Ideal Quote-to-Cash for Consumption Models

Behdad

Hello and welcome to the Data for Subscriptions podcast, where we learn and explore how to run better subscription businesses. I’m your host, Behdad Banian, and today I have the pleasure of welcoming Karthik Kirubakaran, Director of Financial Systems at 8×8 to the show. Karthik, welcome.

Karthik

Thank you very much, Behdad, for having me here.

Behdad

So, Karthik, I’m looking forward to today’s topic. But before we get there, why don’t we start with sharing a little bit more about yourself? What made you such a passionate quote to Cash Specialist?

Karthik

Yeah, thanks. Thanks, Beddot, for having me here again. And my name is Karthik. I work for 8×8 Inc, Director of Financial Systems at 8×8 Inc. So I have like 20 plus years of experience in the industry. Started as a basically as engineer and then moved on to the manager and then now currently working as a director. So I started my career as a web developer and then slowly moved on into this billing and then into the code to cash space, right? So I have been into this code to cash space for like the last 10 plus years and things are evolving right at this or the last 10 plus years, right? And this like a very, this whole field is like a very interesting field and you get to learn a lot of things, lot of new stuffs and every day that things are improving to a great extent that made me passionate. And yeah, so and yeah, I have been into this B2B for like close to more than a decade.

Behdad

And let’s talk a little bit about 8×8, even though we’re going to get into quite a lot of details, but on overall picture, what does the company do?

Karthik

Yeah, 8×8 is basically an industry leading customer experience platform. They with the integrated products like unified communication, we call it as Ucas, Ccas and also has communication APIs. 8×8 also provide product like Microsoft Teams integration. Basically if you have Microsoft Teams right, we provide the outbound service like outbound calling all those things. And also we also have product that can integrate with the Salesforce, Zendesk, all those things, right. So 8×8 is industry leader and 13 leader in uCaaS Magic got a Magic quadrant for 13 years in a row and also featured in CCaaS Magic quadrant for nine years. And we are like a publicly listed company and with 400 and millions in revenue.

Behdad

And let’s dig a little bit more into the offering that you guys have. And for those that will be following us into the details of the quote to cash where we want to learn about the skews or SKU’s that you have because we want to understand the complexity we’re offering.

Karthik

Yeah, basically 8 by 8 offering, right. It does like we call it six different pillars, right, off offering, right. It all starts with CCaaS, right, which is, which is more like a contact centre project. So it delivers the enabled Omni channel customer engagement capability contact centre as a service, right. And then the second pillar is called the UCaaS, right, which is basically voice, video conference, conferencing, messaging and other collaborative tools. And then comes the communication API, right, which is like a basically a low code or no code API, right, for embedding the communication capability, right, like SMS wise and other notifications. So we also have micro Microsoft Teams integration. Basically, if your company uses micro Microsoft Teams, right, we provide the PSTN and other capabilities, right? That’s another pillar. And then we also have something called Engage, which is more like brings together the world of both CCaas and UCaaS, right? So, and then we also have the ecosystem native integration, which is more like native integration with your platforms like Salesforce Desk and Dynamics, Microsoft Dynamics, right? So basically, we have like 6 different pillars of products that we sell.

Behdad

Thank you. Beyond the pillars, give us a bit of a feeling for how many SKUs we’re talking about in total.

Karthik

So we have like close to 100 plus SKUs that we support. Basically it’s on the UCaaS side, right. We also provide the equipments as well, meaning that the regular telephone lines all those things as well, right. So it it will be like close to more than more than 100 SKUs that we support.

Behdad

Yeah. And how about the pricing structure? How do you price your different products?

Karthik

Yeah, since it’s like a multiple product offering right across the customer experience platform, right. So we have like multiple pricing model. So we have something like your seat based pricing model for the UCaaS and seekers with the option of both long term and short term contracts. And we also have API based pricing model as well. If you are, if you are using our communication based API, right, we have API based pricing model also as well. And we also have like usage products like SMS, WhatsApp, messaging, all those things as well, right? We also provide customers with the ability to buy those bundles upfront or based on their usage pattern or pay as you go model or a consumption model, right? So we provide all the complete flexibility for all the customers, right, based on the business needs.

Behdad
Yeah. And given that you have a telco routing, I can imagine that the usage based element is something that you’ve had for quite a long while. Because for some businesses usage based is more of a latter kind of introduction where they started with subscriptions initially. Is that is that a correct? That is absolutely correct, right, Since we also provide telecom offering as well. So there are like a good amount of usage based complexity that comes with it. Like think about it for telephone calls, right, SMS and then recording, right? So there are like multiple plans queues as well within that, right? For example, your plan can give you a free local inbound calling. And then the other plan can have like a metered calling, right? So we, we, we process like close to a billion usage record every month and it goes through like close to like 3 million usage rating engine usage rate rates pick up the correct rates and then rate those mediate and rate those telephone records, those records usage records right appropriately, right. So we are on the usage side as well.

Behdad

Great. OK, with that as a baseline, let’s jump right into the core of our discussion today. How does an ideal quote to cash system look like in your view?

Karthik

Yeah, very good question, right. It, it really starts with the most more reliable configuring pricing and reliable tool to configure price and create codes for your customer, right. So you need to have a very robust coating tool. So there are like lot of options in the industry today, right, Compared to where we are like couple of years back, right. You have Salesforce CPQ, we have Velocity, which is currently called as industry CPQ and you have Apptus, Oracle CPQ and a lot of things, right? It all starts with picking the right coding tool and then comes the CLM tool, right? You need to have a contact life cycle management tool right at the tool where all your customer contacts go in and then takes care of renewal and other things, right? So once the the coding and contracting is done, then you need to have the the IT it gets converted to the order, right? You should have right tool to do the fulfilment split, right? So which is starting but breaking the order 1 master order into the multiple components, right? So once that is done and the next comes the most important thing by the billing, right?
You can have like a very good coding tool, but if your billing tool cannot build the weight once, then there is no use in it, right? And especially the billing industry is also quite mature and now come back to 10 years back, right? So we have products like Logic which can do the both subscription and usage based building. And then we have something called billing platform that can do the subscription and usage based billing and your Salesforce building charge be all these tools, right? And you can pick the tool based on your business needs. And then comes the payments and invoice generation, right? So most of the billing software provide out-of-the-box support or else you can have your own tools as well, right? Like a Stripe or something else to do the payments and other things. And finally, integrate, integrate all this billing data on the order data into your ERP system, right? It could be anything, right? It could be a NetSuite ESAP or Oracle or anything, right? And then make sure all your data is processed and pushed to the ERP system for that and other financial process, right? So one important thing that some of the companies don’t think about is the data, right? From day one when you’re collecting, when you’re implementing your code to cash, you should think about the data and make sure that you have the right BA platform, especially in the consumption model, right? It’s going to be iterative process. It can be a data like a data warehouse, right? Pick up based on your company needs and based on your use cases, right? But make sure to start thinking about this BA from day one when you implement the code to cash, right?So, yeah, so, so that’s what I think the ideal quote to cash would look like.

Behdad

So one of the aspects that I wanted to kind of dig into is… So you see, there are a lot of different systems. You mentioned several of them now. But out in the market, of course, there’s a whole host of additional software and tools that are, that can be deployed within a quote to cash. One of the challenges I think businesses face is that none of these systems were really developed to talk to each other. So for example, they could have different formats, they operate by different rules. A second factor is the type of business that you have, for example, which is actually quite real time based. Now not every business necessarily is built on real time usage.

Kathik

That’s correct.

Behdad

One of the challenges that we observe is that quote to cash systems today simply lack robust capabilities for managing usage data that you mentioned. And one of the, for example, typical consequences we see is that companies might take on a billing transformation because they suffer from a delayed billing or they might have a lot of disputes raised by customers, right? That tends to be seen as a billing issue, while in reality is actually the usage data that you feed into the billing system. What I’m trying to get at is what is your thinking about the importance of having a robust automated error free usage management capability within a quote to cash?

Karthik

Yeah, that’s a very good question, right? Especially a company like 8×8, right. So we are, we do a process like close to a billion usage event every month, right, which could be like multiple, it’s not like A one single type of usage event. It’s like a multiple type of usage event, right? So some of the industry leading software, they do they, they do support this usage mediation and rating to some to a very large extent. But always think about it, right, They are not going to be a perfect 100% fit to your business. So you should have something like a usage pipeline, right, where you can massage the data or do some transformation right before feeding into those billing engine, right? So, but think about it right there. They’re not going to build, especially for your use case, right? They’re going to have a general model. So that is always some work. You need to do that during the during that usage, even pipeline right, where you need to make sure you massage the data and then feed it in the way that the billing system can accept it and then mediate it and then read it, right. So that’s that is always going to be some bit of challenge, especially if you are into the usage site, right. You see any company, right?

Behdad

Yeah. And this is a pattern that we see some of the most mature companies actually in the industry that have been doing subscription based business. And I think it’s important to mention that usage management necessarily doesn’t have to be connected to usage based pricing. You might choose to do usage based pricing, but you might also not choose because it’s a better fit for how you want to serve your customers. But usage management nonetheless is equally important. Of course, if you get a price based on usage, it’s just going to increase the requirements. But some of the best companies that we, the most mature companies we’ve seen, they’re actually more and more stepping into separating usage management as you indicated from the billing system or the various system. So it’s a stand alone capability that it needs to have, but not stand alone in the sense that it operates by its own, but it’s a capability that then cooperates and collaborates and mediates with all of the systems. And I think this is just a growing trend. And I do believe myself that with the need to offer more bespoke offerings, more adapted offerings and also with more complex pricing, this is just going to continue to run rampant.

Karthik

Yes, yes, exactly. Right. So I have seen companies where they separated out the usage from the actual billing, right? So in there are some companies that are they use the mediation rating within their proprietary systems instead of relying on the external billing software, right? So they do that and then feed the rated, mediated and rated records into the billing system, right? Only for the invoicing, right? That’s the other approach, right? Yeah. So you can you can pick the approach that’s right for your use case.

Behdad

Where are you guys in relation to your journey when it comes to this ideal setting and where 8 by 8 is?

Karthik
Yeah, basically we are also in the middle of the business transformation project as well. So we are in the process of implementing a new quote to cash tool. We are starting the coding right. We are working, we are, we are in the process of implementing tool called Velocity which is from Salesforce currently I think it’s called industry CPQ. So previously it used to be called Velocity, right. So that is more targeted towards the communication industry, right. So we are in the process of implementing that and we are also working with the software called Logic Sense which can use both subscription and usage rating and for taxes we are implementing, we already have Ablara and we are trying to bring in Ablara for the whole for this new business transformation project along with NetSuite as the ERP solution. So we are in the currently in the process and we are planning to go live sometime the next couple of months with the new process.

Behdad

And if you would pinpoint the past, the 2-3 most important improvements or challenges that you want to hit, what would those be?

Karthik

Yeah. So, so if you really look at it right, the whole world is moving towards the consumption model, right. So we as a company, we are also looking at various options how we can affect, we can provide pricing and packaging options for all our products. And we are also in the process of moving towards the consumption model, right, to see how we can effectively give those products to our end good customer. So on more or it’s not going to be like one model fits all solution, right. So the pricing and packaging option will be based on the segment is going to be based on the segment and geos, right. We are also looking at the customer usage pattern from the past and see how we can effectively produce those pricing and packaging for our end customers. The other challenges that not 8×8, right, any company moving into the consumption model is going to face is the revrec & forecasting, right? So for example, if you look at the traditional SaaS model, it’s always more times 12. That’s how you calculate the error, right? Once into the consumption model, you’re into the consumption-based model. It’s going to be very, very difficult to do the forecasting and also the Rev rack, right, because the usage pattern is going to change based on the seasonality and other factors, right? So we are also looking at how to solve that challenges as well, how to effectively help with that rear break as well with the consumption model.

Behdad

Can you share which KPIs you track to measure the performance of your core to cash environment?

Karthik

So, so there are that there are like industry standard KP aside, that’s what we are going to follow, right. So one is the quote conversion rate, OK. So, yeah, higher conversion rate. The quote conversion rate is higher. For example, you send a quote to the customer and then they accept the quote, start, reject the quote, right? Yeah, quote conversion rate suggests that your quotes are very much aligned with the customer needs and also that sales teams are very effective at closing the deals, right. That means you have a very good quoting system, right? So it also helps you to access the access the effectiveness of your sales strategies and the pricing models, OK. The other thing is the average quoting time, right? It’s the time taken for the agents to produce a quote, right? So again, this is going to be always a iterative process, right? You can always add improvement to that and make sure that quote, average quote time is improving over the point of time, right? For example, you can move some of the process offline, right? For example, it could be collecting the address rights of this address. It would be collecting the payment. All those could be moved offline to improve that thing.
And then there comes the invoice accuracy, right? So look at the cases once you are with the new QTC model, QTC stack, look at the invoice accuracy, right?
How many cases you are receiving, letter pricing and invoice inaccuracy, all those things, right?
See if there is a drop in the number of cases, letter to the invoice accuracy, right?
Again, the next thing could be the turn rate, right?

Higher churn rate can signal issues in pricing contract terms or billing or anything, right? And low churn rate is a sign that you have a long term customer satisfaction and you have a perfect pricing model, right? And also the packages, right?

Behdad

Got it. So I want to circle back to when we spoke about usage data management. Can you elaborate a little bit more on how you today manage usage data within your system?

Karthik

So since 8×8, it is like a communication company, right? So we have a proprietary system to track all our usages, homegrown proprietary system. So we track like multiple different types of usages today, which could be like a call detailed record, which is the regular phone calls, right? And then we also have SMS usage and then we also have the call recordings and we also have like more ERP-based usage, it’s all these things, right. So we have our own proprietary usage system. What we do is we push all those usages into our billing platform. So yeah, we have a usage even pipeline through which we push them to the billing platform. So mediation, everything is taken care by our billing platform today, OK. And we process like close to like a billion records every month and we have the last templates. We also maintain the last 10 plus years of usage events on our usage database.

Behdad

Yeah. Can you give a sense of rate of automation versus manual efforts in this process?

Karthik

Yeah. So, yeah, that is always let’s let’s let’s be honest, right. There is always in any, any company that is always going to be few outliners where you need to build customers manually, right. So it’s not going to be 100% especially if you are in the usage or in the usage world and other things, right? That is always going to be this one deal that you need to take care of that manually, right? Not only that, right. That could be some kind of. Use cases where the sales wants to test the market, right? They wanted to roll out your product quickly to see how the customer adoption is. So you, you cannot expect to automate those things from day one. So you need to give that flexibility so that certain part of the invoices can be manual at least. For example, if the customer has like 10 products, right, you can automate the subscription portion of it, but the usage can still be you can, you should be probably the ability to add them manually, right, That one line item, right? But down the stream, you can still automate the process. For example, you can create a sku, something like a skew that can take care of the rear break and taxation. You just need to attach the manual amount to that SKU, right? So that is always going to be some level of manual, but make sure it doesn’t go out of the ants and try to keep it minimal. And then at some point of time try, if you can try to automate that piece as well over the point of time.

Behdad

So looking at what you have in play today, what will be some of the challenges you would like to solve for with regards to usage management?

Karthik

Yes. So even at 8×8, right, we have like a wide variety of usages, right? We have something called, we have the Cdr usage, we have the SMS usage, we have the call recording API usage, all these things, different kinds of usage, right? And we have, we have a large set of data from the last last 10 plus years, right, user thing, right? So we need to see how we can effectively use that usage data to understand and come up with the predictability of how things are going to pan out in the future, right? For example, we can use that data for churn, fraud, all those things, right? So we can of course get it today through the dashboards and everything, but we are also trying to see how we can analyse those usage pattern and then how we can effectively package use that usage pattern and the usage data to produce the effective pricing and packaging model for the customer, right? We need to see how we can bring that a friend to the sales and everything based on the usage, what we see on the usage side, right. So that’s something that we need to try it out to see how we can make 100% use of that usage data. Not only that, right, when we move to the consumer towards the consumption model, that might also help in forecasting and as well as the usage pattern is going to pan out.

Behdad

Yeah, it’s interesting you raised this because in fact we should also add in the in today’s show notes, the link to a previous episode that we did. But before I go there, this what you mentioned is quite common I find today with regards to companies wanting to use the existing usage data to learn more from. You mentioned churn. So again, we have some good, let’s say customer examples where they by managing that data can basically have triggers that can inform either would it be sales or would it be customer success or whatever it might be to trigger an action to avoid churn. And that comes back to basically be able to digest and analyse the usage patterns. Now you mentioned something else in terms of with consumption based pricing and the concern around forecasting. And this is what we talked about in one of the previous episodes where some of the guys here at Digital Route on the product side are working on just on the frontier of deploying AI capabilities and have been testing it with a couple of the customers here where they can use the existing usage data of that customer to use to predict. And as well as the use for another topic that we spoke about was which is anomaly detection. Now anomalies could simply be data errors that can lead to, for example, 1 issue could be revenue leakage. But it is something that I think what a lot of companies have started to realise. And we’ll make sure to share that information because it could be interesting for, for, for yourself to have a look at as well. But I’ll go back to what you raised. What would be a valuable benefit and output should you solve for some of these issues that you said, so for example, understanding usage patterns to prevent churn, what would be a good outcome seen from your eyes?

Karthik

Yeah, very good thing, right. So, so one thing is think about, right, let’s say take the customers that are with you like one year or two year, right? So most of the customers have a pattern, right? They’re going to have a pattern, right? Now they’re going to use our product or any product, right, right. In general, right? So look for the customers who are with the company for like one year or two year, right? And then understand the pattern, right? So that is always this going to be the in the consumption model, it’s going to be going up and down, right? So for example, while understanding the pattern, if you see a sudden drop in usage, right? Or sudden drop in the customers or the users logging into the your system, then that’s going to raise a red flag right for you, right? So that’s why you need to be very, you need to look into that part of it. Whenever there is a drop in usage or increasing usage, right? Especially when that is a drop in usage, that’s going to be a very big red flag. And then you need to do your deep dive into that customer and then see what what would have cost those drops. It could be just like a seasonality or something else as I mentioned, right? So also this is going to help you with this forecasting as well when you move towards the consumption based model.

Behdad

So I think before we move to the wrap up of things, so 8×8, of course, have had a really interesting and let’s say successful journey. You were recently also mentioned in Gartner’s Magic Quadrant as one of the leaders in your domain. What should we expect from 8 by 8 if we look a year, 18 months down the road?

Karthik

So we are also revamping all our product offering. And then recently, we did the complete makeover of our brand name and everything that went live like a week back. You can go and look at the website, anybody listening to this can go and look at our website or the LinkedIn pages, right? So we are going to be moving away from more like a communication company. We are more like a customer experience company, right? So we are going to, we are in the plan of providing 1 integrated platform for all the customer experience, right, starting from the Uks all the way to the end, right, Anything, right, It’s going to be like, we are going to be like a one stop shop for everything that they need and it’s going to be a seamless integration across end to end, right? That’s what we are providing, they’re planning to provide. That’s why we have that six pillars of product, products that we give it to the end customers, right. So there are a lot of interesting stuff stuffs happening within our company as well. And yeah, so we are all very excited about the future for the next 12 to 18 months exciting.

Behdad

We’re going to take a question from one of the listeners here. And so the question is more specifically from an 8×8 value proposition standpoint, what is what is unique about what you offer versus the alternatives in the market?

Karthik

Yeah, definitely, right. That’s a very good question, right. So, so if you look at some of the competitors that we have, right, So they are either in the UCaaS space or in the CCaaS space or in the SMS or provide the API, right. So none of our competitors have the complete suite of product that we provide, right. So for example, if you wanted to, if if you go to any of the competitors, you need to get the UCaaS product from 1 competitor and then they didn’t provide the CCaaS product and they need to go to a different competitor for the different calendar for the CCaaS and different for the different vendor for the integration and everything, right? But in our case, it’s like a one complete platform, right? End to end, right? So that’s, that’s, that’s the major differentiator that say 8×8 right, compared to some of the competitors, right. So not only that, right, we also have productive fewer companies does a lot of outbound messaging and all those things, right, like SMS, all those things, right. We do have integrate, we do have those products integrated into our ecosystem as well. So it’s like a one, yeah, from 8×8, they can get all their their communication products basically.

Behdad

Gotcha, gotcha. OK. So final question to Karthik. For all of us who’ve been listening and we’re looking to build this ideal code to cache setup, what are the three steps you recommend us to take tomorrow having listened to you now?

Karthik

Yeah, so, so very, very, very good question, right. So in any ideal code to cache, right, First thing is it’s all about your business users, right? So I what I would recommend is sit with your business users, understand the process and come come up with that end to end flow, right? So if possible, sit with don’t, don’t bring all your business user into the one room. If possible, I have like more individual session with each, each and every business user, business team within your organization.
So pick a DRI for each and every department, right? Understand the process, understand the requirement, what they’re looking for in the new transformation, right? And then come up with your plan, right? Come up with your plan and then the end to end architecture, right? How the ideal process is going to look like, right? And then get the sign off from your end users site. So do this even before picking up the QTC stack, right? And then once you’re done with that, then start evaluating the QTC stack, right? What would be the right quoting tool? What would be the right billing tool? And what would be the right NetSuite tool, right? So then start picking up the tool. So what I would recommend is, if possible, do your POC with the tools before you do your full-fledged implementation, right? I know it’s time consuming. The 1st 2 steps I did, I told you is going to be very time consuming because you’re going to inverse like a lot of people’s time and everything. But it’s really worked towards the end. So the especially with the POC, right? So you don’t have to do a very complicated POC, just pick either your product or one particular Geo and then see how the, the data and everything in the whole process is going to flow end to end, right? And then the third one I would say is also think about the end state, right, The end systems, right, Rebec and other things, right? So you can have a very good billing system and then very good quoting system. But if you don’t think about the Revrec, especially in the consumption model, it’s going to be very difficult. And make sure you make it easy for the Revrec team to do that, the revenue recognization in the consumption model. So those are the three things I would think about, Yeah. And maybe that is one 4 thing as well. Always think about the data, right? Make sure you push all this data into your BA or somewhere, right? So that you can do all the analytics and everything, right. Especially it’s going to be iterative process. You need all the data into your BA tool. It could be a data like a data warehouse depending on your company needs. But make sure you have that you are thinking about that from day one in the whole QTC process.

Behdad

Super. All right, with that, thank you everybody for tuning in today. If you want to learn more about today’s topic, you can simply just tap quote the cash into the comments field or just reach out to us in any channel you prefer and we’ll make sure to connect back with you. And with that, Karthik, thank you so much for today’s conversation. Greatly appreciate it and thank you again, everybody who for tuning in.

Karthik

Yeah, thank you very much for that, for the for bringing me here. It was a very good conversation and thanks to all the listeners and we’ll have a few more sessions, hopefully here.