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Is my sales team creating multi elements? How should I coach them on communications to customers regarding future products and features?

I work for a SAAS company that is going through a rapid growth period. We sell our product with Sales reps over the phone. Many of our customers (both big and small. new and old) ask us to make specific enhancements to the product. To the extent that we agree to make modifications, have we created an undelivered element? What are the best practices managing sales (and marketing) teams on this issue?

Answers

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

SaaS companies can certainly have multi-element arrangements (MEA). All it requires to have this requirement is multiple inter-dependent items sold to customers. Examples include setup fees, subscriptions, training, or professional services. Companies in the consumer space try to eliminate the MEA requirement (having only subscriptions mostly) – but companies who are in the business to business space often don’t have that option. Your market will often dictate what is required in your product (how complex is the setup, are services required) rather than the hope to streamline the revenue recognition process.

Modifications to product – where there is a required delivery component tied to the software sale (subscription or on premise) can require the use of SOP 81-1 (rather than EITF 08-01). SOP 81-1 requires recognition of software revenue based on the delivery of the required modifications (often by percent complete methodology).

Product modifications can be something that happens early in a company’s history – where your product is growing or maturing and each customer needs something extra to make the sale happen. If this is the scenario then it should settle out as your product matures and your install base and reputation grow. If this is a standard part of your go to market strategy then you have a more strategic business review indicated – possibly isolating the customization layer in your product so it becomes an implementation challenge and not a product extension challenge.

It is reasonable to simplify the revenue requirements where possible. Discussion with a revenue recognition expert can be helpful. If you use agreements with your customers there are experts who participate in the negotiation process to make sure the agreement optimizes your revenue opportunities.

However – my guess is you have a situation related more to how your company is going to market in general and what the market requires. Understanding of and alignment around that model will be required for your company to maintain profitability and growth regardless of the impact on MEA.

Bob Scarborough / Tensoft, Inc.

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