Over the last 10 to 15 years, SMEs making the move from license-based to subscription and usage-based billing have been forced to purchase point billing solutions that can be costly and frustrating to integrate. Recognizing the need for a more easily implementable enterprise-grade subscription management and billing solution for these businesses, Zone & Co developed their offering to operate inside the NetSuite ERP. MGI Research analyst Andrew Dailey spoke with Jon Leipzig, Head of Subscription Billing for Zone Advanced Billing at the 2021 Monetize Forum. Jon lays out his personal experience with the trials of integrating third-party point billing solutions and the Zone & Co team’s vision to provide IT and software technology SMEs a tool designed specifically for them.
Key Issues
What’s the ideal use case for an in-solution?
What are the cost benefits of in-solutions?
What are the less considered but valuable integration points for billing?
Guest Profile
Jon is Head of Subscription Billing at Zone & Co, which offers the first and only enterprise-grade subscription management and billing solution built inside an existing ERP, NetSuite.
Jon was previously one of the key solution architects at NetSuite/Oracle with an emphasis on subscription billing and revenue recognition. In his time at NetSuite, Jon helped build ERP and billing solutions for some of the largest and fastest growing tech companies before joining Zone & Co.
Andrew Dailey
Hello and welcome, everyone. I’m Andrew Dailey of MGI Research, and our next session is “The End of Point Billing Solutions.” For those of you who know MGI and the Monetize events, this would actually be our 14th Monetize conference if we were in person. One of the things that we like to do with these events is to really engage in a sharp conversation and bring in executives and innovators who like to take a sharp point of view.
This session’s topic is a really good one in that sense, and there may be some different points of view here. We encourage this because it keeps us honest and it keeps our research sharp. I think this is going to be a very lively conversation. So, please, join me in welcoming Jon Leipzig, Head of Subscription Billing Business Development at Zone Advanced Billing. Welcome, Jon.
Jon Leipzig
Thanks, Andrew. It’s good to be here.
Andrew Dailey
It’s nice to see you again. So, declaring the demise of point billing solutions—that’s a pretty strong statement. Globally, we track over 200 billing companies, not including the medical billers. What do you mean by “the end of point billing solutions,” and what are you seeing that hundreds of other companies aren’t?
Jon Leipzig
Yes, it’s definitely a bold statement (which obviously, comes with some caveats), but hopefully, it caught the attention of some folks who want to join the session and hear what we really mean. To clarify a bit, if you look at the market growth of the subscription billing economy, it’s obviously growing in every sector and vertical—banking, financial services, insurance, retail, e-com, telecom, transportation logistics, and media and entertainment. There’s always going to be a need for a specialized billing solution in, say, telecom or medical billing, like you said. That’s true even in financial services to some degree where there are certain levels of compliance and requirements that a point solution is a better fit for.
It’s really the IT and software technology sector where we’re seeing the largest growth and market share in that subscription management space. Specifically, small and medium enterprises in the IT space are grabbing that large market share. These companies are transitioning from a license-based model to subscription-based and usage-based billing, and additionally, there’s a big shift in companies not just selling to enterprises for these solutions. Many small and medium-sized businesses are needing tools, including cloud-based tools, for remote collaboration, their work-from-home employees, the BYOD (bring-your-own-device) economy for workers, online ordering, and cybersecurity. These small businesses need those solutions, and they’re investing a lot more in cloud-based software applications to run their businesses.
So, our point is that the SMEs (the small and medium-sized enterprises) providing these types of B2B and even B2C solutions used to require a point solution to handle any type of recurring billing or usage-based model because, historically, accounting softwares and ERPs didn’t really offer a great solution like a best-of-breed. So, over the last 10 to 15 years, these companies bought point solutions and attempted to integrate them into their back office. They didn’t choose to buy point solutions; they were sort of forced to. As a former accountant and controller, I personally had to buy point solutions and experienced firsthand that there are just a lot of difficulties that come with integrating them.
Our company has built an enterprise-grade subscription management tool inside of an ERP, which is NetSuite—and for us and a lot of clients, that’s the number one cloud-based ERP. It’s the most widely used accounting solution in that target market segment that I was discussing, the small and medium-sized enterprises in the IT software technology vertical. In general, though, all of the ERPs and accounting solutions will continue to build out better tools for that market segment, which will eliminate the need for point solutions for a lot of companies.
Andrew Dailey
Got it. So, let’s test this a little bit. As you alluded to, there are literally thousands of use cases for billing solutions from the very simple to the very complex, and it’s not unusual (for some of the reasons that you just described) for even a small or mid-size business to have more than one billing solution. Do you think that there are some needs where a point solution could be the right fit?
Jon Leipzig
Yes, as I touched on, one example might include a global telecom company with a really high volume of call data records into the hundreds of millions or billions that can’t be aggregated. Additionally, companies in certain industries with regulations or compliance that they have to adhere to are clearly going to benefit from a point solution. We’re solving the same problems that point solutions are solving but for that target segment that I just talked about.
Based on our experience as an ERP implementer and services company, we found it very difficult for those companies to integrate to the back office. We’ve worked with hundreds of tech companies that came to us before we had this product, and they were saying, “Help me comply with ASC 606 or IFRS 15. Help me get my financial reporting in line. Help me with my SaaS metrics.” These projects were extremely difficult because of that integration point, so they could be really expensive. They required a lot of overhead internally at these companies that were having to hire services like ours to help with the system work that needed to be done, and in many cases, we couldn’t even fully meet the client’s requirements around financial reporting and revenue recognition because they were using a separate system. It was very hard to get the contract modifications, the upsells, the downsells, the changes, the taxes, et cetera all integrated to those different systems.
So, to answer your question, there’s obviously a huge need for point billing in those specialized industries, but since we’re solving that integration problem, we’re working with companies that have NetSuite, that have that ERP. We’re clearly not going be a fit if you want to continue to grow your company on some other platform, some other ERP, or some other accounting software. If you want to be nimble enough to change those systems but keep your billing tool, then point billing solutions will definitely be the right fit there.
For our target market segment, though, if they’re going to need an ERP and are considering NetSuite, an in-solution like ours should always be in the conversation. Even if they’re looking at point solutions and other accounting systems or other ERPs, we’re saying that they should also be considering whether an ERP or accounting system that they can use for future growth in all areas and other operations could potentially be their billing and rev rec tool as well.
Andrew Dailey
Got it. We’re big believers at MGI in really analyzing and refining very specific use cases and finding the best fit per use case. What do you see as the really optimal fit for an integrated solution like yours? What’s the perfect use case or perfect customer for you?
Jon Leipzig
Again, that growing market, the small to medium enterprises in IT software technology, is obviously a great fit for us, and, as you said, there are a million use cases in there. With the shift and rescale in e-com, you’re seeing subscription boxes and recurring shipments; the Internet of Things growth with companies that might have hardware and software; services companies with managed services and maybe some complex billing, calculations, or formulas based on the attributes or events of when somebody checks in or checks out. They could benefit from an in-solution in their ERP or financial system so that they don’t have to deal with the integrations.
To give you an example, we have one company that offers a cloud-based software to help businesses find, hire, schedule, and pay their workforce. On top of that, they resell things to their clients like a POS system. If they were using a point solution, not only would they have to figure out how to integrate that solution to the front office, like the CRM and CPQ, they would also need to integrate to the back office for the financial reporting, the analytics, the forecasting, and the rev rec. Additionally, they would have to integrate to some sort of inventory management or WMS for those dropships and automating the creation of the POs.
On the other hand, if they have that within a single system like we have inside of NetSuite, we can manage those contracts, subscriptions, upsells, downsells, changes, and parent-child relationships between the different locations. Additionally, from that contract and the leveraging functionality in the NetSuite ERP that’s already built for the warehouse management, fulfillment, shipping, and tracking landed costs if they do have their own warehouse, they then have it all in one system for reporting.
As an even simpler example, let’s imagine a small B2B company that’s maybe just selling a subscription license and usage-based billing. Maybe they don’t have hardware, but they still have some kind of complex calculations for their mediation or their usage. You can make the argument: why deal with the challenge or headache of trying to integrate that point solution into your financial system or your ERP—where you’re going to have two customer records, two invoices, two payments, two rev rec entries happening in both systems—if you can do it all in one?
The last and probably biggest point I would make about the argument for an in-solution is that, for a lot of companies in that market that are having to move to point solutions, that’s typically a percentage of revenue model. It can be very expensive for certain types of companies in the enterprise space—even in the SME space—and often, that’s just to get an invoice out the door. With our solution, you have to have NetSuite as your ERP, so you do have to make an investment there, and then you make an investment in our add-on in-solution. However, that package is often less expensive than a point solution, and really, you’re getting two for one. You’re getting the number one cloud ERP to scale your business infinitely into the future. Whether you have multiple subsidiaries or you’re global, you have complex procure-to-pay operations, fixed assets, project management needs, you have that tool to grow into, plus you also have your billing and your rev rec as the core in that situation.
Andrew Dailey
Let’s drill into that a little bit. There’s a connection between billing and finance; that’s very clear. But then, there are these other integration points you’ve touched on, like quoting, order management, and provisioning. What are the benefits of an integrated solution when it comes to connecting into your quoting, into order management, et cetera?
Jon Leipzig
To clarify, are you asking what some of the integration points you’ll connect into are?
Andrew Dailey
Yes. What are the most common integration points? The obvious one is between billing and your financial package, between billing and your revenue recognition capability. What others do you see most commonly that people don’t necessarily factor initially in thinking about addressing a billing issue?
Jon Leipzig
In our experience, the most common is a CRM sales force automation and CPQ. Even though many ERPs (including NetSuite and our products inside of NetSuite) have the capability to be a CRM or quoting tool, we can’t fight the fact that 80% of companies that we’re working with in the market started out using a different sales force automation CRM or CPQ like Salesforce. That’s our biggest integration point, but it’s a very clean break between front office and back office, and we have different teams in different departments doing different operations. By contrast, when you use a point billing solution, you have your accounting and finance team and your planning team going into multiple integrated systems that are creating GL posting transactions. So really, when we do those integrations, we’re often trying to mirror the contracts and the quotes that are getting created in the front office, then setting that up in the back office inside of an ERP to do the downstream billing, usage calculations, payments, rev rec, and reporting.
The second common integration point is probably a proprietary system. Many of our clients have usage-based billing, a portal, or somewhere where somebody can go in and make changes. So, unless they just want to put those changes in manually or do a CSV process, they’ll make an API call to NetSuite, send those changes and that data to their contract, and then we’ll pick that up and say, “For the next billing run, you’ve made changes to the number of users,” or “Here’s your usage that’s getting billed,” and so forth.
Andrew Dailey
Got it. Let’s talk about a more specific example, say, a mid-sized growth company that wants better financial controls, better visibility, and better ability to forecast, while also facing the challenges of revenue leakage and some of the customer friction that comes with a homegrown billing solution or semi-manual processes. In those situations where people need to replace their core financials or ERP and also need additional or more sophisticated billing capabilities, do you recommend replacing the billing first because that has the most immediate impact on the revenue, or would you start with the financials and get that house in order first before going to the billing?
Jon Leipzig
I think the benefit of having an all-in-one system is that, case by case, there’s no right or wrong answer. Some companies are born global, and when they’re selling internationally, they have to bill in different currencies and worry about localization and tax requirements. They may have shipments with the hardware-software type model. In these cases, we may recommend doing the financials first—set up the subsidiaries, the chart of accounts, the classes to set up the reporting correctly; then focus on the billing part of it. Alternately, they can go with the big bang approach, which is actually probably the most common path we take. That would be implementing the ERP and the billing tool at the same time (unless they’re a company that’s been running on NetSuite for, say, 10 years, in which case we’re just kind of layering into their existing processes).
However, for a company that’s just US-based—maybe they have a SaaS-based product that only sells in the US schools, or they’re a local telecom or utility company—they really may just want a billing tool. They don’t have a lot of pains with financial reporting, consolidations, or things like that, and they don’t have complex procure-to-pay processes, so we could just be a billing tool. Now, we obviously need something to set up a chart of accounts so that all those invoices and rev rec can post directly to the GL, but they could potentially even be putting that into another system. They point is that they’re setting themselves up for future growth. If they do open up other branches, subsidiaries, or operations where they acquire another company that has more complexities and other areas around project management, HR, or something else, they already have the backbone of the ERP to grow into those different modules and do all of that in a single system versus continuing to add on different best-of-breeds and trying to integrate all of them to communicate.
Andrew Dailey
Got it. We’re almost at the end of the session here, but we have time for one last question, which is—in 60 seconds or less—how do you give a CFO comfort and confidence in doing a big bang implementation?
Jon Leipzig
I think a lot of people use the phrase “big bang,” but that still requires there to be phases. You’re not going to try to do everything all at once. There has to be a sequence of events that happen, and while certain things will overlap, there’s an order of operations. You can’t set up your item master until you get your chart of accounts because when you’re setting up your item master, you have to make sure you’re saying, “Here’s the GL accounts I want them posted to for deferred revenue or revenue.”
This is what our team helps with when we’re doing a big bang approach like that—defining what those phases are going to be. There could be some phases where they’re doing billing runs and actually operating in that system while they go into the next phase. At other times, the phases are all happening, and nothing is really being operated inside the ERP or the billing until we get to that point. A clear path is always going to be integrations. For example, maybe we set up the system first and then look at the integration to the proprietary platform for the usage data, and, in the short term, they’re doing a manual CSV process. Another situation could be where the volume isn’t really high for the changes or new contracts that are coming over from the CRM. In that phase one, maybe we’re doing the billing out of the system, and then phase two is working on that integration to Salesforce.com.
So, a lot of it is experience going through previous projects, talking about previous customers, knowing what’s worked and what hasn’t to come up with a plan. When you’re dealing with someone like a CFO, they want to know that there’s a plan as well as all the steps involved—how we’re getting from point A to point B.
Andrew Dailey
Great. Well, Jon, thanks very much for your time today and for joining me on stage here. I’d like to remind everyone that there’s more information at the Zone & Co booth, and your contact details are available. I’d encourage everyone to reach out. You’re a great resource in this space, so thank you very much. Thanks, everyone, for joining us today.
Jon Leipzig
Thanks, everyone. Thanks, Andrew.
