SteelBrick CPQ from Salesforce provides many subscription features out of the box. With some SaaS specific customizations, SteelBrick transforms Salesforce into an extremely powerful tool for forecasting and managing subscription revenue.
This article proposes a framework for accelerating the deployment of Salesforce + SteelBrick CPQ to address the needs of SaaS businesses.
An accelerated path to implementing SteelBrick CPQ for SaaS is to first understand and define which SaaS metrics will be used to measure and forecast revenue.
Common metrics that are rolled up at the forecasting level:
ACV / ARR: Annual Contract Value (ACV) and Annual Recurring Revenue (ARR) are often used interchangeably. Sometimes ARR is used to only represent monthly or multi-year subscriptions. ARR often requires a “customer churn” metric to reliably forecast revenue. For the purposes of this article, both ACV and ARR represent the annualized revenue from subscription services, exclusive of any one-time charges or professional services.
MRR: Monthly Recurring Revenue. ACV and ARR are commonly derived by multiplying MRR (Monthly Recurring Revenue) by 12. MRR may be a more relevant metric for businesses offering month-to-month, or cancel at anytime subscriptions.
MCV and TCV: Monthly and Total Contract Value (MCV and TCV) includes subscription revenue plus any one-time charges, such as professional services or setup and installation fees. They are useful for predicting cash flow and renewal revenue, since one-time charges are not carried forward upon subscription renewal. TCV-ACV = Service revenue is a typical calculation.
Once the core SaaS metrics for the business are defined, an accelerated path to implementing forecasting for SteelBrick CPQ utilizes a Salesforce feature released in Winter ’15 for predicting revenue based on custom field forecasts.
2) Product Configuration
Once the core metrics are defined, the implementation starts with a “bottom-up” approach, defining the subscription and service products.
- Keep the product family definitions simple using just “Subscription” and “Service”. Although these are technically “revenue types”, Salesforce automatically creates forecasts based on Product Family, so this configuration accelerates implementation.
- Create product SKUs for all subscription products and services.
- For annualized subscription products, set the default term to 12 (months)
- Represent free months and non-renewable discounts as separate products, and set their subscription type to “One-time” so they are not automatically added to renewal opportunities and contracts.
3) Quote Lines
SteelBrick Quotes are comprised of many Quote Lines. Each line fundamentally represents a recurring revenue subscription or a one-time service. Actual MCV and ACV values are calculated at this tier, then are rolled up by parent objects.
Best practices and tips:
- Add custom formula fields for MRR and MCV using a combination of SteelBrick provided fields, product family, and discounts.
- For service products, set the MRR and ARR values to $0.00.
- Add ARR and ACV custom fields as 12x the monthly metrics.
The SteelBrick calculation engine is extremely powerful. The Quote tier is where values from the SteelBrick line item editor are merged with SaaS metrics and subscription term, then fed into the SteelBrick calculation engine to produce a detailed quote, order, or contract.
Best practices and tips:
- Implement several Roll-up summary fields at this tier to aggregate revenue metrics.
- Remove the SteelBrick Subscription Term field from page layout and create custom pick lists for either “Term Years” or “Term Months”, then update the underlying SteelBrick model using field update workflow formulas.
- Implement “Free months” as a pick list on quote and modify the underlying SteelBrick subscription term model.
- Upon Contract creation, create a workflow rule that removes any free months from renewal term.
- Create formatted versions of formula fields for use in PDF Quote templates.
A note on approvals. SteelBrick natively implements approvals on Opportunities. But in our experience, SaaS businesses may iterate on several Quotes before finalizing an order, each one possibly requiring approval. Therefore, approvals are best implemented on Quotes.
5 & 6) Opportunity and Line Items
SteelBrick will automatically synchronize quotes with the parent Opportunity and Line Items. Opportunities are the final tier for staging revenue for forecasting, so additional formula and roll-up fields are added for more granular reporting on New vs Add-On vs Renewal revenue.
Best practices and tips:
- Create custom currency fields on Opportunity for the various ARR, ACV, Renewal ACV, and Add-On ACV values. Use field update workflows to keep these values in sync (forecasts do not support formula fields). Assign these fields to Opportunity splits then create custom forecast types.
- Utilize SteelBrick’s native functionality for Contract and renewal opportunity generation.
- Defer the creation of renewal quotes until required. Once a quote is generated on a renewal opportunity, co-termed add-on revenue will no longer appear in renewal opportunities and forecasts.
- For calculating renewal and add-on revenue, use the previous contract value as the base target for renewal revenue. Any uplift is considered add-on (regardless of change in product quantities or seats).
The Final Solution
Rolling up SaaS product definitions from quote lines to opportunities results in a powerful forecasting environment for managing a SaaS business on Salesforce using the subscription, calculation, contracting, quoting, and renewal capabilities of SteelBrick CPQ.
This approach is not limited to just SaaS companies. Any subscription business model; such as advertising, video, consumer “product of the month” clubs, and maintenance contracts; can reliably forecast and manage their businesses using this model.
- SaaS Discounting Strategies: Free Months & Multi-Year Subscriptions
- Quote to Order: Converting SaaS Quotes Into Orders
- Compensating the SaaS Salesforce: Quotas, Splits, and Commissions.
Contact us to learn more.