The Path to Unlocking Gross Margin Points | Dayton Kellenberger, CFO, Vendavo

And so we shifted how we run that to much more of a metrics based, um, focus on the numbers and then understand the story once we understand the numbers. And so it’s become a much, um, much uglier meeting in terms of, we just pull up a spreadsheet and we look at the, we look at the numbers that matter for each department, but what it’s done is it, it’s cut the fluff out and it’s cut some of the storytelling out.

And it’s really allowed us to, to tell the story through data. Um, so one of the, and to kind of get to the second part of your question, one of the areas that I focused on a lot over the last year and a half was, um, our SaaS gross margins. So, um, our software product is obviously the value driver for our organization. And every percentage point that we can unlock from a gross margin perspective adds a lot of value to the organization. But it’s a very cross-functional effort. So the costs that go into your gross margins for SaaS are gonna be your infrastructure. How much does it cost to host your product? It’s gonna be your support team. It’s gonna be your part of your customer success team. Um, and then on the top line, you’ve gotta understand your pricing model. Um, you’ve gotta understand any migrations you’re doing from legacy on-prem into the cloud.

Speaker 0 ([00:02:03]) – So it’s a very complicated metric that spans across the organization. So what we did was institute a finops practice to bring people across the organization together to make sure that, you know, we tackled three core things. The first one would be, let’s make sure that we’re selling our products correctly on the front end. So let’s make sure we fully understand what the margin implications are of the price of the software we’re selling. Cuz if we’re pricing it wrong on the front end, then nothing that we do on the backend is going to matter. We dug ourselves a hole that we can’t get out of. So that’s the first step. Um, the second one is how do we optimize the infrastructure that we support our customers with? So whether we’re on Azure or we’re on aws, or you’re on Oracle cloud, how do you manage that spend in the proper way where you’re not over purchasing for the capacity you need to support your customers where appropriate.

You’re enter, you’re entering into pre-buy agreements with an AWS or an Azure so that you can get the best possible rates, um, that’s gonna drive down the cost to deliver an individual piece of software. And then the third piece is, how are we supporting our customers? Um, you know, do we have support resources in the right parts of the world? Uh, are we optimized from a size of team and the size of our customer success team? And all of those things together combined to what is the gross margin of our product that we sell? And it’s a, it’s an effort that includes finance, it includes sales, it includes our cloud ops teams, and it includes our customer success teams. So, you know, I think for us across the board, it’s how do we, how do we make people focus more on the key metrics that matter across the org, and then how do we bring teams together to actually create action plans to improve those metrics over time?