The Stripe Guide to Pricing, Billing, and Quote-to-Cash with Wisam Hirzalla

0:00What information in a contract eventually drives billing downstream? If you have to really boil it down to the core, what a contract has to say is, what are we billing? When are we billing it? Who are we billing it to? And then under what rules? A subscription literally has two things. It has a P and a Q. And sometimes, right, it's like, what is the thing that you're selling? It's like the price, right? And how many subscriptions are you selling? That's basically your revenue and that's all good. So now if you think about usage for a moment, it's also a P and a Q, but getting to the P and the Q is very complicated.

0:35Anyone who is selling anything other than one SKU and one geography really needs to think super hard about tax. Like if you look in even in the U.S., there are so many interesting tax permutations, like tax on events and ticketing is very different than tax on software. Tax thresholds vary by states. Is this thing on? Yesterday's price is not today's price.

1:15Hey, are you liking this show right now? Do us a favor and we'll do you a favor. Share a link to the show on Apple or Spotify with your team at work. Drop it in a Slack or God bless you if you have to use Teams, throw it in there too. But send a picture of you dropping the link in to Ben at MostlyMetrics.com. That is Ben at MostlyMetrics.com, our creative dictator will hook you up with some Run the Numbers swag. Welcome back to Run the Numbers, the show where I interviewed the world's top CFOs, finance leaders, and subject matter experts. We got some smart people on this show. I'm amazed. Today, I'm talking to Wissam Hrizala, head of product at Stripe Billing.

1:54If you're a nerd for pricing and monetization, Christmas came early. Woo-woo! Seriously, this is the most subject matter dense episode on a specific topic I have ever done. We walk through all the layers of the quote-to-cash process, breaking down product packaging and pricing, quoting, contracting, billing, provisioning, tax collections, and rev rec. This was seriously the most fun I have ever had tracing the full journey of a dollar from a quote-to-cash in your bank account. Please subscribe to our show. It helps us with the algorithmic overlords. Let's get into the interview with Wissam. Wissam, thank you so much for coming on the show.

2:32You're welcome, CJ. It's nice to see you again. I'm excited to be here. You're a true renaissance woman, I got to say, because you've worked in pricing, product marketing, restructuring, investing, and now you're the queen of billing. So what's the common thread here? What problem have you actually been studying your entire career? You know, you're the first person who's called me the queen of billing. I feel like I'm going to start using this as my moniker. I have done a lot of things in my career. You know, growing up, my dad was absolutely obsessed with the stock market. And he would always talk to me about companies.

3:05And it got me really interested in why are some companies successful and why are some companies not so successful? And I just became so interested in the problem of revenue growth. So much so that I went and I measured in finance and accounting, you know, went and worked on Wall Street for a while in a variety of like of disciplines. So I think the problem that's been very common across every single role that I've had has been revenue growth. Like, how do you grow revenue? I'm like, how do you do it across all the vectors of getting product market fit, changing your pricing and packaging, optimizing your pricing and packaging, creating the right sales plays, creating the right commercial constructs for your sales team?

3:50So for me, it's like, you know, it's been the chasing of growth of revenue. I've been a CFO and finance professional in multiple sectors. And it's funny because if you ask any customer, no matter what you're selling them, like, what's your number one need? What would you like the most if we could do anything for you? Every one of them just is like more sales, more revenue. Every function in the company, irrespective of its title, really needs to be thinking about. If you look at the most optimized companies in the world, there are companies where every function, irrespective of where it sits, like really thinks about like the accountability of revenue growth.

4:26An example I dealt with recently where like the legal team was being enormously accountable on making sure that an agreement was super well structured so we could get paid faster and that all the boxes were ticks and tied around like, do we have the right bank account? Do we have the right signatory? Right. And it's like, gosh, like this is like a lawyer who's actually driving revenue growth. I love to see that. Shout out to all the lawyers not slowing down for camera cycles. There you go. Seriously. Maybe somewhat uncommon. Right. Now in your current position, you're the head of billing at Stripe.

4:58What what does that position entail? It feels like there's a lot there. The head of product for billing effectively owns the the business outcomes for the product. So what that means is I own the revenue outcomes, I own the activation outcomes, I own resolving the user escalations, and everything that I do from a bigger picture perspective has to ladder up to that. So for example, I'm obviously accountable for setting the right product strategy, building the right prioritization matrix on what do we build when and why, what do we trade off. So, you know, the day-to-day is really about turning the company strategy into decisions that drive growth for the business.

5:38I love that. And I was so excited to speak with you today because we're both nerds when it comes to quote-to-cash. When we first met, I was like, this is somebody that sees me on something that is like so nerdy. And quote-to-cash, it's a loaded term. If somebody walked up to you at a conference and said, I hear quote-to-cash all the time, but like, honestly, I have no idea what it means. How do you explain it to them? What's a clean explanation? I've used this definition before and some people are like, you've dumbed it down too much. But like for me, honestly, it is taking your pricing page or that secret spreadsheet or doc that you have with all of your pricing and turning that into money.

6:17The reason that I use this definition is I think a lot of people think that quote to cash starts with quote, which it sort of does. It actually starts a little bit before that, right? It has to start with you making sure that all the things that go on the quote can actually be transacted, right? And can actually turn into recognized revenue and can actually turn into collective payment. So I'm going to ask you to go through each layer with me, make me smarter here. But before we dive into that, is Quote Cash a finance process? Is it a sales process, an ops process, or is it a product process? If I have to go take like the most global definition and I have to pick one, I think it is fundamentally an operational process that necessarily has to have very heavy finance ownership because there is this layer of like, hey, you do actually have to get the money in the bank and the reconciliation process and revereck and all those downstream processes.

7:13In a tech company, right, and particularly a tech company, and, you know, maybe like every company is now becoming a software company or a tech company, it is increasingly becoming a product problem because pricing and packaging necessarily, just given everything that's happening in the world, which I'm sure we're going to get to, sits with the product team, right? Your pricing and packaging is a manifestation of your product strategy and having all of that go downstream into how that turns into money for the company. I remember my friend Kunal, CFO of Gorgeous. He described it as the manifestation of your company's business model.

7:49I very much agree with that. So the first layer, I'm hoping you can illuminate for me, but I look at it as product packaging and pricing. I think that's right. That's the first thing that has to happen. I mean, you know, people have to invent the thing that's packaged and priced. But yeah, the first thing that has to happen is product packaging and pricing. I think that's right. Most people think quote to cash starts with a sales rep creating a quote. I think it starts with somebody deciding how a product gets packaged and priced. So what are the biggest pricing mistakes you think that companies make as they scale?

8:19The first problem is usually underpricing. And what I mean by that, like every business I reflect on that I've worked on in my career and every time I've shown up to a business, there has historically been a large volume of users that are either not monetized at all or monetized incorrectly. It's really interesting when new people show up and they're like, hey, like, do you guys know that only 80 % of your base is paying you? And everybody's like, well, yes, we can never charge those other 20%. It's like, well, really? Are you sure you can never charge them? Look, you know, repricings are not fine and they're very hard, but they're also like material revenue generators for any company.

8:56Another problem that I see really common, which is also hard to solve, is I call it one size fits all pricing. Right. It's like you go and you develop a product and you're really excited about your product. And over time, your product market fit grows. Right. And you discover so much more use cases about your product and you have so many new personas that you probably did not expect flood into your product. And your product development lifecycle many times will continue, but your pricing will often not keep pace. Right. So you will now have this one size fits all pricing that you're trying to apply to all these different use cases.

9:33And it's typically not very aligned to how your users derive value. That results in you not being able to grow your product as much as you'd like to. And then I think maybe like my third and this is maybe my favorite one because I'm a very process oriented person. As your company scales, you have to have ownership and processes around pricing. Like pricing and packaging cannot be a free-for-all at the company. Because if it is a free-for-all at the company, you're going to have inconsistent discounting rules. You're going to have skew perforation. Your sales team's not going to know what to sell when.

10:11You're going to be under-optimized on these things that we just talked about. So like really giving the function of pricing and packaging structure, ownership and processes as you scale is a really big difference maker. Hey, thanks for listening. We'll be right back after a word from our sponsors. Today's episode is brought to you by Anrock, the sales tax platform behind companies like Anthropic, Notion and Vanta. Here's a fun way to totally ruin a Tuesday. Open a letter from a state you've never set foot in telling you that you owe back taxes you didn't know existed. Happened to me. Because the rules never stop moving.

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11:30We're seeing usage-based pricing, hybrid contracts, and something called a credit. The finance systems built for vanilla subscriptions weren't designed for this. This isn't just a rev rec problem anymore, because outdated revenue architecture can kill a great pricing idea before it ever reaches the market. RightRev lets you recognize revenue in whatever shape it comes in. Whether you're launching consumption credits or testing entirely new commercial models, RightRev gives finance the flexibility to support whatever pricing model comes next. So product teams can keep on innovating, and finance teams can keep pace.

12:03If you're architecting revenue for the AI economy, learn how RightRev can help. Visit rightrev.com slash CJ. That's me. That's rightrev.com slash CJ. Hey, founders and finance folks, you know how early on everything is fast and scrappy and then suddenly equity gets messy? Spreadsheets break, grant docs pile up, lawyers are sending new forms and collecting fees. It all shows up right about when you're already swamped. Well, if managing your cap table feels like one more frustrating thing on a very long to do list, you need to know about Pulley. Pulley makes equity management simple and stress-free.

12:40You can issue options, model dilution, complete 409As, and more. All in one place with support from real experts when you need it. So if you're raising, hiring, or scaling, Pulley keeps your cap table clean so you can stay focused on building. Not wrangling spreadsheets. Learn more, request a demo at pulley.com. slash mostlymetrics. That is P-U-L-L-E-Y dot com slash mostlymetrics. I think in the background of all of this is when to change your pricing. And I think historically, pricing decisions or refreshes happened annually, maybe quarterly if you're really up on it. Do you see a future where pricing actually becomes continuously optimized?

13:19I'm seeing it more in the AI natives, I will say. There are some studies that say that those companies are changing prices more than three times a year. And when you think about it, like that is somewhat unsurprising because no one has aligned on like, this is the canonical pricing. The innovation curve is moving very quickly. The cost implications of AI are very high. The user behavior is changing very rapidly. So I do think as every company becomes an AI company, right, because that is the innovation imperative, you are going to have to be a lot more innovative in your pricing, but it's actually pretty hard problems because your systems and your people are often the things that are in the way, right?

14:00It's like, it's not hard for people to get into a conference room and say like, oh, we're changing our pricing. It's like, okay, well, can we actually change our pricing where our customer observes a different price? Do our contracts allow it? So I think there's a tremendous amount of change management that has to be ingested as well. My friend, Kyle Poyer, he's a pricing and go-to-market expert. He's doing consulting work for this AI native company. And I think on the call, he suggested they change something about their pricing and they literally changed it with some live while he was there. He's like, whoa, whoa, you're doing it now?

14:29Can like a 50-year-old company that really needs to change its pricing at this point, like do that? Those companies are in such a privileged position. I hope they realize what a privileged position they're in where they don't have the baggage of like legacy contracts and they have like really like, you know, state-of-the-art systems. Like it's an awesome position to be in. What pricing models are getting more popular because of AI? We actually met originally because Scott Woody, friend of the pod from Metronome, I know that you're now partnered after acquiring them. What pricing models are you seeing get ramped up?

14:59Yeah, certainly not seat-based. Certainly not seat-based. The most popular pricing models that we are seeing are basically hybrids of usage and recurring. A lot of folks are gravitating to this notion of like, look, everybody still loves recurring revenue, but they're trying to marry recurring revenue with this notion of, you know, entitlements and giving customers, at least like particularly for more consumer and prosumer SKUs, where there's like a lot less tolerance to variability. So this notion of like, okay, I'm selling a thing that costs a lot, it has a lot of value, and it has a value, you know, a value chain where like, hey, I can't give you unlimited usage of the thing that you're doing.

15:40So we're seeing a lot, at least in consumer and prosumer, we're seeing a lot of these, we call them hybrid models, which it's like, For example, you see it with like with Claude, you see it with like with OpenAI, where it's like, hey, it's X dollars per month and you're entitled to this usage. And then you can go over in a variable manner. Those are extremely popular in that segment. And then the other pricing model we're seeing that's extremely popular is call it credits with auto top up. So you'll basically buy a pool of credits and it entitles you to some amount of usage. The thing that people like about it is this notion of you are automatically topped up.

16:14Right. So you can go in, you can say, well, look, I'm going to use these thousand credits. And when I use them, I can then top them up automatically. And a lot of discussion about these credits, I think, at least in the enterprise context, is like, at what level are these credits pooled? Are they pooled at the WISOM team level where one person can just suck them up? Or are they pooled at the individual level where we can understand more about like, hey, like these kinds of functions only need a thousand credits. These kinds of functions need, you know, 100 ,000 credits. So I think that's been a very interesting discussion that we've been having as well.

16:49This might be kind of a meta question. I know a lot of these pricing changes have come about because of AI, but does AI help with some of these pricing changes in any way? I think it does. You know, like one thing that I think is an enormous value prop of AI is that it allows us to pressure test our thinking a lot faster than we used to before. Whenever you want to do like a pricing change, like sometimes like different cohorts in your existing price book are impacted differently. And in a world before AI, right, like doing that cohort analysis and segmenting the right cohort and isolating the change, it's actually like very toilsome for data science team, very toilsome for a product team.

17:36Like, you know, people are struggling to write the right SQL query to identify the right people and then modeling the impact. And I just find that that rote analytical work has gotten so much faster. So we can have, at least we have so much more information and we can pressure test our thinking a lot easier on pricing changes. I think A-B testing has gotten a little bit easier with the power of AI. So yeah, I think it's like a good human companion. AI has been a good human companion for very analytical people to just speed up that loop. Well, we could do an entire series on pricing, but I do want to move on to what I'm calling layer two here.

18:14So this is quoting. What actually happens under the hood when a salesperson generates a quote? I'll go through like maybe like a summary version. So when you generate a quote, right, like the first thing that the quote has to do is it has to go and summarize all of the billable items that the salesperson, for example, agreed with the user. Right. And if you think about the world that we're living in now, it is no longer a world of like, just pay me one hundred thousand dollars at the end of the month. Right. There's usually a setup fee, a usage fee, X, Y, Z fee. So we have to go and create all of these billable items, which are variable in nature in terms of the time that they're built and when they are built.

18:48Right. And then, of course, we have to then go generate the invoice. Right. And tax is a fully complicated bottle of wax. Right. Around like, what are you selling? Where did you sell it? Right. Like there's a lot of like implications about generating the right tax on the invoice. How are we going to collect the payment on this? Is it an ACH? Is it card? Is it bank payment? That's actually not the hard part, to be honest. Like the second hard part is like, how are you going to think about, gosh, like handling the exceptions right around like, hey, I want a refund. Actually, how's proration going to behave?

19:19And then all that data needs to go and be sent to finance and finance, of course, needs to be able to count the money and reconcile the money. And it gets really complicated when you get to the enterprise level. What would you say is like the long pole in the tent that just makes it such a cluster? There's a lot of complexity on pricing in an enterprise structure, particularly since like, you know, when you are a large enterprise, you have a lot of negotiating power and you're going to get like a multi-product deal that confers like a special discount. So we'll take all of those things that are like maybe like the basic complexifiers.

19:52But then there's like even like more complicated things that are around. Hey, I'm a big enterprise and I'm going to get a special SLA from you. And because I have a special SLA from you, if you are ever down more than 10 minutes a month, you need to pay me. You need to refund me X. There are enterprise agreements that will have like most favored nations clauses where it's like, OK, like we're going to we're doing this deal. You are getting extremely preferential pricing. But because of that, we have a most favored nation clause. And, you know, if you'd like to go negotiate with another vendor, there are certain things that need to happen.

20:27There might be price caps or usage in our price can never go above this. So these are things in enterprises that just make that relationship like so much more complicated. it honestly has a lot of downstream impacts on the billing system and then the humans that actually have to go and operationalize these motions. Yeah, it's pretty rare where you have like this five page list, like the bomb, the bill of materials or whatever you're getting in this quote. And then at the end, they're like, and to make it easy, we're just going to 20 % off. It used to a long time ago. I think it used to. I have seen, I don't want to age myself, right?

21:00But like if I was like the first enterprise invoice that I saw early in my career literally said, we sold, you know, 100 seats and$100. You got 30 % off. The world's changed a lot since then. Hey, thanks for listening. We'll be right back after a word from our sponsors. I got news for you. The ERP category is finally getting disrupted. And if you haven't heard of it yet, please pay attention. It's the AI native ERP built specifically to replace NetSuite. And it's already won over hundreds of finance teams. Their mission is to make the zero day close a reality and they're actually doing it. We're talking teams closing the books at 1 35 p.m.

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22:16That's me. Max and more, get your Max and more here. Sorry, I just came from selling Cracker Jacks at the ballpark. Everyone in finance is adopting AI right now. The problem? It's a dozen disconnected tools. Yeah, one for revenue, one for AP, one for the close, and each one needs training and documentation. And the expertise to run them lives in your head, not the systems. Maximor takes the opposite approach. One autonomous finance platform for the whole operation. Order to cash, procure to pay, the close, cash management, and reporting. It all runs on a unified finance context that pulls from your ERP, billing, banks, even email and slack no rip and replace Maximo runs on self-learning agents that learn how your team already works no prompts to wire no workflows to build nothing to document every output is audit ready and when a call needs human judgment it escalates for review because the agents optimize not just execute and your kpis keep on improving one pe-backed customer posted 98 of transactions straight to their ERP, no error rate.

23:23The other 2 % go to a human before posting. You pay only for real outcomes, not seats. See it at Maximor.ai. That is M-A-X-I-M-O-R.ai. Listen, I'm no mathematician, although that is what my mother-in-law tells people I do for work. My son-in-law is CJ. He's a mathematician. If your finance team expands linearly with your headcount, your leverage is broken. Too many CFOs wasting credible talent on low value maintenance, manual reconciliation, chasing missing receipts, and policing$30 software subscriptions. It's the expense police, run! That's a systems problem. And that's why you need Brex. Brex is an intelligent finance platform powered by AI workflows that handle the heavy lifting automatically, which is a fancy word for without you.

24:13Instead of burning elite finance minds on administrative maintenance, Brex gives your team the leverage to focus on momentum and growth. Thousands of companies, including Anthropic, Coinbase, and DoorDash, already run on Brex. Stop asking your A-level finance talent to do B-level admin work. It's time to get Brex. Head to brex.com slash metrics. That is brex.com slash metrics. That's quoting. I want to move on to contracting here. What information in a contract eventually drives billing downstream? dream. Really, when I think about contracts, like the core here to really boil it down to the core, what a contract has to say is, what are we billing?

24:53When are we billing it? Who are we billing it to? And then under what rules? Like if you were to really, really sum it up, like that's the deal. And the hardest part is under what rules. You know, the what to bill, the when to bill, who to bill, pretty well contained. You're kind of like easily reasoned to those. Under what rules are pretty big category, right? Which is like proration, refunds, other exceptions. That was so concise. I can't believe you got this complicated topic into that packet. I've been thinking about it a lot. How often do finance teams discover that what was sold isn't actually billable?

25:29It's like the worst feeling in the world. Asking for a friend. I generally think, by the way, that a best practice when you generate a contract is before the contract is off for signatory, is that someone has to go and generate the next month's invoice. If you were to ask me for like hot life tip, this is like my hot life tip. Because unfortunately, that is typically the moment when people discover that we cannot collect. This is a pretty sad story, but I've seen many times where we sign the contract, everyone in sales is celebrating, the finance team is really excited. They're starting to put entries in spreadsheets and ledgers.

26:12Okay, the first invoices due in whatever 90 days six months whatever it is pick your poison the date comes people generate the invoice and someone's like wait this pricing model is unsupported or i don't have the right bank account and now we're like doing all of these things where someone has to you know do a manual human intervention that moment of truth is the invoice so that's and that's typically like the first moment of discovery is oh wait oh can't generate an invoice can't And you know, of all the moments, like maybe that's like the best moment because many times you can set up a human intervention where someone can just do something very painful and manual.

26:52The next moment I see is when the reconciliation breaks, where it's like, hey, someone says like, well, OK, like I got this contract. I looked at the contract. I'm going to go book a million. And then the check comes in. It's like, well, why is the check only for two hundred thousand? Maybe the third thing I see happen is that there is a dispute. The customer disputes. what we built them, right? Like it's like we build you acts on the sort of related topic. But those are, I think those are the most common things that I see. Well, we've finally arrived at billing. Finally. 10 years ago, the dream business model was simple.

27:27You just charge like 99 bucks per month, call it a day. This is why we can't have nice things. So today, every SaaS company seems to have seats, usage, credits, overages, platform fees, AI consumption, and enterprise commitments. So first question is like, just what happened? The proxy for value has changed. It used to be seats were a really good proxy for value. If you think about a world where you're just even using your favorite AI software, you could charge one user$20 a month and they could run five prompts in that month and they're doing something very simple. You could charge another user the same exact thing,$20 a month, and that user could go run hundreds of thousands of prompts and effectively eliminate or change the workflow of a very large team.

28:21So think about the value realized between those two people. It's very, very different. They both paid the same price, right? And then the company that's offering this AI service incurred a very different cost profile for user one that ran five prompts versus user two that ran hundreds and thousands of prompts. So the unit of work is no longer a human. A pricing that's anchored to a human necessarily cannot work anymore. I love that. If you take a step back, how has billing evolved? What was the progression? A long time ago, billing used to be quite simple, right? It used to be that it's like, hey, it's like it's just a back office function, usually attached to the ERP.

29:07And it's like, hey, like$100 ,000 a year, send invoice. It was in the ERP. This is probably a little bit longer than 10 years ago. It's like 15 years ago before the rise of subscriptions, right? Like most software was sold on a perpetual licensing basis. Just pay me$100 ,000 and here's your thing and enjoy, right? The first thing that happened is that we got into this mode of recurring subscriptions. And recurring subscriptions brought like some pricing model complexity with them where it's like, hey, we have these complex like paid trials. We want to pre-bill people in advance. And as subscriptions became more of a thing that was very close to the product, the monetization stack started moving out of the ERP and started basically 3P billing providers like Stripe Billing, like Zora, like ChargeBees were created to really go monetize this wave of B2C subscriptions.

29:55Right. And then the wave that's been happening the last like maybe like three years or so has been around usage based billing. And usage based billing is like attached to the product. Real time metering is ingestion. Right. So then it's just really very much of a product concern. And it touches so many functions around product, engineering, rev ops, finance, everybody else. You brought up usage. It does sound great in theory. Customers only pay for what they use. But why is that so complex? If you contrast maybe usage with a subscription, a subscription literally has two things. It has a P and a Q.

30:28And sometimes it's like, what is the thing that you're selling? It's like the price, right? And how many subscriptions are you selling? that's basically your revenue and that's all good. So now if you think about usage for a moment it's also a P and a Q but getting to the P and the Q is very complicated. If you think about the first thing of metering right metering sounds like oh like well I'm just metering a few things like how hard that can be. It is very hard to meter like first of all what are you metering like do you know what you're metering do you want to meter the number of API calls do you want to create a custom unit to meter?

31:02Like what is the aggregation of that custom unit? What granularity are you metering? Are you metering by the minute? Are you like, well, you have to make a lot of decisions on metering. And then you are typically metering a really massive amount of data, which, you know, comes with a lot of, you know, pressure on creating pipelines that can go in just like this level of data. And then when you think about, okay, so maybe you've transcended the metering, you figured out what to meter, you figured out what granularity and what timeline, Your pricing logic is quite hard to reason over, right? So if you think about a classic subscription, a classic subscription is like, oh, well, we'll bill$20 a month for the first year and then we'll ramp you up to$50 off of that and that's all great.

31:42Well, that's actually not how usage-based billing works. Like usage-based billing will typically say, okay, you have 100 included credits and then your next thousand credits are at$3 and then the next thousand after that, we're gonna give you a discount. You first have to minimum commit to 5 ,000 credits before we give you that, right? And by the way, if you ever breach this threshold, we're going to cut you off because we're worried that you're not going to pay us. So a lot more complexity on getting to what we call rated usage, right? So you've counted all your usage correctly and now you've rated it to get the price.

32:17And then once you get to the revenue story, your finance folks actually have a pretty meaningful reconciliation challenge, right? Because like, hey, sometimes there's late arriving usage. It's like, well, like our metering pipeline, like, you know, like didn't count everything. And we just, of course, that always happens before the quarter cutoff. What do we do with the late arriving usage? How do we count it? So it's really like a real time data problem, right? And a real time pricing problem versus just being what I think about with subscriptions, sometimes just mostly an invoicing problem. What does a company need to get right architecturally before they can even think about usage based pricing?

32:53Yeah, I like that you're asking this question because it has a nice recognition, by the way, that there's a meaningful architectural investment that you have to make with usage-based billing. It's not like a simple thing. You could YOLO away. You're going to have to meter and you're going to have to count something, right? So the things that you're counting, right, we call them product events. People call them, give them different names. So typically events, I think is a pretty common name. That you need to ensure that the product that you built can actually emit those events that you want to count.

33:22On day zero, as you're building your product, you have to have your monetization model in mind, right? Because your product needs to emit the right events, right? In a way that those events can be tagged and those events can be understood and those events can be ID'd. They can then be metered, right? Which is taking these raw events and turning them into usage records. Then they can be rated, right, which is like turning them into dollars. So are you building your rating engine? Are you going to use a third-party rating engine? Are you building your own metering engine? Are you going to use a third-party rating engine?

33:53You're definitely responsible for emitting your product events. Before billing, we actually still have to think about entitlements, right? Are you building your own entitlement system? Entitlements being like, what do I have access to? What do I not? Then we've got billing, which is turning basically your rating charges into invoices. And then finally thinking about, you know, making sure that your billing system can flow down into your finance system so you can prove we sold this usage, we turn this usage into billable usage, and that's actually revenue. And we agree with all parts of the equation.

34:24There's not usage that leaked somewhere. There's not usage that was stolen somewhere. So you need to think about that change of that chain of events, metering, grading, entitlements, billing, and finance, and then figure out like, well, these are the portions that I really want to own in-house. I'd really like a third party to do all of this for me. And setting up that architecture, making sure that the product that you built can emit the right events with the right pricing model, right revenue growth profile that you want is just very critically important. Let's say I'm building an AI company.

34:52I'm curious what counts as usage because everybody's talking about tokens, tokens, tokens, tokens. Are tokens just really like a proxy for something though? If you like rewind like back to the days of like the public cloud, everyone decided that they were going to meter on a virtual core per minute. As granularity increased, it was basically like a virtual core per second. And that was an easier problem because people were just trying to proxy on-premise workloads to the cloud, right? So what I like about tokens is that tokens can be just a common currency across AI workloads, but they can be worth different things depending on the workload.

35:30It's like multi-currency almost. You could have British pound, you could have US dollar. I don't think of it almost as like British pounds and U.S. dollars. I sort of think of it with a little bit of a different analogy. It's like the same water bottle that you are buying at a grocery store versus, I don't know, in front of your favorite World Cup stadium, right? Costs more in front of the World Cup stadium, right? Because like, it's more valuable in that context, right? You're really thirsty. There's no other water. They're not letting water in, whatever they're doing over there. The thing with tokens is we can say, well, gosh, like an output token is always worth more than an input token, right?

36:06Because it performs a certain function that we all believe is valuable, right? Or vice versa. So I would think of it more of like we're creating value buckets on tokens. It's like, well, all these kinds of tokens are always worth more because they're more special and they cost more versus these. What I like about having one currency of tokens is that if everybody norms on tokens, then you can compare vendors a lot more easily. So it simplifies the buying cycle. It's like, well, all of you guys are selling output tokens. Like, why is this output token more expensive? And then people have to explain.

36:39I think it's still early days, but at least like from the last big usage-based billing wave, which was public cloud, this is exactly what happened. where there was a few units that were selected and people basically baselined on these units and sometimes were more expensive, some were below, and people explained why. You mentioned earlier that billing was in many ways a module within the ERP and it was very much back office. Today, it feels like it's not only a finance system, but part of the product. Is that true? Partially. I think the modules that are leaving the ERP are the modules that need flexibility or more product awareness.

37:21I do not believe that the ERP is going to be replaced. I just think that the ERP is getting unbundled because it is a batch system and there are some systems that are very monetization facing that need to be real time because of everything that we talked about, you know, with usage-based billing and entitlements. This hasn't happened yet, right? But like, I think like CPQ is going to get unbundled from like the CRM and the ERP. I think that has necessarily has to move, right? This is not a really good fit CPQ for usage-based billing or hybrid billing. Revenue recognition is going to completely move out of the ERP that's already started.

38:00accounts receivable automation, like particularly with AI, like being able to just automate the really rote tasks of AR automation, which is like, oh, the invoice number is like not correct. Like, let's fix that. We can collect. And entitlement. I think all that stuff's going to move out of the ERP. It feels like the ERP is becoming a system of record while billing is becoming more of the operational layer or more of an orchestration layer. Is that true? I don't see a world where like there's a general ledger that lives outside of the ERP. Like not soon. Never say never. Right. But I think the general ledger continues to be in the ERP.

38:35The account in close is is just I struggle to see that coming out of the ERP like that is a very ERP first function. But these functions that need to move at more product speed, I think those functions necessarily have to move to the billing system. Is there any part of the billing process you think that creates the most tension between a CFO and a CPO? Particularly like in this moment that we're in, it feels like monetization is like more topical than ever. I think CFOs want to move faster than what CPOs are able to move, right? Because of all the CPOs and engineering teams, because of all the complexity that we talked about before, right?

39:18it is actually like a really hard technology problem to be able to own the entire end-to-end chain of like product events all the way down to billing, including getting everything right in the middle on entitlements. Whenever a CFO is like really eager to go light up a net new pricing model, like I think there's like a little bit of tension around like, well, okay, like the billing system can only do these three things and we have to write some glue code to do these two things. And then we can get out in the next three months in this new pricing or one month or whatever it is. I think there's a tension around like velocity.

39:48Everybody wants to move much faster on pricing, but systems are tough here. I had this as my fifth layer, but maybe I should have put it before billing and that's provisioning and entitlements. What's going on here? Because I think a lot of people forget that after somebody buys, you actually have to give them access to something. Why is entitlement management such a big deal? If you like rewind back, you know, to the old world of, hey, I don't know, I'm giving you access to Microsoft Word. Like, well, like I'm giving you access to the whole thing. Like there are paywalls and like Microsoft Word, but they're not like entitlements in, in like a really modern sense.

40:24There's a restriction on certain models, right? It's like, you guys cannot have this model and I need to be able to turn off model access to you. Like in a moment's notice, Hey, look, like I want to quickly deprecate models, right? Where it's like, look, I just want you to just be an opus. I'm like, that's it. Usage caps used to be, used to be actually quite rare. It was not super common even three years ago to say you could only do a thing five times before I block you, right? Like that is now a very common thing. Revenue leakage is so expensive when you get these things wrong. You're a nerd too.

41:01So I love Monarch for managing like my finances. I just added it three months ago. Have you used the Monarch MCP connection Yeah. No, I didn't know I could do that. So if you use the Monarch MCP connection and you're in the basic plan, I'm in the basic plan. They did the right thing from a pricing strategy perspective where they I think they blocked you basically on five rights. So it's like you can't go in and like change like more than five categories or anything like that. Absolutely brilliant for a pricing strategy. It creates an upsell into their next SKU because if you go into their next SKU, you get like a lot more rights and it's a lot more useful to you.

41:36I'll tell you when you try this, you will want to upgrade to the next SKU. What's illuminating is that entitlements when done the right way, it's not as much a permission thing, but it's a mechanism for upsell and revenue generation. Exactly. Right. And it's a mechanism to stop accidental leakage. Imagine if they had just said, OK, so everybody gets MCP access, unlimited reads and rights. Like it would have cost like particularly for crazy people like me. It would have cost them a million dollars. Yeah. My hot tip to you, CJ, is you should go try this and send me a note afterwards and let me know what you think about it.

42:07I'm about to figure out why we're spending so much at Equinox on child care. Layer six, tax. So everything we've talked about so far, usage-based pricing, hybrid pricing, having global customers and these crazy enterprise commitments, it does sound like a billing problem. But my understanding is that every one of those decisions also creates a tax consequence. At what point does billing complexity actually become tax complexity? Anyone who is selling anything other than one SKU and one geography really needs to think super hard about tax. Like if you look in even in the U.S., there are so many interesting tax permutations like, you know, like like tax on events and ticketing is very different than tax on software.

42:55Right. Tax thresholds vary by states. It is a really hard problem that I think people are tempted to ignore. It is exactly like RevRec. It is a compliance obligation that you have to stay on top of that is just very fundamental to your business. As you're thinking about usage-based billing, like, you know, you're emitting events and like making sure that those events are like being captured by a metering system. You need to make sure for everything that you sell that you have a tax system that has the right PTC codes, can charge the right tax, can grow with you as your strategy, and And then handles the entirety of the tax life cycle.

43:29Right. Like just like billing tax has a life cycle. You have to register. You have to then calculate. You have to file. You have to remit. People think that tax is something that happens after a transaction. I've been so guilty of this before. Should tax be embedded in the transaction design itself? When you do a contract, like generate the invoice and make sure that the invoice is right. Guess what's on the invoice? Tax. Yeah. Is your tax like multiple line items? Like should it be? Can your invoice ingest these multiple tax line items? Is your invoice compliant for the way that taxes have to be rendered?

44:02Right. Like in many geographies, you have to very precisely render like the tax rate and how it was calculated. Otherwise, your invoice is not compliant. So I think this is a very important concern for people to get ahead of, particularly as your enterprise gets larger when you're transacting in multiple geographies. All right. So good news. We're getting paid. We're at layer seven. So it's a good day. It's Friday. It's payday. Why is getting paid more complicated than you think? Getting paid has a lot of humans. It has a lot of humans in the loop. This is like back to the very painful thing that we talked about before.

44:37A lot of time, the invoice cannot be set up. Maybe we did all the right things. Like we have the right pricing model. We've onboarded the right pricing model. We generated the invoice. Then we send the invoice and then it goes into a black hole. And someone has to go chase for a while. And a really common thing that I heard was like, oh, actually, this invoice is not attached to the right legal entity. I think collections is another thing that folks neglect. Your contract will have the terms, right, whether they're net 60, whatever they are. Customers pay slowly unless you have a very mature collections department.

45:12And if you are willing to also enforce the penalties on collection, right, which a lot of folks are not willing to. Not many actually do. Yeah, not many actually do it, which, you know, everyone is trying to run the best cash conversion cycle. Right. And like, what does that mean? Like, you're not the only one. Everyone's playing the same game here, right? Collections right now is treated as very much of a back office function. At least the more that I look at collections, this feels to me like very ripe for AI disruption. There's a lot of stuff on collections where it's literally a human who has to parse through an inbox.

45:52Some other human got an email with an invoice. They're actually willing to pay sometimes, but they're like, hey, like I can't transmit to your bank account details. I tried to pay you. And, you know, that human is just like going down the queue. And maybe they get to it when they get to it. It's the same thing that happens with like customer support, right? Where an AI agent can triage these like more simple things like very quickly where it's like, okay, it's actually a very simple concern. We had an error. We didn't give them the right bank account, right? Let's send back the right bank account.

46:22Like that could speed up your collection lifecycle. There are some people that are deliberately just trying not to pay you, but there's actually many people that do want to pay you, but they cannot pay you for a pretty simple reason, right? It's like the invoice number is wrong. You misspelled something. Feels very ripe for automation from my perspective. What's the most common reason a company can report strong revenue growth, but simultaneously just be having a total finance headache? This like last mile of how are we getting paid? Only invoicing, I don't know, like via QuickBooks and our invoices are going into a black hole.

46:57A shared inbox that nobody checks and we have no idea how to reach the user. Believe it or not, like sometimes people will negotiate contract terms that actually do not have provisions on how long you can take to pay. Failed payments is actually a pretty big problem. There's a lot of like technology that tries to go recover like this like involuntary churn around like ML retries or updating cards. But that's like much harder when like, you know, it's not a card based payment. And then look, I do think there's also like the human will of actually treating collection as like a discipline of the process.

47:37It's like we cannot sign contracts without having building the muscle organizationally to also make sure that we collect, right? Like I see a lot of contracts that are signed with like, oh, we signed a contract with an XYZ minimum fee commitment. And it's like, well, the customer hasn't used any of the product and we're sending them an invoice for their minimum fee commitment. It's like, well, if we're going to sign contracts that are about usage, then we need to have, you know, sellers that are actually driving usage of the product. Because then we can have a much easier conversation with the user, which is like, look, you've used the product, you've derived value, you're in your minimum fee commitment.

48:11Can you pay us? Like versus having a conversation of like, oh, well, it's shelfware, but you still owe us money. You've been such a good sport. We've made it to layer eight. I think this is the end of the loop here. So RevRack, we've quoted the deal. We've signed the contract. we've provisioned the product, we've billed the customer, we've calculated tax, and we've collected the cash. Most people would assume we're done. But from an accounting perspective, we're almost at the moment of truth. When do we actually get to recognize the revenue? Ideally, you have a plan to recognize the revenue. Look, if you're actually in a subscriptions world, your life is pretty easy.

48:44You could probably honestly even do it in a spreadsheet where you are just amortizing based on the contract term. It's a little trickier with usage-based because the revenue is variable, your deferred revenue is shrinking, your forecasting signal is a little bit higher. And like one of the bigger complexities around where do you cut off your accrual, right, with late arriving usage and metering collection. So there are some judgment calls there from an accounting perspective. So like my coaching on this one is if you have a simple or simpler subscription product, you could actually automate this and have like a really pretty good process around like what's deferred, what's recognized, let's go.

49:21With the usage-based billing, there is some value of people stepping back and having a plan around like writing down all the things that could go wrong with usage-based billing and then having a policy around this is how we treat fraudulent usage, late arriving usage, and making sure that that policy is compliant with the revenue rules. I think that's something that's worth stepping back on and thinking about. What happens to RevRec when companies move from simple subscriptions to usage like you mentioned? Usage and consumption models definitely throw a wrench in this. What's the long pole in the tent for that?

49:54Consumption models generally, right, you are basically now instead of having the world of I signed a$100 ,000 contract that is over 12 months, I will amortize that revenue evenly. You now live in a world where you don't know when revenue is coming in. That revenue is variable and it might be bursty and it might be spiky. There might be hiccups in that flow that we talked about with product events where you actually maybe were emitting product events and something happened where you didn't rate them or there was leakage. So there's a lot more opportunities for leakage in the flow. So when it comes to like what is the equation of the value that you delivered versus the revenue that you recognize, it's much harder to go figure that out.

50:42Gearing towards a close here, we spent the last hour following a dollar through a company. The thing that I keep coming back to with some is how often we kept talking about billing. So when did billing stop being a back office function? Billing stopped being a back office function when pricing became a product function. I think pricing is now like necessarily a product function. It's not a function that you outsource to your finance team or your marketing team. It is just so core. If you riff back to our Monarch example, is someone who sits away from the product team going to know giving someone unlimited reads and writes on the MCP is going to tank the company's costs?

51:23in an environment where like these pricing and packaging decisions of literally the future of the company and the future of revenue growth, having a company have to necessarily sit with the product team. And then the billing systems that support them have to move at the speed of the product team, which, you know, in the world that we're living, everybody's, I feel like, running at unbelievable velocity. This has been a great interview so far. I want to pop over to our next segment. It's called Asking Better Questions. And this is brought to you by Our friends at EY. I love questions. I hope they're better.

51:57All right. First one I got for you. I hear you're a big fan of the Eisenhower Matrix, which warmed my heart because I love it too. But you don't just use it for work. I hear you also apply it to life. Tell me about some fun applications. I apply it to my Netflix cube. I travel a lot for work. And I've done this like self-care moment where I no longer work on the plane and I only like watch Netflix. So for me to stay relevant in conversations. I also am using it for the World Cup, actually. Like what matches I must tune into. With AI, do you think humans are becoming more or less important when it comes to finance, accounting, forecasting, and pricing?

52:33You're kind of at the center of all of it. I don't believe that AI is going to take jobs. Maybe it will in the short term. But when I reflect on all the jobs that I've had, I don't know, most fondly, like when I worked in restructuring, We used to spend so much time, like literally pull all nighters on the work of reconciliation and transaction matching. And we weren't doing that for fun. Right. We were doing that because we wanted to size the company's like true cash flow so we could figure out like what is the debt load that we can go put on the company as part of a restructuring. And that is the actual real impactful work.

53:09Right. So I think AI is really accelerating so much of the rote work and it is so good at finding mistakes, right, where you can check your work now so much more easily, right, particularly on things on like, you know, with a lot of finance work, it's like it's a misclassification error. You're not being consistent in the way that you're classifying. You can find your errors a lot more easily and you can do just the core base analytical work so much more easily, which allows you to spend your brain on actually solving the real problem, right? Which is like, how do we grow this business? How do we get more capital?

53:42Are we using our times for the right things? I think human judgment is like more important than ever. Last one I've got for you. So you've had some very successful career pivots. Do you have any advice for someone looking to shift gears? Stay curious and work hard. I believe that when you are interested, you can learn anything. So having a growth mindset around learning and having a growth mindset around curiosity and like honestly asking people like, hey, like I'm really interested in what you're doing. Like I'm doing something different. Would you ever give me a shot? I find if you're interested in something, you have fun with it.

54:15And it's really hard to beat somebody who's having fun at something. I couldn't agree more. Wissam, this has been such a pleasure. Thank you so much. Yeah, it's been so great. It's nice to see you. Run the Numbers is a mostly media production. Yelling an intro by Fat Joe. Artwork by Meg D 'Alessandro. Show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me, a guy who feeds his dog way too much ice cream and has a history of net operating losses, lol. If you like this podcast, hit subscribe and give us five stars.

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