In the subscription economy, understanding how you are driving revenue is critical. But ensuring that you have visibility into the cost of acquiring those customers and where your break-even point lies are equally important to you and your investors. Once you have nailed down your compensation models, you will be able to ensure visibility to the cost perspectives that matter.
Although most investors don’t expect profit in the early stages, they are looking for key indicators of future success and the ability to measure those indicators across the entire company.
Start-up businesses leverage their SPM platform’s Profitability Management (PFM) solutions to:
- Obtain instant access to the data required to calculate costs associated with sales engagement.
- Analyze profitability based on individual, product line or service. This gives the leadership team better control of the incentive levers that will drive the business.
- Create logical models to better understand how their go-to-market is truly performing and give the leadership the ability to drill into the right level of detail to make adjustments accordingly.
Most companies in the growth stage have established some traction in the market and need to ensure they maximize renewals to really start ramping up their recurring revenue metrics – which is where the real value is generated in a subscription-based business.
At this stage, they inevitably discover the importance of profitability management either because investors start focusing on the organization’s ability to achieve both their CAC and LTV objectives with their go-to-market model.
Growing businesses, leverage PFM solutions to:
- Define any number of key performance indicators, such as lifetime value of a customer (LTV), average revenue per account (ARPA), LTV to CAC ratio and months to recover CAC.
- Model profitability actuals, plans and forecasts based on any number of business segments, such as sales order, sales team, territory, product, customer and channel.
As the company continues to scale and potentially transition through an IPO, they really need to focus on the monetization strategy for every customer – which is commonly referred to as maximizing the lifetime value of their customers.
Maturing businesses leverage PFM solutions to:
- Conduct what-if calculations based on any number of profitability configurations.
- Include drivers, business segment and summary revenue and expense data into forms, reports and dashboards.
- Analyze the potential impact of new services or new product offerings to the existing model on longer term metrics like Retention, LTV and CAC.
- Align the sales and marketing resources in a manner to achieve these key metrics that drives the value for the business overall.
Why does your Sales Performance Management platform require a Profitability Management element?
Growing businesses leverage profitability management within their Sales Performance Management Solution to maximize organizational profitability by analyzing profitability across all business segments. This element increases compliance for subscription-based businesses by aligning cost of sales expense recognition with associated revenue recognition. It also gives you insight for optimized decision support by having real-time access to all profitability-based key performance indicators.