The new ASC 606 revenue recognition standard, or IFRS 15 as it's known internationally, is a hot topic that’s coming up for our team every day. Our customers want to understand how they can leverage the Salesforce platform, and specifically Salesforce CPQ, in order to meet this standard for revenue recognition and compensation. And we are getting these questions from all across the business—not just finance departments.
What makes the new standard so unique is that this accounting change is impacting every industry and actually reshaping how companies go to market across the board. Companies must rethink everything from packaging and pricing their products, to how they let their sales reps structure deals, and even down to how they commission their sales teams.
This transformative project is one that public companies have to deliver on by January 1, 2018 and private companies by January 1, 2019. That’s not much time! How can companies pivot quickly and start meeting these new standards?
We know that finance teams have already been working on the transition to 606 for months. But we’ve also seen that they’ve been working in silos. The thing to realize is that while ASC 606 is all about revenue recognition, it affects Sales and IT almost as much as it affects Finance. And it isn’t until much later in the process of preparing for transformation that Finance is reaching out to their counterparts to assess how this will impact their organization as a whole. Thus, it is much harder and it takes much longer to decide what they are going to need in order to take action in terms of new systems and controls.
ASC 606 is principles based, meaning that it’s up for interpretation and there are no black and white rules on exactly what companies need to be doing in order to comply. This adds another layer of complexity and opens them up to significant financial risk. The need for new internal controls to insure compliance and minimize risk is more important than ever before.
So, what initially looks like an accounting exercise on the surface is actually also a major IT and Sales Ops issue underneath. IT teams are now rushing to catch up. Companies must now capture new data for revenue recognition and create tighter controls around how reps discount and structure deals— and they need new systems and automated controls in order to do so.
Here’s where Configure, Price, Quote (CPQ) solutions come in. With CPQ, you can ensure compliance by capturing and structuring contract data upstream to support downstream processes.
It’s important to create a consistent structure for your financial systems. CPQ provides a single platform with which to capture data. You can enforce data capture for contracts, quotes, and orders and make sure you are capturing complete and accurate data. (And yes, that includes all the new data you’re going to need for revenue recognition.)
In order to reduce risk, you’re going to want to implement some automated controls with your new systems. Since CPQ allows you to enforce data capture, you can expect increased consistency and reliability from your data after implementing the tool. With approval matrixes and role-based permissions, you can also control and audit approvals.
And that’s not all! You can better analyze pricing and deal structure with real time reports and dashboards that are fed by CPQ. This includes exception reporting capabilities for non-standard deal structures, which increases visibility for Finance. CPQ will help you determine stand-alone selling prices and enable you to meet increased disclosure requirements. It isn’t easy to change your entire business according to a brand new standard, but CPQ is making it easier.
Check out our “Revenue Ops: The Salesforce Way” e-book to get insights and inspiration from Meredith Schmidt, EVP of Revenue Operations, Salesforce.