How to calculate ROI of automated billing and revenue recognition in NetSuite

Transcript

Welcome to this instructional video on how to use our billing and revenue automation ROI calculator. Here at Zone, we provide solutions that help you automate some of the most core and critical processes of your business, such as contract and subscription management for a wide variety of billing models. These include recurring fees, fixed fees, variable fees, one-time fees and many other complex billing structures. 

We also assist with automating the synchronization of revenue recognition to ensure compliance with ASC 606 and IFRS 15. And ultimately, we help deliver a better customer experience when it comes to both receiving and paying your invoices. 

This ROI tool is designed to help you quantify where and how your business can save money by automating billing and revenue recognition. It’s pretty self-explanatory and easy to use, and today, I’ll walk you through an example. 

The first two inputs it asks for are the average number of total invoices you send across your business to your customers and the average number of billable line items that are typically on each of them. For my example, I’m going to use a business that processes just over 1200 invoices a month, and each of those invoices has roughly 15 line items. 

The next question asks how many employees or full-time equivalents (FTEs) are involved in this process. Please consider anyone who touches the process, such as someone who might enter contracts into a billing system or a spreadsheet, someone who generates invoices or credit memos or someone who works with customers on collections. But for now, leave out anybody who’s dedicated to revenue as we’ll address them next. 

So, for my example, I’ll enter four FTEs involved in billing who make about $70,000 in annual salary. 

Next, we have a similar question about employees who manage revenue recognition. In this case, I’ll enter two FTEs who make about $90,000 in annual salary. 

The next question focuses on errors. Everyone inevitably comes across billing errors, especially in organizations that rely on manual entry and spreadsheets. For this question, try to come up with a best guess for how many monthly errors your business experiences. 

In our experience, and in discussions with customers who still don’t have automated billing and revenue, we typically see about a 3% error rate or more. For my company – which generates about 1200 invoices a month – that equates to 36 invoices per month that potentially have errors on them. 

Finally, enter the estimated annual revenue of your business. For my example, I’m going to use a business that has roughly $70 million in annual revenue. 

And that’s it! We can now calculate our savings. 

So, let’s interpret some of these numbers and what they mean. The first notable improvement when you automate billing and revenue is the improved FTE efficiency. This includes reducing or avoiding the need to expand the team that manages billing and revenue as your company grows or as your invoice volume increases. 

Based on my calculations, I’m estimating just under $185,000 a year in FTE efficiency.

The second area where we see improvement is cash flow, and specifically, the measurement of days sales outstanding (DSO). A more automated process leads to invoices that get out the door and into the hands of your customers faster. Also, with a more sophisticated software, the invoices that are delivered and presented to your customers are easier to understand, interpret and read. That reduces the number of questions and errors, ultimately resulting in faster payments and more cash in your bank. 

Using today’s cost of money, I’m estimating almost $70,000 a year in savings from increased cash flow. 

The last calculated number is revenue leakage. Too often, we see that money is being left on the table by not properly billing according to the contract, or worse, not billing for certain components of the contract due to a lack of system capability. This could be in the form of losing money by not billing for prorated periods or partial periods, not billing the proper amount of fees – especially for variable fees or consumption-based fees – and even losing out on renewal calculations for uplifts. 

We typically see a 0.1%-0.5% improvement in this area, which, for my company, equates to about $70,000 a year in savings from revenue leakage. 

The final number is reduced errors. Errors are costly. They typically take manual time and labor to correct and redo. By automating calculations and removing manual work, we can reduce the number of errors by up to 90%. 

My business has roughly 36 invoices a month that have errors on them. That equates to about $14,000 a year in reduced errors. 

Between all of these improvements, we calculate a potential annual savings of $338,000. Now the cost of billing solutions varies, but we estimate that for a business of this size – roughly $70 million a year and processing about 1200 invoices a month – we could realize an ROI of around $680,000 over the first three years. 

So, when you crunch the numbers like this, spending money to automate such a critical and core process of your business becomes an easier decision to make. I hope this ROI calculator is useful and helps you determine how much money your business could potentially save. I encourage you to try it for yourself. And of course, if you’re interested in learning more about how Zone can help automate billing and revenue, please contact us.