How to Leverage NetSuite’s Advanced Revenue Management Features

How to Leverage NetSuite’s Advanced Revenue Management Features

Revenue is the lifeblood of any business. Accurately tracking, managing and forecasting revenue is critical for making informed strategic decisions, ensuring regulatory compliance, and maintaining the financial health of the organization. 

For companies with complex revenue models, such as those using subscription billing or delivering projects over an extended timeframe, revenue management can get very complicated very quickly. Spreadsheets and point solutions simply can’t keep up with the demands of these sophisticated approaches to generating revenue.

Thankfully, NetSuite, the leading cloud ERP platform, provides a comprehensive suite of advanced revenue management (ARM) capabilities to help streamline and automate revenue recognition, forecasting, and reporting. By leveraging NetSuite ARM, finance teams can eliminate error-prone manual processes, gain real-time visibility into the revenue pipeline, and ensure compliance with accounting standards like ASC 606 and IFRS 15. 

Let’s dive into the key features and benefits of NetSuite’s advanced revenue management solution and explore best practices for utilizing it effectively in your organization.

The Challenges of Revenue Management

Before digging into the specifics of NetSuite ARM, it’s important to understand why revenue management is so complex in the first place. There are several factors that contribute to the difficulty:

1. Variable pricing models – Many companies, especially in the software/SaaS space, employ intricate pricing structures involving usage-based billing, tiered subscriptions, discounts, promotions and more. Calculating recognized revenue in these scenarios is not straightforward.

2. Multi-element arrangements – Deals often include multiple performance obligations, such as professional services, hardware, and training bundled with the core product offering. These elements must be properly identified and accounted for.

3. Extended revenue cycles – In industries like aerospace and construction, projects may span months or even years before the revenue can be fully recognized. Keeping track of revenue across these lengthy timeframes is challenging.

4. Changing regulations – Accounting standards like ASC 606 and IFRS 15 have introduced new guidelines around when and how to recognize revenue. Maintaining compliance requires flexible revenue recognition logic.

5. Disparate data sources – Revenue-related data often lives in multiple systems and spreadsheets, making it difficult and time-consuming to compile accurate reports and forecasts.

Given these complexities, it’s clear that basic accounting software is insufficient for handling the revenue management needs of modern businesses. A more robust solution is needed to automate the most onerous aspects of revenue recognition while providing the flexibility to adapt to unique business models and changing standards.

NetSuite’s Approach to Advanced Revenue Management

NetSuite ARM is designed to address the challenges outlined above by centralizing and streamlining all core revenue management functions in a unified platform. The key components of NetSuite’s revenue management offering include:

1. Flexible revenue recognition – NetSuite ARM provides highly configurable revenue recognition templates and rules engines to automate revenue scheduling and allocation in line with the latest accounting standards and your specific business needs.

2. Performance obligation management – Easily identify, price and track multiple elements within a contract as separate performance obligations. Set up revenue recognition schedules for each one to ensure accurate accounting.

3. Revenue forecasting – Use built-in forecasting and planning tools to project revenue based on recognition models, billing schedules and your sales pipeline. Make more informed decisions with a real-time view into current and future revenue.

4. Revenue reporting – ARM includes a powerful reporting engine with a library of out-of-the-box reports and dashboards. Quickly generate revenue waterfalls, ASC 606 disclosures, forecast vs actuals reports and more.

5. Integration with core financials – NetSuite ARM is natively integrated with the platform’s core accounting modules like general ledger, accounts receivable and billing. Recognized revenue automatically flows to the appropriate ledger accounts for simplified period-end close and reconciliation.

6. Unified order-to-revenue process – Manage the entire order-to-revenue process, from sales quote to revenue recognition, allocation and forecasting, in one unified revenue management solution. No more piecing together data from disconnected spreadsheets and systems.

With NetSuite ARM, finance teams have a complete, end-to-end view of the revenue lifecycle with all the tools needed to automate complex revenue recognition scenarios, maintain compliance, and make data-driven decisions. The flexible and scalable architecture enables the solution to grow with the business as new revenue models and streams are introduced.

Leveraging NetSuite ARM: Key Features & Capabilities

Now that we’ve covered NetSuite’s high-level approach to revenue management, let’s take a closer look at some of the specific features and capabilities you can leverage to optimize your revenue operations:

1. Revenue Recognition Rules Engine

At the heart of NetSuite ARM is a highly configurable rules engine that allows you to set up custom revenue recognition templates aligned with your unique business model and accounting requirements. Using a simple point-and-click interface, you can define how revenue will be allocated across performance obligations and over what time period it will be recognized.

For example, you could configure the system to:

– Recognize revenue for a SaaS subscription contract ratably over 12 months

– Allocate 15% of a contract’s value to upfront onboarding services and recognize upon delivery  

– Defer recognition for usage-based fees until consumption occurs

– Exclude certain line items like one-time fees from revenue recognition entirely

The recognition rules can account for a wide range of variables such as contract length, pricing, discounting, and termination clauses. They ensure that revenue is recognized accurately and consistently across the organization in accordance with accounting standards.

2. Revenue Arrangement Management

Large, complex contracts often involve multiple products and services that must be tracked and accounted for separately. NetSuite refers to these contracts as revenue arrangements. Through the revenue arrangement record, you can combine multiple transactions, sales orders and subscriptions into a single overarching contract.

Within a revenue arrangement, each distinct good or service is identified as a separate performance obligation with its own revenue recognition schedule based on the predefined rules. Performance obligations can be easily added, removed or modified as the contract evolves. 

Some of the key actions you can take within a revenue arrangement include:

– Allocating the total contract value across performance obligations based on standalone selling price (SSP) or other methods

– Setting the recognition start and end dates for each obligation 

– Viewing the revenue and deferred revenue balances and forecasts for individual performance obligations as well as the entire arrangement

– Tracking fulfillment status to determine when obligations are met and revenue can be recognized

– Generating revenue recognition journal entries to be posted to the general ledger

The revenue arrangement record provides a centralized view into the multiple components that make up a contract to give you clearer insight into the timing and allocation of revenue. This is especially valuable for subscription businesses that may have numerous obligations within a single customer contract.

3. Revenue Forecasting & Planning

Accurately predicting future revenue is essential for budgeting, headcount planning and strategic decision making. NetSuite ARM provides flexible forecasting tools to help you project recognized revenue based on your specific revenue recognition models.

The revenue forecasting engine looks at factors like:

– Billing and revenue recognition schedules

– Anticipated sales and renewal pipeline  

– Historical trends and seasonality

– Churn and contraction rates

Armed with this data, you can generate both short-term and long-range revenue forecasts to guide planning. For example, you could forecast recognized revenue from existing contracts over the next 12 months and assess how that aligns with your targets. You can also model out different revenue scenarios based on sales projections to understand the potential impact on the bottom line.

NetSuite’s planning and budgeting tools integrate with the revenue forecast data, enabling you to incorporate forward-looking revenue insights into your formal budgets and operating plans. With a more accurate and comprehensive view into future revenue streams, finance leaders can make smarter resource allocation decisions.

4. Flexible Revenue Reporting

Having real-time visibility into revenue is critical for monitoring the health of the business and informing strategic initiatives. NetSuite ARM provides an extensive library of out-of-the-box reports and dashboards as well as a flexible report writer for creating ad hoc revenue reports.

Examples of key revenue reports you can generate include:

– Revenue waterfalls showing how revenue flows through the P&L over time 

– Trend reports comparing recognized revenue vs billing for a given period

– Forecast vs actuals reports measuring predicted revenue against what was ultimately recognized

– Deferred revenue reconciliation and roll-forward reports  

– Revenue disclosures and schedules required for ASC 606/IFRS 15 compliance

– SaaS metrics like annual recurring revenue (ARR), churn rates, customer lifetime value, etc.

NetSuite’s configurable dashboards allow you to combine multiple reports into a single view for an at-a-glance look at critical revenue KPIs. Dashboard portlets can be arranged and filtered to the specific needs of different stakeholders, from the CFO who needs a strategic overview down to the accountant who requires more transaction-level details.

Importantly, all revenue reporting is updated in real-time as sales orders are processed and accounting entries are generated. Unlike static spreadsheets decoupled from the live data, NetSuite reports always reflect the latest revenue numbers for up-to-the-minute accuracy. This real-time reporting ensures that all stakeholders are working from a consistent, reliable data set.

5. Seamless Integration with Financials

One of the key advantages of NetSuite ARM is the tight, prebuilt integration with the platform’s core financial management modules. All revenue data automatically flows to the appropriate ledger accounts and rolls up to the P&L and balance sheet for simplified period-end close and consolidation. 

Here are some of the key integration points:

– Sales orders and invoices generated in NetSuite get automatically tied to revenue arrangement records for a unified view of the order-to-revenue process

– Revenue recognition schedules determine the amount and timing of journal entries posted to deferred revenue and revenue accounts in the general ledger

– Revenue forecasts flow to the budgeting and planning modules for incorporation into forward-looking financial plans  

– Billing and collections data from the accounts receivable module inform the timing of revenue recognition

– Multi-book accounting functionality allows you to maintain separate revenue sub-ledgers for GAAP, IFRS, cash and tax purposes  

The seamless flow of data between the revenue management and accounting modules eliminates the manual work of porting and reconciling numbers between systems. Finance teams can manage the entire order-to-revenue process in one unified solution, reducing errors and inefficiencies. 

6. Support for Multiple Revenue Models

Modern companies are increasingly diversifying their revenue streams beyond traditional one-time sales. Many are adding recurring revenue and usage-based models into the mix. NetSuite ARM is built to handle a wide spectrum of revenue models under one roof.

Some common models the solution supports include:  

– SaaS subscriptions with fixed recurring fees, consumption-based billing, and tiered pricing

– Perpetual software licenses with accompanying maintenance/support contracts

– Professional services billed on a time-and-materials or milestone basis

– Managed services generating project-based revenue 

– Physical goods sold through one-time purchase orders

– Marketing services compensated through revenue sharing agreements

– Advertising and media sold on a per-impression or per-click model

NetSuite allows you to manage these varied revenue streams through a central solution while still accounting for the nuances of each model. So whether you’re a pure-play SaaS business or a company with a mix of products and services, you can accurately track and report on all your revenue in NetSuite.

Implementing NetSuite ARM: Best Practices

As with any major software deployment, implementing NetSuite’s advanced revenue management capabilities requires careful planning and execution. Here are some best practices to keep in mind:

1. Assess your current revenue management processes and pain points. Before configuring the ARM solution, take time to document your existing revenue flows, recognition policies, and reporting requirements. Identify any bottlenecks or manual workarounds that need to be addressed.

2. Determine the revenue recognition rules and templates you need. Work with your accounting team to define the specific revenue recognition scenarios that apply to your business. Configure reusable rules and templates in NetSuite to automate these scenarios.

3. Set up revenue arrangements for all major contracts. Create revenue arrangement records for key customer contracts and link each performance obligation to the appropriate recognition rule. Validate that revenue is being allocated and recognized correctly.

4. Integrate ARM with your other NetSuite modules. Ensure that ARM is properly connected to your sales, invoicing, and GL processes. Test the end-to-end flow to confirm that sales orders automatically generate the right revenue entries.

5. Train your team on the new revenue processes. Make sure all stakeholders, from sales to accounting to FP&A, understand how the ARM solution works and what the new processes will be. Use NetSuite’s learning resources to get users up to speed.

6. Monitor and iterate your revenue models over time. Keep an eye on your revenue reports to identify any anomalies or areas for improvement. Adjust your recognition templates as new revenue models and accounting standards emerge.

Following these guidelines will help ensure a smooth rollout of NetSuite ARM and quicker time-to-value with the solution. Engage NetSuite’s professional services team or an experienced implementation partner if you need assistance with any aspect of the deployment.

The Bottom Line

Revenue management is a core competency for any growth-oriented business. But it’s also one of the most complex and administratively burdensome areas of accounting and finance. 

NetSuite’s advanced revenue management solution simplifies the entire order-to-revenue process by automating revenue recognition, integrating billing and accounting flows, and providing real-time reporting and forecasting. It’s a modern, cloud-based answer to the revenue management challenges posed by new business models, accounting regulations and investor demands.

Whether you’re a software company looking to scale subscription billing, a services firm juggling multiple project revenue streams, or a manufacturer transitioning to more of a recurring revenue model, NetSuite ARM can support your needs. The configurable platform has the flexibility to adapt to a wide variety of revenue scenarios while maintaining compliance and auditability.

By leveraging NetSuite ARM to streamline revenue operations, you can boost the productivity of your finance team, provide greater visibility to stakeholders, and make more informed decisions to drive the business forward. You’ll have the tools and insights needed to optimize the revenue engine that powers your growth.

If you’re interested in learning more about NetSuite’s advanced revenue management capabilities, contact us for a free demo and consultation. Our experts can assess your specific needs and craft a solution around your business. Take control over revenue management, and take your business to new heights with NetSuite ARM.