through previously

configured setups.

• Each Performance Obligation is

systematically:

• Assigned a Standalone Selling Price

(SSP)

• Evaluated as a whole against the

contract


page

014


03Bundling and


bundling.




game

THE CHALLENGES OF MANAGING

DISCOUNTS & BUNDLING

1

2

3

Parsing bundles for revenue recognition

Inconsistent bundles and inconsistent discounting practices

Bundles designed without consideration for revenue impacts

Managing Impacts Of Discounting &

Bundling

SYSTEMACTICALLY EXPLODE BUNDLES

INTO DISTINCT ELEMENTS

AUTOMATE THE PROCESS OF APPLYING SSP TO EACH

ELEMENT IN A BUNDLE

AUTOMATE THE PROCESS OF ALLOCATING

TRANSACTION PRICE ACROSS THE APPROPRIATE

ELEMENTS IN A BUNDLE

MAKE SURE YOU CAN:

USE CASE

Bundle Config / Explosion

This is a view of a subscription line which was

broken out systematically into a license line

and a support line RevPro:

• There now exists one parent line and two

child lines

• Each element is now able to have its own

revenue event and recognition methodology

• Can be configured to split sell price between

lines or simply rely on element level SSP

allocations


page

018


03Bundling and


bundling.




game

THE REVENUE CHALLENGES OF

USAGE PRICING MODELS

1

2

3

Guidance is not 100% clear

Not enough data to determine variable consideration

Metering and rating automation don’t always help with revenue

automation

Managing The Impacts Of Usage Pricing

DETERMINE VARIABLE CONSIDERATION

AT THE ONSET OF A CONTRACT

APPLY VARIABLE CONSIDERATION FOR DIFFERENT

FLAVORS OF USAGE PRICING MODELS

MAKE SURE YOU CAN:

DETERMINE YOUR METHOD OF REVENUE RECOGNITION

EARLY (e.g. PRACTICAL EXPEDIENT OR NOT)

USE CASE

Variable Consideration

This is a view of a contract in RevPro with

Variable Consideration:

• The Price Adjustment as a result of Variable

Consideration is captured here.

• The resulting total Transaction Price is

calculated here.

• The line level details for each Variable

Consideration action are retained for audit

purposes within the workbench.

Summary Of Recommendations

1. Include revenue team representatives on your pricing committee

2. Establish templates and processes to model deals from sales all the way through

revenue

3. Ensure that revenue team representatives are involved in deal structuring

4. Or…. Consider a materiality threshold to include revenue teams during the deal

structuring process to avoid downstream issues

5. Revenue teams do not want to be a roadblock - ASC 606/IFRS 15 is new to

everyone - this is a great opportunity to evolve the way revenue and pricing teams

work together

6. Consider holding mini ASC 606/IFRS 15 training sessions, where both revenue

and pricing teams collaborate for company best practices - everyone wins!

THANK YOU

QUESTIONS?

subscribed nyc 2017: aligning pricing and revenue – two sides of a very valuable coin

Technology