“What’s the business case for implementing an enterprise PSA tool?” That’s a question that comes up frequently in our customer interactions. Sometimes it’s phased as: “Why should I spend money on your software?” Another flavour is “How much money will I save if I use your software?”
Well, obviously each situation is different but to help demonstrate benefits of PSA I'll use a worked example that places monetary values on the typical things you can do to both improve revenues and/or save money.
There are 5 key areas where you can improve your business model in a way that directly impacts the bottom line:
1. Stop doing work for free
2. Optimise your finance and administration headcount
3. Religiously apply indexation on contract renewal
4. Innovate your pricing models
5. Gain a 360 degree view of your client business
To put some figures to these areas of improvement, I’ve built a simple business model, Acme Software, a small cloud ISV.
Acme has 30 employees, a management team of 4 senior people plus 2 more sales & marketing staff, 2 more in F&A and the rest, 22, in operations, of which 9 are doing client revenue earning PS work with an average utilisation of 75%. 60% of their revenue is recurring cloud services, they have ~250 customers. Putting some numbers to this we can see that they turnover about $3.9m with a cost base of $3.65m, meaning they make $250k, or 6% profit. That’s a nice business, investing in product and yet still managing to make a profit, excellent! But it could be better…
Take point #1: the PS team is busy but each one is billing only 15 out of 20 days per month. Let’s assume that with the increased visibility and controls a correctly implemented PSA tool will impose, they can each bill 8 hours more per month, that will increase their utilisation to 80% and bring in over $100,000 more, or $450 per customer. Not a huge stretch by any measure.
Now to point #2: including the CFO they have 3 people in Finance & Admin (10% of total staffing). That’s about middle of the industry average but way higher than 3-5% best practice. No one changes overnight, but if we assume that automated billing and contract processes provide a 30% increase in productivity, they should be able to get down to 7%.
Now to the last 3 points: really understanding your customers is vital to optimising your business and upselling more. It is alarming how few companies apply indexation (OK, small now, but historically 3-4% is typical), they see other companies rolling out new more flexible pricing models but don’t have the systems to compete and generally, lack the in-depth understanding that enables them to improve their share of wallet. I’m going to assume that doing all these things well will increase their recurring revenue to by a further 5% with no cost drag.
So, we’ve made just three small improvements in the way the business operates, how does it look now? Well in the model, these changes deliver a turnover of $4.7m and a profit of $1.1m, or 24%, a staggering four times the pre-existing profit margin. Not bad for an annual outlay of less than $20k.
Of course, this is just a desk model, your business may not achieve these improvements, but hopefully, it does will shine a light on where you should be looking for benefits from implementing the correct PSA tool.
Harmony was designed to drive these exact benefits into any organisation. It sits at the heart of your commercial model, driving straight-through-processing and maximising on back-office automation.
Its product model is so flexible, it will enable you to keep pace with any pricing innovation that comes along (look up the internet of things to see what is happening in the pricing space) and its complete 360 degree customer view is unparalleled in providing control and visibility to drive improve revenues.
If you feel that ramping your bottom line is a sensible goal of 2016, call us and we will take you through the way to make it happen.
