In our previous blog we saw an overview of SAP S/4HANA Software-as-a-Service Business Model.
In this blog let us go in more details of various possible business models and corresponding pricing models that we can have as part of XaaS Digital Assets. Our focus will be on E2E business process for Subscription based products in SAP S/4HANA Public Cloud with an out of the box integration with SAP Subscription Billing & Entitlement Management solutions.
Let us imagine that there is a Digital Assets Software company having a software portfolio including various software & different pricing models like:
- Fixed Reoccurring Charge
- Tier Based Pricing
- Volume/Usage Based Pricing
There may also have a one-time charge for services like software installation or activation of the softwares etc.
This company wants an E2E (End to End) solution for “offer to cash” where a software can be ordered, fulfilled, priced appropriately, they can track all the relevant entitlements, invoice, and recognize revenue as per IFRS 15 standards at period end.
XaaS Digital Assets product portfolio including SAP S/4HANA Cloud, Subscription Billing & Entitlement Management is a good fit and can do much more to help our customers realize various emerging business models as part of anything-as-a-service or XaaS.
*In this blog we will focus on “Fixed reoccurring charges” pricing model and other pricing models will be covered in further blogs of this series.
Current Scope of XaaS Digital Assets:
SAP S/4HANA Cloud with SAP Subscription Billing & SAP Entitlement Management.
Partner-integration WIBU & Digital Route*
Companies that are running Everything-as-a-Service (XaaS) business models in a B2B environment.
Steps involved in an E2E Business Process:
- Solution Order creation in SAP S/4HANA Cloud.
- Subscription Creation & Activation in SAP Subscription Billing
- Automatic Entitlement creation in SAP Entitlement Management
- Bill creation in Subscription Billing & transfer to SAP S/4HANA Cloud
- Invoice creation in SAP S/4HANA Cloud
- Revenue recognition with Event-Based Revenue Recognition
Before we start with business processes, we need to make sure that we have the right Org structure, Configurations, Master data & IFlows available in SAP S/4HANA Cloud, SAP Subscription Billing & Entitlement Management Products.
Then we start the process of creating Solution order in SAP S/4HANA Cloud with a software item along with service items. The software item is sold as a Subscription with item category Subscription Billing item.
In SAP Subscription Billing solution we can leverage different pricing models like Reoccurring, Usage based and One time charge. We need to configure the Rate Plan template to accommodate these pricing models.
The simplest use case for reoccurring pricing model is Fixed Reoccurring Charges per month for the software sold.
We can also combine a one time charge & usage based charges with a reoccuring price as per the pricing configurations in Subscription Billing.
In case of Tiered Based pricing we will take an example of number of licenses that can be used for a software, based on these licenses subscription price will be calculate at the transaction level. And for usage based pricing model we will take an example of number of Tokens for the software. Based on the usage of these tokens the customer will be charged.
Let’s get started with our first simplest use case of Fixed Reoccurring Charges
Use Case – Fixed Reoccurring Charges for the software sold as subscription
Solution Order in SAP S/4HANA Cloud (Scope item 4GT):
- Item 10. CAD_TOOLBOX_PRO is the software based on subscription with fixed reoccurring charge.
- Item 20. SOFT_INSTAL_SERV is a service item with one-time charge for software installation.
Automatic Subscription creation in SAP Subscription Billing (Scope Item 57Z):
Subscription SB775 created with price of 100 USD per month.
Subscription Terms like a minimum term & term start, end date was copied from Solution Order & monthly Billing Cycle is derived from Rate Plan Template in Subscription billing.
Monthly Rate is defined at item level of Subscription in pricing tab.
Automatic Entitlements created in SAP Entitlement Management System:
Two Entitlements 162 & 163 created for the software item with Entitlement Type as License.
- One entitlement for e-Learning Training.
- Another one for Trial Access.
You can configure any number of entitlements for a product with zero code as per modeling.
Subscription Bill must be Transfer from SAP Subscription Billing to SAP S/4HANA Cloud for Invoicing
Bill must be transferred to S/4HANA along with other bills – if the billing date & customer is same.
Under Rat Plan Template in Subscription Billing, we have selected Billing in advance & Pro-rate first cycle.
As the bill is prorated for the first month, 56.67 USD was calculated automatically as Net amount for the first month.
Invoice Creation in SAP S/4HANA based on Subscription Billing document request (SDBR):
Services confirmation & service order completion is also required for the service item.
Create the invoice via Create Billing App:
- Invoice 90270003 created for Subscription – 56.67 USD for the first month – as proration is selected for the first month.
- Invoice 90270004 created for installation Service – 150 USD one time charge.
For the Subscription item the revenue will be deferred under contract liabilities and will be recognized at the period end or after manual rev rec run.
After Rev Rec Run for Subscription – Program result:
Revenue of 56.67 USD recognized for the software item and deferred revenue is zero.
In the same way for the Service item the revenue will be deferred under contract liabilities and will be recognized at the period end or after manual rev rec run.
After Rev Rec Run for Service – Program Results:
Revenue of 150 USD is recognized for installation service & deferred revenue is zero.
We can also check the overall document progress in SAP S/4HANA Cloud under View Progress in Solution Order.
Overall Document Progress:
In Conclusion, our customers can have a seamless user experience to manage digital assets sales with an E2E Business process using SAP S/4HANA Public Cloud with very powerful BTP Applications like Subscription Billing & Entitlement Management.
Thank you for reading today’s blog post!
Stay tuned for more advanced Pricing Models like Tiered Pricing & Usage/Volume based pricing.
Please like this post if you found it useful, and don’t hesitate to leave us your feedback in the comment section.
In case of questions, feel free to ask them in our Q&A section using the tag Subscription Billing and/or XaaS.
Stay tuned and take care!