How does your company go to market (GTM)? For many financial leaders this is a new question to consider, especially in regards to its relationship to revenue recognition. In my experience, this is actually a critical understanding, impacting everything from the business solutions you use to the productivity of your company.
For technology companies, revenue is often deferred or managed as something more complex than invoicing = revenue. Understanding your GTM model starts with this question: what constitutes a sale (based on GAAP) for your company? Think about both clearly defining the sale, and the financial requirements relevant to your business.
The definition of a sale – and the document or documents required for that transaction – is the starting point for your GTM model. The sale may be defined by an invoice, or a sales order, or a contract, or even a combination of multiple business documents. The size, velocity, and complexity of what is included in a sale are also part of your GTM.
How you interact with the customer is also part of your GTM – is the transaction automated through an eCommerce platform, or is it handled by a direct sales person? Do you sell directly to your customer, indirectly to your customer or both, depending on the market or the channel strategy? Does the sales process stop after you win the customer, or is there revenue impact from deployment or delivery or helpdesk or micro transaction activation? Possibly you have multiple ways to go to market all working at the same time?
Here’s a summary of the GTM models that seem to me to be in common usage. (Your comments or thoughts on this list would be of interest – let me know what you think!)
- Direct Web Sale. The GTM here is driven my marketing, and this model is characterized by low touch streamlined transaction processing and revenue management. Customers are managed in the eCommerce platform rather than the ERP system. There can be some impact on revenue from customer service and or deployment management (activation event).
- Direct Enterprise Agreement. The GTM here is usually driven by a sales person. The agreement with the customer – which may require a signed document or not – often with multiple deliverables and some business complexity. There can be subscription / renewal based invoicing, on time invoicing, usage based invoicing, rebates and true-ups and minimums, or all of the above. There can be go live events that impact the agreement, agreement exertions, and agreement change. There is a need to drive invoices to the customer and to manage the revenue. This model can be used for channel sales if there is direct knowledge of the end customer even though sold by a third party.
- Direct Product Sale. In today’s market this type of sale includes hardware and a sales order to manage inventory. There is really no business need for a sales order except in this model. The products can be simple to complex – can be multi-element arrangements for revenue or not. There can be revenue impact from the delivery teams, support team, customer care, and ongoing operations.
- Distributor “Sell To” Sale. This is often used by electronic component manufacturers, or by people looking to simplify demand collation (lots of customers with small sales). GTM revenue and transaction flow can be impacted by distributor integration (point of sale data – POS) and other inventory management effects including rebates and price support and discount models and stock rotation. By ‘Sell To’ I’m explicitly ruling out ‘Sell Through’ distributor models where the distributor is merely a conduit for a direct product sale.
- OEM or Royalty Sales. In this model the company re-selling your product does it without informing you of each transaction – either by embedding your product into a total solution or by paying you a royalty based on specific agreement defined usage parameters.
- Two Cycle Model. In this model a channel sale to an end customer (distributor or other reseller) is combined with the end customer directly activating the product or service with you. This is a common consumer product / service sales model – but can be used in business transactions as well.
Tensoft RCM and Novadek Revenue Lens handles revenue recognition for all of these GTM models, as well as combinations of them. For more information about Tensoft’s products and services, please contact us. If you’d like to comment on this article, I encourage you to Tweet, post to Facebook or blog about it!